-----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, EIYhVVegMHd6eiJjC2tKlO34XKGGMU7IZGl/068qawx8dvu2Hex6Ga1kdf3JEzxb VzyUmW33sptESnvXmgL/cw== /in/edgar/work/0000891554-00-002468/0000891554-00-002468.txt : 20001120 0000891554-00-002468.hdr.sgml : 20001120 ACCESSION NUMBER: 0000891554-00-002468 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20001117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECH LABORATORIES INC CENTRAL INDEX KEY: 0000096664 STANDARD INDUSTRIAL CLASSIFICATION: [3679 ] IRS NUMBER: 221436279 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-50158 FILM NUMBER: 772336 BUSINESS ADDRESS: STREET 1: 955 BELMONT AVE CITY: NORTH HALEDON STATE: NJ ZIP: 07508 BUSINESS PHONE: 9734275333 MAIL ADDRESS: STREET 1: TECH LABORATORIES INC STREET 2: 955 BELMONT AVE CITY: NORTH HALEDON STATE: NJ ZIP: 07508 SB-2 1 sb-2_23192.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on November 17, 2000 Registration No.: 333-82595 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------------------------------------- TECH LABORATORIES, INC. (Name of small business issuer in its charter) New Jersey 3679, 3573, 3629, and 3613 22-1436279 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification No.) organization) ----------------------------------------------------- 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333 (Address and telephone number of principal executive offices) ----------------------------------------------------- 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333 (Address of principal place or intended principal place of business) ----------------------------------------------------- Bernard M. Ciongoli, President and Chief Executive Officer Tech Laboratories, Inc. 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333 (Name, address, and telephone number of agent for service) ----------------------------------------------------- Copies to: C. Walter Stursberg, Jr., Esq. Stursberg & Veith 405 Lexington Avenue New York, New York 10174 ----------------------------------------------------- Approximate date of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the 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, as amended, check the following box. |X| 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 delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------- Proposed Proposed Maximum maximum Amount of Title of each class of Amount to Offering Price aggregate registration securities to be registered be Registered Per Share offering price(1) fee - ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock, par value $.01 per share ("Common Stock")(2) 1,321,154 $3.18(7) $4,201,269 $1,167.95 - ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (3) 412,500 $4.80 $1,980,000 $ 550.44 - ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (4) 100,000 $1.25 $ 125,000 $ 34.75 - ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (5) 100,000 $1.75 $ 175,000 $ 48.65 - ----------------------------------------------------------------------------------------------------------------------------- Shares of Common Stock (6) 75,000 $1.12 $ 84,000 $ 23.35 - ----------------------------------------------------------------------------------------------------------------------------- Total Registration $1,825.14
(1) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457. (2) Consists of shares issuable upon the conversion of convertible notes. Pursuant to the terms of the subscription agreement we are required to register 200% of the number of shares issuable upon conversion of the convertible notes. The number of shares being registered is equal to 200% of the number of shares of common stock which would be issuable if the entire note and any accrued interest were converted into common stock. Also registered hereunder are an indeterminate number of additional shares of common stock which may become issuable by virtue of anti-dilution provisions in the notes, in accoreance with Rule 416. (3) Consists of shares purchasable upon exercise of warrants issued to certain securityholders, having an exercise price of $4.80 per share. Also registered hereunder are an indeterminate number of additional shares of common stock which may become issuable by virtue of anti-dilution provisions in the warrants, in accordance with Rule 416. (4) Consists of shares purchasable upon exercise of warrants issued to certain securityholders having an exercise price of $1.25 per share. Also registered hereunder are an indeterminate number of additional shares of common stock which may become issuable by virtue of anti-dilution provisions in the warrants, in accordance with Rule 416. (5) Consists of shares purchasable upon exercise of warrants issued to certain securityholders having an exercise price of $1.75 per share. Also registered hereunder are an indeterminate number of additional shares of common stock which may become issuable by virtue of anti-dilution provisions in the warrants, in accordance with Rule 416. (6) Consists of shares purchasable upon exercise of warrants issued to certain securityholders having an exercise price of $1.12 per share. Also registered hereunder are an indeterminate number of additional shares of common stock which may become issuable by virtue of anti-dilution provisions in the warrants, in accordance with Rule 416. (7) Estimated solely for the purpose of calculating the registration fee, pursuant to Rule 457(c), based on the average of the high and low prices of the Registrant's common stock for November 13, 2000, which date is within 5 business days prior to the initial filing date of this registration statement. 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. EXPLANATORY NOTE This Registration Statement covers the registration of (i) $1,321,154 shares of common stock, $.01 par value, of Tech Laboratories, Inc., a New Jersey Corporation, issuable upon conversion of convertible notes, and (ii) 687,500 shares of common stock upon exercise of warrants. The information in this prospectus is not complete and may be changed. These may not be sold 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. SUBJECT TO COMPLETION, DATED November 17, 2000 PROSPECTUS 2,008,654 Shares TECH LABORATORIES, INC. This is on offering of 2,008,654 shares of common stock of Tech Laboratories, Inc. Of the 2,008,654 shares being offered, up to 1,321,154 may be sold upon conversion of outstanding convertible notes and up to 412,500 may be sold upon the exercise or warrants issued in connection to the convertible notes. The remaining 275,000 shares may be sold upon the exercise of warrants issued to certain selling securityholders. All of the shares are being offered by the selling security holders named in this prospectus. We will not receive any of the proceeds from the sale of the common stock, although we will receive approximately $2,364,000 if all of the warrants being registered are exercised. The selling securityholders may offer the shares from time to time through public or private transactions, at prevailing market prices, or at privately negotiated prices. Our shares of common stock trade on the OTC Bulletin Board under the symbol "TCHL." On ______ _____________, 2000, the last reported sale price of our common stock was $____ per share This investment involves certain risks. See "Risk Factors," which begins on page 2. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is November 17, 2000 PROSPECTUS SUMMARY Unless the context indicates otherwise, all references herein to "we" include Tech Labs and its wholly-owned subsidiaries, Tech Logistics, Inc. and Tech Labs Community Networks, Inc., collectively, and references to "Tech Labs", "Tech Logistics" and/or "Community Networks" shall mean each of such companies alone. You should read the entire prospectus carefully, especially the risks of investing in the common stock discussed under "Risk Factors." THE OFFERING Common Stock Offered............................2,008,654 shares of common stock Shares of Common Outstanding....................4,019,039 Use of Proceeds ................................We will not receive any proceeds from the sale of common stock by the selling security holders, although we shall receive approximately $2,364,000 if all of the warrants being registered are exercised. Common Stock Trading Symbol ....................TCHL-OB OUR BUSINESS Tech Labs manufactures and markets various electrical, electronic and telecommunications switching and distribution equipment and associated software. We also market and manufacture, under our exclusive license, an infrared perimeter intrusion and anti-terrorist detection system or "IDS". We also acquired a high-speed, telecommunications management network switching system. This switching system, the DynaTraX(TM) technology, permits users to bypass current telephone and CATV companies' "Last Mile" connections, allowing them to realize recurring revenues and to make their properties more attractive to computer users, while providing bundled digital multi-media services. We have been in business since the 1930s, and in 1947 we were incorporated in New Jersey. Our principal offices are located at 955 Belmont Avenue, North Haledon, New Jersey 07508, and our telephone number is (973) 427-5333. RISK FACTORS In addition to other matters described in this document, investors should carefully consider the following factors: Our inability to protect certain intellectual property from being copied by our competition could impair our business. We have no patent or copyright protection on our current products, other than aspects of the DynaTraX(TM) product and technology. Our ability to compete effectively with other companies will depend, in part, on our ability to maintain the proprietary nature of our technologies. Other than with regard to the DynaTraX(TM) patents, which have been issued to date only in England, we intend to rely substantially on unpatented, proprietary information and know-how. We are also presently prosecuting the patent applications filed in the United States and Europe. -2- Since we have no product liability insurance we could incur substantial expenses if product liability claims are filed against us. There is a risk that our current products may malfunction and cause loss of, or error in, data, loss of man hours, damage to, or destruction of, equipment or delays. Consequently, we, as the manufacturer of components, assemblies and devices may be subject to claims if such malfunctions or breakdowns occur. We are not aware of any past or present claims against us. While we presently do not maintain product liability insurance, we intend to obtain such coverage at the completion of this offering if such coverage can be obtained on affordable terms. We cannot predict at this time our potential liability if customers make claims against us asserting that DynatraX(TM), IDS or other new products fail to function. Since we have no insurance we could incur substantial expenses defending ourselves against a product liability claim. If we are found to be liable for any product liability claim it could could result in substantial losses to our business. -3- We manufacture and sell the IDS system under a license agreement which, if terminated, would prevent us from using technology owned by EAG in our perimeter detection system products, and would harm our business. We entered into an Amended Joint Marketing Agreement as of October 1, 1997 with Elektronik Apparatebau GmbH (EAG), W.T. Sports, Ltd. and FUA Safety Equipment, AG and a Confidentialty and Manufacfuring Agreement with the same parties and dated the same date, pursuant to which Tech Labs was granted the exclusive right to manufacture in the U.S. and market and sell in the U.S., Canada and South America the IDS products. The agreements terminate on September 30, 2007 subject to automatic renewals for successive one-year periods unless either party gives notice of non-renewal. The agreements can be terminated earlier upon a default of any material obligation. If the license is terminated, we would be unable to use EAG's technology in our perimeter detection system products. Even if the agreements remain in effect until September 30, 2007, it will be necessary at that time to negotiate a new agreement or license or acquire a suitable replacement technology. Our marketing plan to sell the DynaTraX(TM) switch technology in hospitality environments is reliant upon a joint marketing agreement which, if terminated, would hamper our growth and curtail our sales. Our hospitality software sales are greatly dependent upon a Joint Marketing Agreement we entered into on October 15, 1999 with TravelNet Technologies, Inc., pursuant to which we were granted the right to sell the "Data Valet" software system, which operates with the DynaTraX(TM) switch technology. This integrated system provides high-speed Internet and bundled digital services to business travelers and hotel guests. This agreement, which terminates on September 10, 2002, can be renewed with the mutual consent of both parties. It will be necessary at that time to negotiate a new agreement or license or acquire a suitable replacement technology. If replacement software is not available it could greatly harm our ability to sell the DynaTraX(TM) switch technology in hospitality environments. -4- Our lack of insurance on the DynaTraX(TM) product inventory could result in substantial expenses and losses if the product inventory were damaged or lost. In connection with the acquistion of the DynaTraX(TM) technology, we acquired digital switches, finished products and parts from NORDX/CDT. We do not have insurance on that inventory. Damage or destruction of some or all of the inventory by fire, theft or by acts of nature would result in substantial losses and would harm our business. Volatility of stock prices may increase the number of shares issuable upon conversion of the notes. The stock market from time to time experiences significant price and volume fluctuations, some of which are unrelated to the operating performance of particular companies. We believe that a number of factors can cause the price of our common stock to fluctuate, perhaps substantially. These factors include, among others: o Announcements of financial results and other developments relating to our business; o Changes in the general state of the economy; and o Changes in market analyst estimates and recommendations for our common stock. Significant downward fluctuations of the price of our stock may substantially increase the number of shares of common stock issuable upon conversation of outstanding notes as a result of the conversion formula, which is tied to the market price of the common stock. The issuance of additional shares of common stock upon conversion of the notes may cause significant dilution of existing shareholders' interests and exert downward pressure on the price of our common stock. Significant dilution of existing shareholders' interests may occur if we issue additional shares of common stock underlying the convertible notes. We are presently registering 1,321,154 shares of common stock which are issuable upon conversion of the notes and interest thereon. The actual number of shares of common stock issuable upon conversion of the notes may constitute a significantly greater percentage of the total outstanding shares of our common stock, as such conversion is based on a formula pegged to the market price of the common stock. The notes are convertible at a price equal to 85% of the average of the five lowest closing bid prices of the common stock during the twenty-two (22) business days immediately preceding the issuance of the notes or 85% of the five lowest bid prices during the twenty-two business days through the date of conversion of the notes, whichever is lower. The average of the five lowest closing bid prices of the company's common stock during the twenty-two (22) business days prior to issuance of the $1.5 million dollar note was $3.421125. Therefore, there is a possibility that the notes may convert to common stock at a rate which may be below the prevailing market price of the common stock at the time of conversion. The exact number of shares of common stock into which the notes may ultimately be convertible will vary over time as the result of ongoing changes in the trading price of our common stock. Decreases in the trading price of our common stock would result in increases in the number of shares of common stock issuable upon conversion of the notes. The following consequences could result: o If the market price of our common stock declines, thereby proportionately increasing the number of shares of common stock issuable upon conversion of the notes, an increasing downward pressure on the market price of the common stock might result, which is sometimes referred to as a downward "spiral" effect. o The dilution caused by conversion of the notes and sale of the underlying shares could also cause downward pressure on the market price of the common stock. o The conversion of the notes would dilute the book value and earnings per share of common stock held by our existing shareholders. -5- This prospectus contains forward-looking information. This prospectus contains forward-looking statements. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs, and assumptions. Words such as " anticipates," "expects," "intends", "plans," "believes," "seeks," "estimates" and variations of these words 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. Readers are cautioned 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 undertake no obligation to update these statements or publicly release the result of any revisions to the forward-looking statements that we may make to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. USE OF PROCEEDS We will not receive any of the proceeds from the sale of the shares of common stock owned by the selling security holders, although we will receive approximately $2,364,000 if all of the warrants being registered are exercised. All proceeds from the sale of shares of common stock owned by the selling security holders will be for the account of the selling securityholders described below. See "Selling Securityholders." -6- PRICE RANGE OF COMMON STOCK Our common stock has been trading publicly on the OTC Bulletin Board under the symbol "TCHL" since 1994. The table below sets forth the range of quarterly high and low closing sales prices for our common stock on the OTC Bulletin Board during the calendar quarters indicated. The quotations reflect inter-dealer prices, without retail mark-ups, mark-downs, or conversion, and may not represent actual transactions. TCHL COMMON STOCK
CLOSING BID CLOSING ASK --------------------- ------------------------- YEAR ENDING DECEMBER 31, 2000 HIGH LOW HIGH LOW - ----------------------------- ---- --- ---- --- First Quarter................................... $10.18 $4.18 $ 10.62 $4.68 Second Quarter.................................. 10.81 5.12 11 5.37 Third Quarter................................... 6.37 4.43 7.37 5.25 Fourth Quarter ................................. 4.75 3.125 5.0625 3.625 (through November 10, 2000) YEAR ENDING DECEMBER 31, 1999 - ----------------------------- First Quarter................................... $ 2.625 $1.0625 $ 3.0 $1.3125 Second Quarter.................................. 3.125 1.50 3.875 2.00 Third Quarter................................... 3.25 1.50 3.625 1.625 Fourth Quarter ................................. 3.87 1.00 4.12 1.25 YEAR ENDING DECEMBER 31, 1998 - ----------------------------- First Quarter................................... $ 3.125 $1.75 $ 3.375 $2.125 Second Quarter.................................. 2.6875 1.6875 3.00 2.00 Third Quarter................................... 2.1875 1.125 2.625 1.4375 Fourth Quarter.................................. 2.0625 1.25 2.625 1.50
As of November 10, 2000, there were 252 holders of record of our common stock. DIVIDEND POLICY We have never paid any cash dividends on our common stock and anticipate that, for the foreseeable future, we will continue to retain any earnings for use in the operation of our business. Payment of cash dividends in the future will depend upon our earnings, financial condition, any contractual restrictions, restrictions imposed by applicable law, capital requirements, and other factors deemed relevant by our Board of Directors. -7- CAPITALIZATION The following table sets forth our capitalization as of September 30, 2000 and has been derived from financial information appearing in the Financial Statements included in this prospectus:
Nine Months Ended September 30, 2000 ------------------------------------------------- Actual Unaudited Pro-Forma(1) Pro-Forma as Adjusted(2) -------- --------- ------------------------ Total Debt: $169,599 $2,169,599 $169,599 Stockholders' equity: Common Stock, $.01 par value; 10,000,000 shares authorized; 4,019,039 shares issued and outstanding; 11,316 shares held in treasury, Pro-Forma 6,440,193 shares, authorized and issued...... $39,379 $39,379 $63,591 Additional paid-in capital............................. $4,060,287 $4,060,287 $10,404,287 Accumulated deficit.................................... ($1,131,965) ($1,131,965) ($1,261,965) Total stockholders' equity (deficiency)................ $2,967,701 $2,967,701 $9,205,913 Total Capitalization................................... $3,137,300 $5,137,300 $9,375,512
(1) $2,000,000 Convertible Debenture issued in the fourth quarter of 2000. (2) Convertible Debenture redeemed and existing warrants exercised one year hence. SELECTED FINANCIAL DATA The financial data included in the following table has been derived from our unaudited financial statements and should be read together with our unaudited financial statements and related notes.
Years Ended Nine Months Ended December 31, September 30, --------------------------------------- --------------------------------------- 1997 1998 1999 1998 1999 2000 ------- -------- -------- --------- -------- --------- Unaudited --------- Statement of Operations Data: Sales 444,322 $552,486 $689,190 $341,352 $535,160 $849,106 Cost of Sales 446,457 386,425 472,790 317,702 374,612 372,967 ------- -------- -------- --------- -------- -------- Gross Profit (2,135) 166,061 216,400 23,650 160,548 476,139 Operating Expenses General and administrative 257,826 311,716 846,174 306,352 548,384 507,030 Depreciation and amortization 7,278 18,133 15,000 -- -- -- ------- -------- -------- --------- -------- -------- Income (loss) from operations (267,239) (163,788) (644,774) (282,702) (387,836) (30,891) Other income--Interest 166 1,654 1,150 83 -0- 34,796 Interest expense 6,996 6,970 11,305 6,970 -0- 5,465 ------- -------- -------- --------- -------- -------- Income (loss) before provision for income taxes (274,069) (169,104) (654,929) (289,589) (387,836) (1,560) Provision for income taxes -0- -0- -0- -0- -0- -0- Net income (loss) (274,069) (169,104) (654,929) (289,589) (387,836) (1,560) Net income (loss) per share ($0.18) ($0.06) ($0.18) ($0.10) ($0.12) -0-
Years Ended Nine Months Ended December 31, September 30, -------------------------------------- ---------------------------------------- 1997 1998 1999 1998 1999 2000 ---- ---- ---- ---- ---- --------- Balance Sheet Data: Unaudited - ------------------- --------- Total assets $609,526 $1,018,597 $1,258,172 $431,838 $1,341,420 $3,137,30 Working Capital 405,548 851,540 566,966 315,339 878,255 2,778,489 Current Portion of long-term debt 34,445 32,742 28,559 32,742 30,293 25,821 Long-term debt (less current portion) -0- -0- -0- -0- -0- -0- Shareholders' equity $429,615 $ 863,727 $722,305 $327,526 $1,000,791 $2,967,701
-8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We were incorporated in 1947 as a New Jersey corporation. Our focus has historically been the design, manufacture, and sale of rotary switches. Switches have been a significant part of our revenue for five decades. In 1995, to augment revenues, we sought business in transformers and contract manufacturing. In 1998, we made a shift to new product development. In 1998, we also made our first sales of the IDS product, and in April of 1999, we completed the acquisition of the DynaTraX(TM) switch and technology. We will continue to focus on IDS and DynaTraX(TM) sales and development of additional products using these technologies. The following table sets forth the components of our revenues for each of our major business activities in 1997, 1998, 1999, and nine months ended September 30, 1999 and 2000 and their approximate percentage contribution to revenues for the period indicated:
PRODUCT TYPE 1997 % of Revenue 1998 % of Revenue 1999 % of Revenue - ------------ ---- ------------ ---- ------------ ---- ------------ Switches $199,324 44.8% $166,550 30.1% $269,739 39.1% IDS Sensors 0 0 254,900 46.2% 298,853 43.4% Transformers/Coils 53,595 12.1% 50,515 9.1% 46,786 6.8% Contract Manufacturing 191,404 43.1% 80,520 14.6% 73,812 10.7% -------- ------ -------- ------ -------- ------ Totals $444,323 100.0% $552,485 100.0% $689,190 100.0% ======== ====== ======== ====== ======== ====== Nine Months Ended September 30, ---------------------------------------------------------- 2000 PRODUCT TYPE 1999 % of Revenue (unaudited) % of Revenue - ------------ -------- ------------ --------- ------------ Switches $256,877 47.5 $308,666 36.4% IDS Sensors 155,731 29.6 399,646 47.1% Transformers/Coils 73,852 13.8 26.498 3.1% Contract Manufacturing 48,700 9.1 114,296 13.4% -------- ------- -------- ------ Totals $535,160 100.0% $849,106 100.0% ======== ======= ======== ======
There has been a significant decrease in sales of rotary switches and contract manufacturing, due to a shift to new product development and sales. There were no sales of the new IDS sensors in 1997. In 1998 and 1999 sales of the IDS sensors were $254,900 and $298,853. This increase is continuing in the year 2000. The following table sets forth the percentages of gross profit for each of our major business activities in 1997, 1998, 1999 and the nine months ended September 30, 1999 and 2000.
Nine Months ended ----------------------- September 30, Net Net 2000 Net PRODUCT TYPE 1997 1998 Change 1998 1999 Change 1999 (unaudited) Change - ------------ ---- ---- ------ ---- ---- ------ ---- ---- ------ Rotary Switches 44.2% 45.0% 0.8% 45.0% 45.0% -0- 45.0% 55.0 10.0% IDS Sensors -0- 52.0% 52.0% 52.0% 54.6% 2.6% 54.6% 69.0% 14.4% Transformers/Coils 22.7% 25.0% 2.3% 25.0% 25.0% -0- 25.0% 25.0% -0- Contract Manufacturing 20.0% 22.8% 2.8% 22.8% 22.8% -0- 22.8% 22.8% -0- Unallocated company Expenses, Including Physical Inventory Adjustments and Factory Overhead (31.2%) (13.1%) 18.1% (13.1%) (14.0%) (0.9%) (13.1%) (0.2) 12.9% Total Gross Profit % (0.5%) 30.1% 30.6% 30.1% 31.4% 1.3% 30.0% 56.1% 26.1%
We have begun to shift out of the subcontracting and transformer business which provides low gross profit margins, for higher gross profit margin sales of IDS and other new products. While rotary switches produce high gross profits, demand for rotary switches is low. We have gradually shifted our product offering from less profitable to more profitable proprietary products. -9- Results of Operations Nine Months Ended September 30, 2000, Compared to Nine Months Ended September 30, 1999. Sales were $849,106 for the nine months ended September 30, 2000 as compared to $535,160 for the similar period of 1999. This increase was due to sales of our IDS Sensor Products to the Department of Energy plus an increase in Dynatrax Sales. Cost of sales of $372,967 for the first nine months of the year 2000 has decreased by $1,645 compared to the same period for 1999, primarily due to a shift in sales to our more profitable IDS Senors and Dynatrax Products. Selling, general and administrative expenses decreased by $41,354 compared to the same period in 1999 due to non-recurring stock related expenses incurred to support our self-underwritten public offering in the second quarter of 1999, which was partially offset by increased marketing efforts of our more profitable product lines. Income from operations increased by $386,276 compared to a loss of [$387,836] for the prior period as a direct result of increased sales plus the elimination of non-recurring stock related expenses. Nine Months Ended September 30, 2000, Compared to Year Ended December 31, 1999. Significant Changes In the first nine months of 2000, Tech Labs continued to reverse several negative trends. Sales trends improved substantially due to the full intregration of the DynaTraX product line into Tech Labs' sales and marketing efforts plus increased IDS Sensor sales. Cash Flow for the first nine months of 2000 was positive at $1,299,395 as a result of the completion of Tech Labs' self-underwritten public offering on May 2, 2000. 1999 Compared to 1998 Sales were $689,190 for 1999 as compared to $552,485 for the year ended 1998. The increase was due to growth in switch and sensor sales. We will continue efforts in the future to increase sales of these high margin products. Cost of sales of $472,790 for the year ended 1999 compared to $386,425 for the year ended 1998 increased due to sales of IDS sensors to the Department of Energy's Los Alamos facility and increased switch sales. Selling, general, and administrative expenses increased by $531,325 in 1999 as compared to the prior period in 1998 which resulted from higher than normal expenses in 1999 due to professional fees associated with the acquisition of DynaTraX(TM), and the fees incurred in connection with Tech Labs' self-underwritten public offering. Losses from operations of ($654,929) in 1999 increased by $485,825 compared to losses of ($169,104) for the prior period as a direct result of higher administrative expenses, due to the non-recurring DynaTraX(TM) acquisition fees and legal fees and self underwritten public offering legal fees. 1998 Compared to 1997. Sales increased 24% from $444,322 in 1997 to $552,486 in 1998. This was due to an increase in sales of the Intrusion Detection System (IDS). We will continue our efforts to grow high margin IDS sales. Cost of sales decreased 16% from $446,457 in 1997 to $386,425 in 1998 due to an increase in sales of lower cost IDS products, which have a higher gross profit than historical products. Selling, general and administrative expenses, including depreciation, increased 24% from $265,104 in 1997 to $329,849 in 1998 due to increased sales efforts, engineering, testing, and promotion of new product introductions, as well as consulting, legal, and other expenses in connection with the acquisition of the DynaTraX(TM) product line. Income (loss) from operations decreased 39% from a loss of ($267,239) in 1997 to a loss of ($163,788) in 1998 due to higher gross profit margins on new products. Interest expense decreased negligibly from $6,996 in 1997 to $6,970 in 1998. Liquidity and Capital Resources. During the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999 we have had difficulty meeting our working capital requirements, which was a result of lower sales, limited marketing efforts, and continued losses from operations. During the years ended December 31, 1997 and 1998, we completed sales of our common stock which raised approximately $407,000 in 1997 and $603,716 in 1998. During calendar year 1999 we raised an additional $250,000 for the acquisition of the DynaTraX(TM) assets and an additional $200,000 for working capital. On October 25, 1999 Tech Labs borrowed $50,000 at 10% interest per year pursuant to a promissory note and security agreement with the lender. Under the terms of the security agreement, Tech Labs assigned a security interest in two of Tech Labs' purchase orders totaling $543,000. Under the terms of the promissory note, the $50,000 was to be repaid in full no later than December 24, 1999. The Note was extended to a due date of December 31, 2000 at an interest rate of 14%. In addition, Tech Labs entered into three unsecured promissory notes, as described below, in the amount of $50,000 each, at an interest rate of 10%: o Note 1. Executed December 13, 1999 and is due February 13, 2000 o Note 2. Executed December 15, 1999 and is due February 15, 2000 o Note 3. Executed December 20, 1999 and is due February 20, 2000 During 1998 we sold our first IDS products to the U.S. government Los Alamos facility. Continued sales will, however, be dependent upon sustained marketing efforts. Because sales from our historical lines of products have not in the past, and are not in the future expected to generate sufficient revenue to support our product development and marketing and sales efforts for our DynaTraX(TM) and IDS products, we will be required to meet our capital needs to finance our business plan through the sale of our shares of common stock in public and private securities transactions and/or through credit facilities. In the event we are unable to raise or borrow sufficient funds, we will be required to curtail the implementation of our business plan. -10- BUSINESS General Tech Laboratories, Inc. manufactures and sells various electrical and electronic components. During 1999, we completed the acquisition of the DynaTraX(TM) high-speed digital switch matrix system, an electronic switching unit. We believe that the acquisition of the DynaTraX(TM) technology will enable us to become a provider of multi-media digital network distribution and management equipment for use in campus and building facilities. This equipment manages voice, video and data transmissions on a network. In addition, during the last two and a half years, through our subsidiary, Tech Logistics, Inc., we have been manufacturing and marketing under our exclusive license, an infrared perimeter intrusion and anti-terrorist detection system or "IDS." The IDS was originally designed for military applications, and we currently market this product to government agencies and private industry for use in nuclear, industrial and institutional installations. Historical Business We also manufacture and sell standard and customized transformers, test equipment and rotary switches, the latter of which products permits an electrical signal to be diverted from point A to point B. In addition, we act as a contract manufacturer for other companies and produce on an OEM basis electronic and electrical assemblies, printed circuit board assemblies, cable and harness assemblies and specialized electronic equipment. Approximately 15% of our products are manufactured for military applications. We sell our switch, transformer and test equipment products in the electronics and electrical industries, primarily as a contract manufacturer for other companies or for inclusion in OEM products. We market our products in these industries in the United States. This is a mature market. Competition is on the basis of price and service. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. We intend to market our historical products over the Internet, as well as through our distribution and outside sales agents. Our website is currently on-line. Our website address is www.techlabsinc.com. -11- The DynaTraX(TM) Asset Acquisition - Material Terms of Purchase Agreement On April 27, 1999, pursuant to an asset acquisition agreement with NORDX/CDT, Inc., we completed the purchase of the DynaTraX(TM) product, for a purchase price of $500,000. The entire amount of the purchase price was paid upon closing. In connection with the acquisition of DynaTraX(TM) technology, we acquired certain inventory, patents and patent applications, and other equipment related to the DynaTraX(TM) product. Under the agreement, NORDX/CDT, Inc. retained a limited amount of inventory to service customers who had purchased the technology prior to the discontinuance of the DynaTraX(TM) business by NORDX/CDT, Inc. Industry DynaTraX(TM) Networking Management and Maintenance Technology We believe that there is a rapidly growing marketplace for "digital" multi-media, including Internet, high-speed data, digital voice and video, and, information equipment and systems. We intend to use our DynaTraX(TM) technology to produce a line of standard, digital telecommunication distribution and management equipment that OEM's and/or Value-Added-Resellers will be able to use as a platform they can custom configure, through software, to supply a variety of industry and customer-specific applications and functions. We entered into an agreement in October 1999 with TravelNet Technologies, Inc. to sell the "Data Valet" software system which runs on a Dynatrax(TM) distributing switch system. This system provides high-speed, bundled, multi-media Internet and video services to business travelers and hotel guests. This integrated system also monitors and bills guests for services used. The agreement expires on September 10, 2002. The TravelNet Agreement provides that Tech Labs and TravelNet will jointly o promote DynaTraX(TM) and the Data Valet products in trade shows; o share the costs of trade show participation; o select and pay for retaining an advertising agency; o training of sales personnel; and o share information, literature, sales projections, sales leads and technical support. We intend to build industry recognition for producing private, customer-premise (community, commercial, educational and hospitality complexes, and residential buildings), high-speed Internet, Long Distance, Intranet information distribution and management switching systems. We believe the future trend in communications is reselling local loop services, which is the service connection between the local phone company's local office and the telephone customer, using new digital transmission technology and equipment to get around the present "de facto monopoly" telephone and CATV companies maintain over local connection and distribution services. The DynaTraX(TM) product, we believe, offers a faster switch and a much larger port size than any competing product and is not limited to a specific type of network as with some competing products. Port size refers to the number of network connections available for user equipment and for network distribution equipment. DynaTraX(TM) is proposed to be sold in the multi-media digital network distribution and management equipment industry. The growth in digital networks is clear as is the cost in supporting and maintaining these networks. We initially intend to market the DynaTraX(TM) product in the eastern portion of the United States with expansion to other markets over time. Our goal is to have our DynaTraX(TM) technology play a large role in helping developers, builders and/or managers of private residential communities and commercial, industrial, educational and hospitality complexes establish facilities that will distribute and manage high-speed digital Internet, Long Distance and CATV services. This technology permits these users to bypass current telephone and CATV companies' "Last Mile" connection service. "Last Mile" connection service is the interconnection between a wide range of computing resources to "Wide Area Network", and may allow users to increase rents and to make their properties more attractive to tenants. In making progress towards that objective, we, through a subsidiary, in June, 2000 acquired three contracts to provide residential bundled communication services to property developments in Florida from M3Communications, Inc. Each of the contracts is for a 10 year term. Two of the contracts are with NTS in Orlando, Florida, representing 357 existing apartment units, and the third contract is with Premier Properties in Ft. Myers, Florida, representing 300 new apartments projected to be completed within the next eighteen months. Tech Labs Community Networks, Inc., a wholly-owned subsidiary of Tech Labs, acquired the contracts through its subsidiary, Tech Labs Community Networks of the Southeast, Inc. As partial consideration for the sale, M3 was given a 20% stake in Tech Labs Community Netorks of the Southeast. Tech Labs Community Networks retains the remaining 80% of Southeast's outstanding shares. M3 will also receive 20% of the operating income derived from the three contracts and any contracts signed by Southeast within 120 days of June 23, 2000. Tech Labs agreed to provide all residential broadband-bundled servies in Virginia, South Carolina, Kentucky, Tennessee, Georgia, Louisiana, Mississippi and Florida through Southeast. We formed Tech Labs Community Networks, Inc. to be the holding company of regionally oriented subsidiaries which would provide residential bundled communication services to property developments. Tech Labs Community Networks of the South East, Inc. focuses on the southeastern region of the United States. No other subsidiaries of Tech Labs Community Networks have been formed to date. There are at least four companies that have products that compete with the DynaTraX(TM) product. However, we believe none of these competitors offer a product with all of the features or capabilities of DynaTraX(TM). -12- We expect that competition in the sale of our DynaTraX(TM) product will be on the basis of price, features, service and technical support. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. Competition for network management products comes from several different sources. One source of competition is the designated employees of large organizations which have been hired to manage and maintain their internal networks. However, we believe the need to reduce costs through the implementation of automated cost saving technologies such as the DynaTraX(TM) technology will provide Tech Labs with market opportunities. Another group of competitors which produces products to manage and maintain the network physical layer consists of NHC, RIT and Cyteck. Of these three companies, NHC is the only one that offers a product comparable to DynaTrax(TM), but which is not as fast as DynaTraX(TM). In addition, V-LAN switching, which is a technology utilized by a number of companies, can be regarded as a competing technology. However, V-LAN switching is limited to a specific type of network, i.e. Ethernet, and not able to support many tasks which our DynaTraX(TM) technology is designed to complete. These tasks are: o rearranging network physical layer connections e.g.s moves, adds and changes of equipment such as computer terminals; fax machines; and printers; o testing circuits; o managing and mainatining end-to-end network configuration, which is the connection between different points on a network from the telecommumunications closet to the user outlet; and o maintaining asset inventory records. We regard V-LAN as complementary to DynaTraX(TM) circuit switching since they can work together to provide a more comprehensive network management/maintenance solution. The four competitors all have greater financial and other resources and currently account for substantially all of the existing market. Although we believe that the DynaTraX(TM) technology will serve as the basis for new products in the area of multi-media, digital network distribution and management equipment for use in campus and building facilities, our ability to successfully market our products will depend upon several factors including, among others: o The development of an effective marketing and distribution network; o The acceptance of our products by potential users; and o Our ability to support existing products and develop and support new products that are compatible with other systems in use by potential customers and provide useful features that are user friendly. In the past we have experienced, and we are likely to experience in the future, delays in the development and introduction of products. We cannot assure you that we will keep pace with the rapid rate of change in security and network switching systems research, or that our new products will adequately meet the requirements of the marketplace or achieve market acceptance. Infrared Intrusion Detection System or "IDS" In April 1997, we formed Tech Logistics, Inc., a joint venture subsidiary owned at that time 80% by Tech Labs and 20% by Carmine O. Pellosie, Jr., a director of our company and president of International Logistic, Inc., a privately owned company that distributes police, security, safety and communication security devices. In May 1998, we acquired Mr. Pellosie's interest in Tech Logistics. The IDS, which is an active infrared sensor system able to detect intrusions by humans or vehicles into protected areas, was originally designed for military applications. We have recently begun marketing IDS to government agencies and private industry for use in nuclear, industrial, and institutional installations. We have also begun to manufacture and market products currently sold by International Logistics Inc., as well as new security, police training, bomb detection and disposal equipment, anti-terrorism countermeasures and lie detection devices. New devices are intended to include hand-held letter bomb detectors, hand-held weapons detectors, video surveillance equipment as well as integrated audio-visual surveillance vehicles for government and police use. We have entered into an agreement dated effective as of October 1, 1997 with EAG, W.T. Sports, Ltd. and FUA Safety Equipment. Under the terms of the agreement we were granted an exclusive right until September 30, 2007 to manufacture and sell in the U.S., Canada and South America the IDS products. The agreement provides that until March 31, 2001 gross pre-tax profits will be shared 70% to Tech Labs and 30% to FUA. From April 1, 2001 until September 30, 2007 the gross pre-tax profits in excess of 16% will be shared 70% to Tech Labs and 30% to FUA. We will also pay FUA a royalty of 5% of the cost of any IDS products we manufacture and sell. We also intend to market metal detection equipment manufactured by EAG for use in security and industrial applications, such as walk-through metal detectors and hand-held metal detectors. We are marketing our IDS product to the security and anti-terrorist industry. We believe this is a growing industry and that terrorist incidents and security breaches serve to increase the demand for our products. We have recently completed the sale of an IDS to Los Alamos National -13- Laboratories. This industry has a number of different competing products and technologies. Competition in the industry is partly based on price and partly on other factors such as effectiveness of a product in the field, acceptable levels of false alarms for a given application and service. We are marketing the IDS product for global distribution. We have a number of competitors for the IDS products offering competitive technology, many of whom have greater financial and other resources. We have received approval for the IDS from the U.S. Air Force for inclusion in their Tactical Automated Security System program, which is a $500 million program to thwart enemy attacks on critical military installations throughout the world. Subsequent to this approval, Tech Labs has received a blanket order to provide 50 IDS systems to the U.S. Air Force. Tech Labs has as of the date of this prospectus shipped 12 systems under its blanket order to the Air Force prime contractor. Pricing of our products is based upon obtaining a margin above cost of production. The margin we will accept varies with quantity and the channels of distribution. Marketing Strategies Marketing. We plan to implement a three-pronged marketing program consisting of: o Industry announcements and presentations through business and industry trade groups; o Establishing relationships with several industry recommenders and specifiers, who are consultants and engineering companies to help present our cable management and network physical layer solutions to the end-users and their contract management or system integrators; and o A promotional campaign of ads, mailings, and on-line Web site media, targeted at the end-user communications managers, their consultants and advisers. Initially, we will focus on the communication/computer centers in the eastern part of the United States. We plan to divide this area into four sales regions: o New England states; o New York metropolitan area; o Mid-Atlantic/Washington DC area; and o South East Coast states. We will quickly set up several regional representatives, sales agents, and/or certified value added resellers in each of the four regions. Our plan is to have one representative and, initially, up to two VARs for each region. Whenever possible, we plan to use former NORDX/CDT trained sales agents and certified VARs. Sales representatives will be commissioned sales agents. VARs will be system integrators who will purchase DynaTraX(TM) products at a volume based discount price for resale as part of a turn-key service in which the system integrator designs the system, purchases the component products and installs and maintains the system. We also plan to expand on the initial program by opening up additional sales areas in the country and overseas. We contemplate doing this by adding regional representatives or agents, or through current VAR organizations that have a national presence. -14- In the established East Coast area, we intend to set up three regional sales/service centers: o Massachusetts; o Washington, DC; and o Florida We will repeat the process in the other areas as they become established. We plan to use our sales/service centers to introduce new, enhanced versions of the DynaTraX(TM) system and to provide territory customer support services. We also plan to set up a separate marketing campaign and sales operations to build markets for our expanded high-speed, customer-premise DynaTraX(TM) gateway networking switch. In addition, working with VARs, we will focus on providing turn-key, private customer-premise digital gateway exchange networking systems. We will target real estate developers, builders and/or owners of private communities, commercial community retail complexes and shared rental buildings to enable them to control and resell Internet, long distance, CATV, and building automation information services going into and out of their private facilities. Source of Supply Current inventory component purchases for all our products are made from OEMs, brokers, and other vendors. We typically have more than a single source of supply for each part, component, or service, but from time to time we may utilize a single supplier for a particular part or component. During the year ended December 31, 1999, Wiggins Plastics was our largest supplier with 7.4% of our overall inventory purchases. These purchases were primarily used in the manufacture of electromechanical switches. During the year ended December 31, 1998, Wiggins Plastics accounted for 14.2% of our supply of inventory. We have no long-term agreements with any of our suppliers. Order Backlog The backlog of written firm orders for our products and services as of September 30, 2000 and December 31, 1999, was as follows: As of December 31, 1999: $742,765 As of September 30, 2000: $443,737 Patents In connection with our acquisition of the DynaTraX(TM) assets, we acquired certain patents and pending patent applications. Four patents have been granted in Great Britain, which are listed below: o Patent title: User Interface for Local Area Network. This patent covers technology which allows communication between the user and the equipment controlling the network. This patent expires in 2013. o Patent title: Token Ring. This patent covers technology which transmits information between devices on a network. This patent expires in 2013. o Patent title: Half Duplex Circuit for Local Area Network. This patent covers technology which allows one-way communication either to or from the Local Area Network. This patent expires in 2013. o Patent title: Matrix Switch Arrangement. This patent covers technology which is a switch that can either connect or disconnect one or more devices on a network. This patent expires 2015. We also have patents pending in the United States and in the European Common Market. -15- Employees As of November 10, 2000, we had 16 full-time employees, including our officers, seven of whom were engaged in manufacturing, one in repair services, one in administration and financial control, two in engineering and research and development, and two in marketing and sales, and three in management. Facilities; Manufacturing Our corporate headquarters and manufacturing facility is located in North Haledon, New Jersey. Our primary manufacturing and office facility is a one-story building that is adequate for our current needs. We lease this facility of 8,000 square feet, from a non-affiliated person, under a lease that ends in May, 2001. The annual base rent is $48,000 and includes property taxes and other adjustments. We believe our premises are adequate for our current needs and that if and when additional space is required, it would be available on acceptable terms. We are an integrated manufacturer and, accordingly, except for plastic moldings and extrusions, produce nearly all major subassemblies and components of our devices from raw materials. We purchase certain components from outside sources and maintain an in-house, light machine shop allowing fabrication of a variety of metal parts and castings, complete tool room for making and repairing dies, a stamping shop and an assembly shop with light assembly presses. Our test lab checks and tests our products at various stages of assembly and each finished product undergoes a complete test prior to shipment. We anticipate that we will either manufacture any new products ourselves or subcontract their manufacture, in whole or in part, to others. We believe that personnel, equipment, and/or subcontractors will be readily available as and when needed. We offer warranties on all our current products, including parts and labor for one year. We have limited research and development facilities and currently employ one engineer. Litigation We are involved in a lawsuit arising from a letter of intent relating to a small potential transaction we did not complete because we believed there were misrepresentations made to us. We believe that the outcome is likely to be favorable, but that our maximum liability if we do not prevail would be $30,000. The suit is pending in the Superior Court of New Jersey, Law Division, Passaic County. -16- MANAGEMENT Directors, Executive Officers, and Key Consultants Name Age Title - ---- --- ----- Bernard M. Ciongoli 53 President, Treasurer, and Director Earl M. Bjorndal 48 Vice President and Director Carmine O. Pellosie, Jr. 57 Secretary and Director Salvatore Grisafi 70 Director Each director is elected for a period of one year and until his successor is duly elected by shareholders and qualified. Officers serve at the will of the board of directors. Bernard M. Ciongoli became our president and a director in late 1992, and became Treasurer in 1998. From 1990 through 1991 he served as president of HyTech Labs, a company engaged in sales and servicing of electronic test equipment. During the years of 1987 to 1990, he acted as the principal owner and President of Bernco Developers, a real estate developer. Mr. Ciongoli holds a degree in electronic engineering from Paterson Institute of Technology. Earl M. Bjorndal has been with us in various capacities since 1981. He has been a director since 1985, and became a vice president in 1992. He is a graduate of the New Jersey Institute of Technology with both bachelor's and master's degrees in industrial engineering. Carmine O. Pellosie, Jr. has been a director since the formation of Tech Logistics, Inc. in 1997 and has been our secretary since April 1999. Since January 1, 1999, he has been the Controller of the Passaic County Department of Health and Human Services. Prior to January 1999, he was, for more than five years, president of International Logistics, Inc. Salvatore Grisafi, 70, is president of MPX Network Solutions, a privately held telecommunications/networking business development and marketing consulting company. Mr. Grisafi has served as a consultant to the Company since 1998, and assisted the Company in the acquisition of the DynaTrax(TM) technology from NORDX/CDT and in identifying other opportunities and business strategies. Mr. Grisafi is a graduate of the New York Institute of Technology. Tech Labs' success will depend to a large extent upon the continued efforts of Bernard M. Ciongoli, our president and chief executive officer. Mr. Ciongoli has an intricate understanding of Tech Labs, its business operations and the technology underlying its products. It would be very difficult for Tech Labs to replace Mr. Ciongoli, and accordingly the loss of his services would be detrimental to our operations. We do, however, maintain key man life insurance on Mr. Ciongoli to compensate for any such loss, and have an employment agreement with him. Expansion of our business may require additional managers and employees with industry experience. In general, only highly qualified managers have the necessary skills to develop and market our products and provide our services. Competition for skilled management personnel in the industry is intense, which may make it more difficult and expensive to attract and retain qualified managers and employees. Expansion of our business will likely also require additional non-employee board members with business and industry experience. We do not, however, have directors' and officers' liability insurance, which may limit our ability to attract qualified non-employee board members. Executive Compensation The following table summarizes the compensation paid to or earned by our president. No other officer has received compensation in excess of $100,000 in any recent fiscal year. -17- Summary Compensation Table
Long-Term Annual Compensation Compensation ----------------------------------- ------------- Shares of Common Stock Issuable Upon Name and 1999 Exercise of Principal Position Year Salary($) Bonus($) Options ------------------ ---- --------- -------- ------- Bernard M. Ciongoli 1999 $125,000 0 0 President, Treasurer 1998 $125,000 0 300,000 1997 $125,000 0 0
No options have been granted in 1999 or in 2000 to any employee of Tech Labs. We have a five (5) year employment contract with Mr. Ciongoli that commenced October 1, 1998, and was amended June 18, 1999. Mr. Ciongoli is currently compensated at the base salary rate of $125,000 per annum. Mr. Ciongoli is also entitled to receive two (2%) percent of our sales in excess of $1,000,000 during any year he is employed by us. In addition, Mr. Ciongoli was also granted an option exercisable for five (5) years from date of grant to purchase 300,000 shares of stock at $.50 per share, such option to vest in increments of 100,000 shares per annum on each anniversary date of the agreement commencing October 1, 1998. The agreement is automatically renewed for one (1) year unless either party terminates the agreement in writing at least 180 days prior to the expiration of the term or of any renewal period. In 1996 we granted to Mr. Ciongoli an option to purchase 100,000 shares of common stock exercisable for five (5) years at $.50 per share under our stock option plan. -18- We do not have employment agreements with any other named executive officers. Our directors are not presently compensated. Consultants We have entered into a consulting agreement with MPX Network Solutions, Inc. The agreement expires on March 14, 2001, and provides that: o MPX will provide consulting services in the areas of marketing, customer relations and strategic and product development planning, particularly with regard to communications products; o MPX will receive an annual fee of $52,000 and commissions on sales of telecommunications products during the term of the agreement ranging from 3% of the first $1,000,000 of the net sale prices to 1/2% of the net sale prices over $4,000,000, and o MPX will also receive 50,000 shares of common stock and will be issued options to purchase up to 50,000 shares of common stock, at a purchase price of $1.25 per share, depending on net sales of telecommunications products during the initial term and the extension term of the agreement. These services will be provided on an as needed basis, primarily by MPX's president, Mr. Sal Grisafi. We have also entered into a consulting agreement with Scott Coby. Under the terms of the agreement, the consultant will provide certain marketing and financial services. In consideration for entering into the agreement, which has an initial term of two years, we issued to the consultant a warrant to purchase 50,000 shares of common stock at $1.85 per share exercisable for five (5) years. We issued an additional warrant to Scott Coby to purchase up to 200,000 shares of common stock at $3.50 per share exercisable for five (5) years. This warrant vests in increments of 25,000 warrants for every $250,000 of sales of Tech Lab's products to purchasers obtained by consultant within the initial two (2) year term of the consulting agreement with Mr. Coby. The shares underlying the warrants have certain registration rights. We have also entered into a consulting agreement with Barry Bendett. Under the terms of the agreement the consultant will provide certain business develpment services, including but not limited to, expanding the customer base, financial planning, corporate structuring and marketing matters. In consideration for entering into the agreement, which has an initial term of two (2) years, we issued to the consultant an option to purchase 100,000 shares of common stock at $4.00 per share exercisable for three (3) years. Unless the agreement is earlier terminated, we shall also issue to the consultant (i) 65,000 shares of common stock for services to be performed through January 15, 2001, (ii) 35,000 shares for services to be performed through April 15, 2001, (iii) 35,000 shares for services to be performed through July 15, 2001, and (iv) 35,000 shares for services to be performed through October 15, 2001. Stock Option Plans On December 11, 1996, the board of directors adopted a stock option plan for officers, directors, and other key employees. Options issued pursuant to the stock option plan to qualified key employees are meant to qualify as incentive stock options within the meaning of Section 422A of the Internal Revenue Code. A total of 450,000 shares were set aside for this purpose, and options for an aggregate of 190,000 shares have been granted at an exercise price of $.50 per share. The 1996 Plan is administered by a committee appointed by the board of directors, which is comprised of two or more members of the board. The committee's interpretation and construction of the stock option plan is final unless otherwise determined by the board. Options granted under the 1996 Plan shall have an option price not less than 100% of the fair market value of the shares of Tech Labs' common stock on the date of the granting of the option, or 110% of the fair market value for stockholders who, at the time of grant, posses more than 10% of the total voting power of all classes of stock. If the aggregate fair market value of the shares of stock, determined as of the date of grant, during any calendar year exceeds $100,000 then only the first $100,000 of such shares exercised will be treated as incentive stock options. Any option must be granted within 10 years of the date the plan was adopted or approved by the shareholders, whichever is earlier. The option, by its terms, must be exercisable within 10 years of the date it is granted. If, however, options are granted to an optionee who, at the time of grant, posseses more than 10% of the total voting power of all classes of stock, the options granted shall be exercisable no more than 5 years from the date of grant. Options generally may be exercised only if the optionee remains continuously associated with Tech Labs from the date of grant to the date of exercise. However, options may be exercised upon termination of employment or upon death of any employee within certain specified time periods. -19- In May 2000 the board of directors adopted two additional stock option plans, an incentive stock option plan and a non-employee director plan. Both plans however failed to generate enough votes at the Annual Meeting of Shareholders held on August 10, 2000 to approve their adoption. In November 2000 the board of directors adopted the November 2000 Incentive Stock Option Plan and the November 2000 Non-employee Director Plan. Both plans will be submitted to the shareholders for their approval at a Special Meeting of the Shareholders tentatively scheduled for January of 2001. The November 2000 Employee Plan authorizes the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code for the purchase of an aggregate of 150,000 shares (subject to adjustment for stock splits and similar capital changes) of common stock to employees of Tech Labs. By adopting the 2000 Employee Plan, the board belives that Tech Labs will be better able to attract, motivate and retain as employees people upon whose judgment and special skills the success of Tech Labs in large measure depends. The November 2000 Employee Plan will be administered by the 2000 Employee Plan Committee of the board of directors, which will be comprised of one or more of the independent members of the board. The Committee can make such rules and regulations and establish procedures for the administration of the 2000 Employee Plan as it deems appropriate. The exercise price of an incentive stock option must be at the fair market value of Tech Labs' common stock on the date of grant or 110% of the fair market value for shareholders who, at the time the option is granted, own more than 10% of the total combined classes of stock of Tech Labs or any subsidiary. No employees may exercise more than $100,000 in options held by them in any year. No option may have a term of more than ten years, or five years for 10% or greater shareholders. Options generally may be exercised only if the option holder remains continuously associated with Tech Labs or a subsidiary from the date of grant to the date of exercise. However, options may be exercised upon termination of employment or upon death or disability of any employee within certain specified periods. The November 2000 Non-employee Director Plan was adopted in order to link the personal interests of non-employee directors to the long-term financial success of Tech Labs. The total number of shares for which options may be granted from time to time under the plan is 100,000 shares. The plan will be administered by a committee of directors who are not eligible to participate in the plan. Options become exercisable with respect to such shares granted on the date on which the option was granted, so long as the optionee remains an eligible director. No option may be exercised more than five years after the date on which it is granted. The number of shares available for options, the number of shares subject to outstanding options and their exercise prices will be adjusted for changes in outstanding shares such as stock splits and combinations of shares. Shares purchased upon exercise of options, in whole or in part, must be paid for in cash or by means of unrestricted shares of common stock or any combinations thereof. CERTAIN TRANSACTIONS The following information describes certain transactions between Tech Labs and certain affiliated parties. Future transactions, if any, must be approved by the board of directors. In March, 1999, we entered in to a consulting agreement with MPX Network Solutions, Inc. Sal Grisafi is the president of MPX and a director of Tech Labs'. See "Management-Consultants." -20- PRINCIPAL STOCKHOLDERS The following table describes, as the date of this prospectus, the beneficial ownership of our common stock by: o persons known to us to own more than 5% of such stock, and o the ownership of common stock by our directors, and by all officers and directors as a group. % of Shares Number of Assuming Conversion Shares Owned of Selling Securityholders Name Beneficially Note and Warrants** - ---- ------------- -------------------------- Bernard M. Ciongoli 920,000 20.81% Earl Bjorndal 248,344 6.10% Carmine O. Pellosie, Jr. 80,000 1.98% Salvatore Grisafi 50,000* 1.24% Libra Finance, S.A. 275,000 6.51% All officers and directors as a 1,278,344 28.00% group (4 persons) * These shares are owned by Mr. Grisafi's wife. ** Pursuant to the rules and regulations of the Securities and Exchange Commission, shares of common stock that an individual or entity has a right to acquire within 60 days purusant to the exercise of options or warrants are deemed to be outstanding for the purposes of computing the percentage ownership of such individual or entity, but are not deemed to be outstanding for the purposes of computing the percentage ownership of such individual or entity, but are not deemed to be outstanding for the purposes of computing the percentage ownership of any other person or entity shown in the table. o The information for Mr. Ciongoli includes 100,000 shares issuable upon the exercise of immediately exercisable options granted under our stock option plan and 300,000 shares issuable upon exercise of options earned under our employment agreement with Mr. Ciongoli. o The information for Mr. Bjorndal includes 50,000 shares issuable upon the exercise of immediately exercisable options granted under our stock option plan. o The information for Mr. Pellosie includes 20,000 shares issuable upon the exercise of immediately exercisable options granted under our stock option plan. -21- PLAN OF DISTRIBUTION Tech Labs is registering this offering of shares on behalf of the selling securityholders. Tech Labs will pay all costs, expenses and fees related to the registration, including all registration and filing fees, printing expenses, fees and disbursements of its counsel, blue sky fees and expenses. The selling securityholders shares may be sold to purchasers from time to time directly by and subject to the discretion of the selling securityholders. The selling securityholders may, from time to time, offer their securities for sale through underwriters, dealers, or agents, who may receive compensation in the form of underwriting discounts, concessions, or commissions from the selling securityholders and/or the purchasers of the securities for whom they may act as agents. The securities sold by the selling securityholders may be sold from time to time in one or more transactions at an offering price that is fixed or that may vary from transaction to transaction depending upon the time of sale or at prices otherwise negotiated at the time of sale. Such prices will be determined by the selling securityholders or by agreement between the selling securityholders and any underwriters. Any underwriters, brokers, dealers, or agents who participate in the distribution of the securities may be deemed to be "underwriters" under the Securities Act, and any discounts, commissions, or concessions received by any such underwriters, dealers, or agents may be deemed to be underwriting discounts and commissions under the Securities Act. Accordingly, any commission, discount or concession received by them and any profit on the resale of the shares purchased by them may be deemed to be underwriting discounts or commissions under the Securities Act of 1933. Because the selling stockholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securites Act of 1933, the selling stockholders will be subject to the prospectus delivery requirements of the Securities Act of 1933. Each selling stockholder has advised Tech Labs that the stockholder has not yet entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of the shares. At the time a particular offer is made by or on the behalf of the selling securityholders, a prospectus, including any necessary supplement thereto, will be distributed which will set forth the number of shares of common stock and other securities being offered, and the terms of the offering, including the name or names of any underwriters, dealers, or agents, the purchase price paid by any underwriter for the shares purchased from the selling securityholders, any discounts, commissions and other items constituting compensation from the selling securityholders, any discounts, commissions, or concessions allowed, reallowed, or paid to dealers, and the proposed selling price to the public. -22- The selling securityholders have agreed to sell the shares only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states the shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from registration or qualification is available and is complied with. The selling securityholders will be subject to applicable provisions of the Securities Exchange Act of 1934 and their associated rules and regulations, including Regulation M. These provisions may limit the timing of purchases and sales of shares of the common stock of Tech Labs by the selling securityholders. Tech Labs will make copies of this prospectus available to the selling securityholders and has informed them of the need for delivery of copies of this prospectus to purchases at or before the time of any sale of the shares. -23- OFFERING BY SELLING SECURITYHOLDERS The following tables set forth certain information concerning each of the selling securityholders. The shares are being registered to permit the selling securityholders and their transferees or other successors in interest to offer the shares from time to time. Except for Stursberg & Veith none of the selling securityholders has held any position or office or had a material relationship with Tech Labs or any of our affiliates within the past three years other than as a result of the ownership of our common stock. Selling securityholders are under no obligation to sell all or any portion of their shares. Particular selling shareholders may not have a present intention of selling their shares and may sell less than the number of shares indicated. The following table assumes that the selling shareholders will sell all of their shares.
Number of Shares Number of Percent of Owned and Number of Shares Shares Percent of to be Owned Shares Owned Owned Shares Prior to Being After Prior to the Owned After Selling Shareholders Offering(1) Offered Offering Offering the Offering - ------------------------------------------- ------------ --------- ---------- ------------ ------------ Celeste Trust Reg(2)(3) c/o Trevisa-Treuhand-Anstalt Landstrasse 8 Furstentums 99996 Balzers Liechtenstein 440,384 440,384 0 9.87% 0% The Endeavour Capital Investment Fund, S.A.(2)(3) Cumberland House 27 Cumberland Street Nassau New Providence Bahamas 440,384 440,384 0 9.87% 0% Esquire Trade & Finance, Inc.(2)(3) Trident Chambers P.O. Box 146, Road Town Tortolu, BVI 440,384 440,384 0 9.87% 0% The Endeavour Management Inc. S.A (4) Cumberland House 27 Cumberland Street Nassau New Providence Bahamas 137,500 137,500 0 3.33% 0% Libra Finance, S.A (4) P.O. Box 4603 Zurich, Switzerland 275,000 275,000 0 6.51% 0% Stursberg & Veith (5) 405 Lexington Avenue New York, NY 75,000 75,000 0 1.83% 0% Mint Corporation (5) 211 Park Avenue Hicksville, New York 11801 200,000 200,000 0 4.74% 0%
-24- (1) Based upon the information we have received, we assume that the selling securityholders have sole voting and investment power with respect to all shares owned. (2) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. The number of shares of common stock shown as beneficially owned both prior to and after the offering by the selling securityholders represents an estimate of the number of shares of common stock to be offered by such selling securityholders assuming a conversion price of $3.42125 of the currently outstanding $1,500,000 note and the potentially outstanding $500,000 convertible note and payment of interest thereon. The actual number of shares of common stock issuable upon conversion of the notes is indeterminate, is subject to adjustment and could be materially less or more than such estimated number depending on factors which cannot be predicted by Tech Labs at this time, including the future market price of the common stock. The actual number of shares being registered under this registration statement also includes 200% of the number of shares of common stock issuable upon exercise of the notes and interest payable thereon. The notes are convertible at a price equal to 85% of the average of the five lowest closing bid prices of the common stock during the twenty-two (22) business days immediately preceding the closing of the financing transaction in which Tech Labs delivered the notes and to the selling securityholders or 85% of the five lowest bid prices during the twenty-two (22) business days through the date of conversion of the notes, whichever is lower. Therefore, the number of shares issuable upon conversion of the notes may be less than or greater than the number of shares shown as beneficially owned by the selling securityholders or otherwise covered by this prospectus. Pursuant to the terms of the subscription agreement entered into between the selling securityholders and Tech Labs, the notes are convertible by each selling securityholder and interest is payable in common stock only to the extent that the number of shares of common stock then beneficially owned, as determined in accordance with section 13(d) of the 1934 Act and Rule 13d-3 thereunder, by such selling securityholder and its affiliates would not exceed 9.9% of the then outstanding shares of common stock of Tech Labs, provided such selling securityholder has not sent written notification to Tech Labs that it wishes to void the 9.9% limitation. (3) Assumes the purchase of an additional $500,000 of Tech Labs 6.5% convertible notes. (4) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. The number of shares of common stock shown as beneficially owned both prior to and after the offering represents 200% of the number of shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $4.80. (5) Represents shares of common stock issuable upon the exercise of warrants to purchase common stock. In recognition of the fact that certain selling securityholders may wish to be legally permitted to sell their shares of common stock when they deem appropriate, we agreed with certain selling securityholders to file with the United States Securities and Exchange Commission, under the Securities Act of 1933, as amended, a registration statement on Form SB-2, of which this prospectus is a part, with respect to the resale of the shares of common stock, and have agreed to prepare and file amendments and supplements to the registration statement as may be necessary to keep the registration statement effective until the shares of common stock are no longer required to be registered for the sale thereof by certain sellingsecurity holders. Stursberg & Veith has been legal counsel to Tech Labs for the past two years. The sale of the securityholder shares may be effected from time to time in transactions, which may include block transactions, in: o the over-the-counter market; o in negotiated transactions; or o a combination of such methods of sale or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. Selling securityholders may effect such transactions by selling their securities directly to purchasers o through broker-dealers acting as agents; or o to broker-dealers who may purchase shares as principals and thereafter sell the securities from time to time in the market in negotiated transactions or otherwise. The selling security holders have been advised that the shares may only be sold in New Jersey through a registered broker-dealer or in reliance upon an exemption from registration. Broker-dealers, if any, may receive compensation in the form of discounts, commissions, or concessions and/or the purchasers from whom such broker-dealers may act as agents or to whom they may sell as principals or otherwise, which compensation as to a particular broker-dealer may exceed customary commissions. -25- If any of the following events occurs, this prospectus will be amended to include additional disclosure before offers and sales of the securityholder shares are made: o To the extent such securities are sold at a fixed price or by option at a price other than the prevailing market price, such price would be set forth in this prospectus; o If the securities are sold in block transactions and the purchaser wishes to resell, such arrangements would be described in this prospectus; o If the compensation paid to broker-dealers is other than usual and customary discounts, commissions, or concessions, disclosure of the terms of the transaction would be included in this prospectus. This prospectus would also disclose if there are other changes to the stated plan of distribution, including arrangements that either individually or as a group would constitute an orchestrated distribution of the securityholder shares. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of securityholder shares may not simultaneously engage in market making activities with respect to any securities of Tech Labs for a period of at least two (and up to nine) business days prior to the commencement of such distribution. In addition, each selling securityholder desiring to sell securityholder shares will be subject to the applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which provisions may limit the timing of the purchases and sales of shares of Tech Labs' securities by such selling securityholders. The selling securityholders and broker-dealers, if any, acting in connection with such sales might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commission received by them and any profit on the resale of the securities may be deemed underwriting discounts and commissions under the Securities Act. -26- DESCRIPTION OF SECURITIES Our authorized capital stock consists of 10,000,000 shares of common stock having a par value of $.01 each, of which 4,019,039 shares are currently outstanding and 11,316 shares are held in treasury. There are currently approximately 258 holders of common stock. Common Stock Each share of common stock is entitled to one vote on all matters submitted to a vote of shareholders. The common stock does not have cumulative voting rights, which means that the holders of a majority of the outstanding shares may elect all of the directors of Tech Labs. The common stock does not have any preemptive rights. Stockholders holding a majority of the voting power of the capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders, and the vote by the holders of a majority of such outstanding shares is required to effect certain fundamental corporate changes such as liquidation, merger or amendment of our certificate of incorporation. Holders of common stock are entitled to receive dividends pro rata based on the number of shares held, when, as and if declared by the board of directors, from funds legally available therefor. In the event of the liquidation, dissolution or winding up of the affairs of our company, all assets and funds of our company remaining after the payment of all debts and other liabilities shall be distributed, pro rata, among the holders of the common stock. Holders of common stock are not entitled to preemptive, subscription, or conversion rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered hereby will be when issued, fully paid and non-assessable. Common Stock Purchase Warrants In October 2000, Tech Labs issued 412,500 warrants to purchase shares of common stock at an exercise price of $4.80 per share, subject to adjustment, at any time until 5:00 pm New York time, on October 13, 2003. Tech Labs may call the warrants on thirty days written notice, provided the average closing bid price equals or exceeds $8.00 per share for twenty consecutive business days and the average daily volume is at least 90,000 shares per day. The exercise price of the warrants and the number of shares of common stock issuable upon exercise thereof are subject to adjustment in certain events, including stock splits or combinations, stock dividends, or through recapitalization resulting from stock split or combination. 6.5% Convertible Notes In October 2000, Tech Labs issued a $1,500,000 principal amount convertible note which is due on October 13, 2003. Interest is payable quarterly in cash or in shares of common stock at the option of the noteholder. Upon the effectiveness of this registration statement, Tech Labs has the right, subject to certain conditions, to require the purchasers of the $1,500,000 note to purchase up to an additional $500,000 principal amount of convertible note on the same terms and conditions as the $1,500,000 note. The notes and their accrued interest are convertible at anytime while any portion of them are outstanding into shares of Tech Labs common stock. The notes are convertible at a price equal to 85% of the average of the lowest closing bid prices of the common stock during the five lowest bid prices during the twenty-two (22) business days immediately preceding the issuance date of the notes or 85% of the five (5) lowest bid prices during the twenty-two business days through the date of conversion of the notes, whichever is lower. Upon satisfaction of certain conditions and the good faith negotiations of Tech Labs and the purchasers of the notes, a portion of the notes may be converted into convertible preferred stock, which shall contain terms nearly identical to the terms that the notes are subject to. Stock Options and Stock Option Plan In addition to the warrants to purchase 412,500 shares of our common stock, we have outstanding options to consultants and third parties: o to purchase 50,000 shares exercisable for five years at $1.85 per share, o to purchase 75,000 shares exercisable for five years at $1.12 per share, o to purchase 200,000 shares exercisable for two years, as to 100,000 shares at $1.25 per share and as to 100,000 shares at $1.75 per share, o to purchase 100,000 shares exercisable for three years at $4.00 per share. Tech Labs has granted options to purchase 300,000 shares exercisable at $.50 per share pursuant to an employment agreement with our president, all of which options have vested. We issued 50,000 shares of common stock to MPX pursuant to our consulting agreement. Pursuant to the consulting agreement dated March 10, 1999 with Mint, in addition to the options set forth above, we issued an aggregate of 100,000 shares. We have also adopted a 1996 stock option plan for officers, directors, and other key employees. A total of 450,000 shares have been reserved for issuance under the 1996 Plan, and options for an aggregate of 190,000 shares, exercisable at $.50 per share, have been granted to date. The board has also approved two new stock option plans, the November 2000 Incentive Stock Option Plan and the November 2000 Non-employee Director Plan. Both plans will be submitted to the shareholders of Tech Labs at a Special Meeting of the Shareholders for approval. No options have been granted to date under either of the 2000 plans. SHARES ELIGIBLE FOR FUTURE SALE No assurance can be given as to the effect, if any, that future sales of common stock will have on the market price of our common stock. Of our shares of common stock currently outstanding, assuming no exercise of warrants or conversion of convertible notes into shares of our common stock, 1,108,912 are "restricted securities" as the term is defined in Rule 144 under the Securities Act of 1933, as amended, and under certain circumstances may be sold without registration pursuant to that rule. Subject to the compliance with the notice and manner of sale requirement of Rule 144 and provided that we are current in our reporting obligations under the Securities Exchange Act of 1934, a person who beneficially owns restricted shares of stock for a period of at least one year is entitled to sell, within any three month period, shares equal to the greater of 1% of the then outstanding shares of common stock, or if the common stock is quoted on the NASDAQ System, the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of the required notice of sale on the Form 144, with the United States Securities and Exchange Commission. As of the date of this prospectus, 1,083,912 shares of common stock, held by beneficial owners, are eligible for sale pursuant to Rule 144. We are unable to predict the effect that the sales made under Rule 144 otherwise may have on the market price of the common stock prevailing at the time of any such sales. Nevertheless, sales of substantial amounts of the restricted shares of common stock in the public market could adversely effect the then prevailing market for our common stock. -27- Market Information Our common stock is listed on the OTC Electronic Bulletin Board under the symbol "TCHL-OB." Trading in the common stock has historically been very limited. Transfer Agent The transfer agent for our common stock is Interwest Transfer Co., Inc., P. O. Box 17136, Salt Lake City, Utah 84117. LEGAL MATTERS The validity of the common stock offered in this offering will be passed upon for us by Stursberg & Veith, 405 Lexington Avenue, New York, New York 10174, the partners of which law firm own options to purchase 75,000 shares and which are being registered pursuant to this prospectus. EXPERTS Charles J. Birnberg, CPA, independent auditors, have audited our financial statements for the years ended December 31, 1997, 1998 and 1999 as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Charles J. Birnberg's report, given on their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed a registration statement on Form SB-2 under the Securities Act of 1933, with the Securities and Exchange Commission with respect to the common stock being registered pursuant to this prospectus. This prospectus, which forms a part of the registration statement, does not contain all of the information included in the registration statement and any of its amendments and the exhibits, which are available for inspection without charge, and copies of which may be obtained at prescribed rates, at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and at the Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. The Commission maintains a Website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. INFORMATION NOT REQUIRED IN PROSPECTUS We will provide, without charge, to each person who received a prospectus, upon written or oral request of such person to us at the mailing address or telephone number listed below, a copy of any of the information incorporated by reference. The mailing address of our principal executive offices is Tech Laboratories, Inc., 955 Belmont Avenue, North Haledon, New Jersey 07508, (973) 427-5333. -28- INDEX TO FINANCIAL STATEMENTS Page ---- Report of Charles J. Birnberg, CPA Independent Auditors.....................F-2 Audited Financial Statements Balance Sheets.........................................................F-3, F-4 Statement of Stockholders' Equity ..........................................F-5 Statements of Operations....................................................F-6 Statements of Cash Flows....................................................F-7 Notes to Financial Statements...............................................F-8 F-1 REPORT OF INDEPENDENT AUDITORS Charles J. Birnberg, CPA 150 Overlook Avenue Hackensack, New Jersey 07601 November 17, 2000 To The Board of Directors of Tech Laboratories, Inc. I have audited the Balance Sheets of Tech Laboratories, Inc. as of December 31, 1997, 1998 and 1999 and the related Statements of Income and Retained Earnings, and Cash Flows for the years then ended. These financial statements are the responsibility of the Company's management. The audits were conducted in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that the audits provide a reasonable basis for my opinion. Therefore, the financial statements in my opinion, present fairly the financial position of Tech Laboratories, Inc. as of December 31, 1997, 1998 and 1999 and the results of operations and cash flows for the years then ended in conformity with generally accepted accounting principles. Sincerely, /s/ Charles J. Birnberg Charles J. Birnberg Certified Public Accountant Hackensack, New Jersey F-2 TECH LABORATORIES, INC. BALANCE SHEETS DECEMBER 31, 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 ASSETS
YEARS ENDED NINE MONTHS ENDED DECEMBER 31 SEPTEMBER 30, -------------------------------------------- 1999 2000 1997 1998 1999 (UNAUDITED) ---------- ---------- ---------- ---------- ---------- Current Assets: Cash $ 166,173 $ 532,780 $ 162,925 $ 212,348 $1,462,319 Marketable Securities, at the Lower of Cost or Market (Note 1) 59,343 56,693 61,453 61,923 61,453 Accounts Receivable, net of Allowance of $10,000 in 1999, 1998 and 1997 90,734 143,462 57,697 150,359 169,251 Inventories (Notes 1 & 2) 269,209 270,118 816,703 788,586 1,251,010 Prepaid Expense 0 3,357 4,055 5,668 4,055 ---------- ---------- ---------- ---------- ---------- Total Current Assets $ 585,459 $1,006,410 $1,102,833 $1,218,884 $2,948,088 ---------- ---------- ---------- ---------- ---------- Property, Plant and Equipment, at Cost (Note 1): Leasehold Improvements 2,247 2,247 2,247 2,247 2,247 Machinery, Equipment and Instruments 223,884 230,137 379,815 340,337 410,425 Furniture and Fixtures 67,425 67,425 75,899 67,574 79,161 ---------- ---------- ---------- ---------- ---------- $ 293,556 $ 299,809 $ 457,961 $ 410,158 $ 491,833 Less: Accumulated Depreciation & Amortization 281,029 299,162 314,162 299,162 314,162 ---------- ---------- ---------- ---------- ---------- Net, Property, Plant and Equipment $ 12,527 $ 647 $ 143,799 $ 110,996 $ 177,671 ---------- ---------- ---------- ---------- ---------- Other Assets $ 11,540 $ 11,540 $ 11,540 $ 11,540 $ 11,541 ---------- ---------- ---------- ---------- ---------- Total Assets $ 609,526 $1,018,597 $1,258,172 $1,341,420 $3,137,300 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements F-3 TECH LABORATORIES, INC. BALANCE SHEETS DECEMBER 31, 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 LIABILITIES AND STOCKHOLDERS' INVESTMENT
YEARS ENDED NINE MONTHS ENDED DECEMBER 31 SEPTEMBER 30, ---------------------------------------------- 1999 2000 1997 1998 1999 (UNAUDITED) ---------- ---------- ---------- ---------- ---------- Current Liabilities: Current Portion of Long Term Debt (Note 5) $ 34,445 $ 32,742 $ 28,559 $ 30,293 $ 25,821 Short-Term Loans Payable (Note 6) 43,373 43,373 243,373 43,373 79,956 Accounts Payable and Accrued Expenses 48,148 42,155 260,745 189,025 34,765 Other Utilities 53,945 36,600 3,190 77,938 29,057 ----------- ----------- ----------- ---------- ---------- Total Current Liabilities $ 179,911 $ 154,870 $ 535,867 340,629 $ 169,599 ----------- ----------- ----------- ---------- ---------- Stockholders' Investment: Common Stock. $.01 Par Value; 10,000,000 Shares Authorized; 3,650,660 issued in 1999 and 4,019,039 issued as of September 30, 2000 $ 13,753 $ 23,483 $ 36,507 $ 35,870 $ 39,492 Less: 11,316 Shares Reacquired and and Held in Treasury (113) (113) (113) (113) (113) ----------- ----------- ----------- ---------- ---------- $ 13,640 $ 23,370 $ 36,394 $ 35,757 $ 39,379 Common Stock Subscribed (Note 7) 0 500 0 0 0 Capital Contributed in Excess of Par Value 721,847 1,315,833 1,816,316 1,828,346 4,060,287 Retained Earnings 0 0 0 0 0 Accumulated Deficit (306,372) (475,476) (1,130,405) (863,312) (1,131,965) ----------- ----------- ----------- ---------- ---------- $ 429,615 $ 863,727 $ 722,305 1,000,791 2,967,701 ----------- ----------- ----------- ---------- ---------- Total Liabilities and Stockholders' Investment $ 609,526 $ 1,018,597 $ 1,258,172 $1,341,420 $3,137,300 =========== =========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements F-4 TECH LABS, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000
COMMON STOCK CAPITAL IN EXCESS OF ACCUMULATED SHARES AMOUNT PAR VALUE DEFICIT TOTAL ----------- ----------- ----------- ----------- ----------- Balance December 31, 1996 1,101,532 $ 9,189 $ 317,585 $ (32,303) $ 294,471 Stock Issued -- 4,451 404,262 408,713 Stock Subscribed -- 500 500 Net Income/ (Loss) (274,069) (274,069) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1997 1,546,632 $ 14,140 $ 721,847 $ (306,372) $ 429,615 Stock Issued 1,323,311 9,230 593,986 603,216 Net Income/(loss) (169,104) (169,104) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1998 2,869,943 $ 23,370 $ 1,315,833 $ (475,476) $ 863,727 Stock Issued 780,717 13,024 500,483 513,507 Net Income/(loss) (654,929) (654,929) ----------- ----------- ----------- ----------- ----------- Balance December 31, 1999 3,650,660 $ 36,394 $ 1,816,316 $(1,130,405) $ 722,305 Stock Issued 368,379 2,985 2,243,971 2,246,956 Net Income/(loss) (1,560) (1,560) ----------- ----------- ----------- ----------- ----------- Balance September 30, 2000 4,019,039 $ 39,379 $ 4,060,287 $(1,131,965) $ 2,967,701
F-5 TECH LABORATORIES, INC. STATEMENTS OF OPERATIONS DECEMBER 31, 1997, 1998, AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1997 1998 1999 1999 2000 ----------- ----------- ----------- ---------- ---------- Sales $ 444,322 $ 552,486 $ 689,190 $ 535,160 $ 849,106 ----------- ----------- ----------- ---------- ---------- Costs and Expenses: Cost of Sales 446,457 386,425 472,790 374,612 372,967 Selling, General and Administrative Expenses 265,104 329,849 861,174 548,384 507,030 ----------- ----------- ----------- ---------- ---------- 711,561 716,274 1,333,964 922,996 $ 879,997 ----------- ----------- ----------- ---------- ---------- Income/(Loss) From Operations ($ 267,239) ($ 163,788) ($ 644,774) ($ 387,836) ($ 30,891) ----------- ----------- ----------- ---------- Other Income (Expenses): Interest Income $ 166 $ 1,654 $ 1,150 $ 0 34,796 Interest Expense (6,996) (6,970) (11,305) 0 (5,465) ----------- ----------- ----------- ---------- ---------- ($ 6,830) ($ 5,316) ($ 10,155) -- 29,331 ----------- ----------- ----------- ---------- ---------- Income/(Loss) Before Income Taxes ($ 274,069) ($ 169,104) ($ 654,929) ($ 387,836) ($ 1,560) Provision for Income Taxes (Notes 1 & 4) -- -- -- 0 0 ----------- ----------- ----------- ---------- ---------- Net Income/(Loss) ($ 274,069) ($ 169,104) ($ 654,929) ($ 387,836) ($ 1,560) Accum. Earnings/(Deficit), Beg. of Year ($ 32,303) ($ 306,372) ($ 475,476) (475,476) (1,130,405) ----------- ----------- ----------- ---------- ---------- Accum. Earnings/(Deficit,) End of Year ($ 306,372) ($ 475,476) ($1,130,405) ($ 863,312) ($1,131,965) ----------- ----------- ----------- ---------- ---------- Income/(Loss) Per Share (Note 3) ($ 0.18) ($ 0.06) ($ 0.18) ($ 0.12) $ 0
The accompanying notes are an integral part of these financial statements. F-6 TECH LABORATORIES, INC. STATEMENTS OF CASH FLOWS DECEMBER 31, 1997, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1997 1998 1999 1999 2000 --------- --------- --------- ---------- ---------- Cash Flows From (For) Operating Activities: Net Income/(Loss) From Operations ($274,069) ($169,104) ($654,929) ($387,836) (1,560) Add/(Deduct) Items Not Affecting Cash: Depreciation/Amortization (Note 1) 7,278 11,880 15,000 0 0 Unrealized (Gain)/ Loss on Valuation of Marketable Securities (Note 1) 0 3,357 470 0 0 Changes in Operating Assets and Liabilities: Marketable Securities (35,001) (2,650) (4,290) (5,230) 0 Accounts Receivable 2,615 (52,728) 85,765 (6,897) (111,554) Inventories 22,665 (909) (546,585) (518,468) (434,307) Accounts Payable (7,925) (40,249) 216,359 146,870 (225,980) Other Assets and Liabilities 15,862 14,997 593 39,027 23,129 --------- --------- --------- ---------- ---------- Net Cash Flows For Operating Activities ($268,575) ($235,406) ($887,617) ($732,534) ($750,272) --------- --------- --------- ---------- ---------- Cash Flows From (For) Investing Activities DynatraX Machinery & Equipment $ 0 $ 0 ($158,152) ($ 110,349) ($33,872) --------- ---------- ---------- Net Cash Flows From (For) Investing Activities $ 0 $ 0 ($158,152) ($ 110,349) ($33,872) --------- ---------- ---------- Cash Flows From (For) Financing Activities: Acquisition/(Repayment) of Short Term Debt ($ 10,000) ($ 1,703) $ 162,407 ($ 2,449) (163,417) Issuance of Common Stock 407,500 603,716 513,507 524,900 2,246,956 --------- --------- --------- ---------- ---------- Net Cash Flows From (For) Financing Activities $ 397,500 $ 602,013 $ 675,914 $ 522,451 2,083,539 --------- --------- --------- ---------- ---------- Net Increase/(Decrease) in Cash $ 128,925 $ 366,607 ($369,855) ($ 320,432) 1,299,395 Cash Balance, Beginning of Year 21,398 166,173 532,780 532,780 162,924 --------- --------- --------- --------- ---------- Cash Balance, End of Year $ 150,323 $ 532,780 $ 162,925 $ 21,348 1,462,319 --------- --------- --------- --------- ----------
The accompanying notes are an integral part of these financial statements. F-7 TECH LABORATORIES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, 1999 AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (1) Summary of Significant Accounting Policies CASH - Includes Tech Lab's checking account at Hudson United Bank. There are no Cash Equivalents. ACCOUNTS RECEIVABLE - Tech Labs recognizes sales when orders are shipped to customers. The allowance for bad debts is accrued based on a review of customer accounts receivables aging. INVENTORIES - Inventories are valued at cost or market, whichever is lower. The FIFO cost method is generally used to determine the cost of the inventories. At December 31, 1997, 1998 and 1999 physical inventories were taken and tested. No physical inventory was taken on September 30, 2000. PROPERTY AND DEPRECIATION - Additions to property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: ASSETS ESTIMATED USEFUL LIVES Machinery 5 to 7 years Furniture & Fixtures 5 to 7 years Maintenance and repairs are charged to expense as incurred. The cost of betterments is capitalized and depreciated at appropriate rates. Upon retirement or other disposition of property items, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statement of income. INCOME TAXES - Income tax expense is based on reported income and deferred tax credit is provided for temporary differences between book and taxable income. MARKETABLE SECURITIES - The marketable securities are recorded at the lower of cost or market. The cost of securities was $59,343 at December 31, 1997, $56,693 at December 31, 1998, $61,453 at December 31, 1999 and $61,453 at September 30, 2000. (2) Inventories: Inventories at December 31, 1997, 1998, 1999 and September 30, 2000 were:
1997 1998 1999 2000 ---- ---- ---- ------- Raw Materials & Finished Components $231,202 $202,359 $715,438 $1,057,725 Work in Process & Finished Goods 38,007 67,759 107,265 193,285 -------- -------- -------- ---------- $269,209 $270,118 $816,703 $1,251,010 -------- -------- -------- ----------
(3) Income/(loss) Per Share: Income/(loss) per share was calculated on the weighted average number of shares outstanding during the year ended December 31, 1997 of 1,550,048, during the year ended December 31, 1998 of 2,202,905 shares, during the year ended December 31, 1999, 3,650,660 shares and 4,019,039 shares at September 30, 2000. (4) Income Taxes: At December 31, 1997, 1998 and 1999 the balance of operating loss carryforward was $1,049,903, $1,219,007 and $1,873,936, respectively, which can be utilized to offset future taxable income. (5) Current Portion of Long-Term Debt: Loans payable to banks were as follows for the years indicated: CURRENT NON-CURRENT YEAR ENDED PAYEE INTEREST RATE AMOUNT AMOUNT - ---------- ----- ------------- ------ ------ 1997 Hudson United Bank Prime +1.5% $34,445 -- 1998 Hudson United Bank Prime +1.5% $32,742 -- 1999 Hudson United Bank Prime +1.5% $28,559 -- September 30, 2000 Hudson United Bank Prime +1.5% $25,821 -- Certain marketable securities are pledged as collateral on the above loan. (6) Short-Term Loans Payable Demand loans payable include loans from stockholders, officers, members of the board of directors and third parties. The outstanding loan balances due as of December 31, 1997, 1998 and December 31, 1999 was $43,373 for 1997 and 1998, and $243,373 for 1999, which includes accrued interest for all three years. The annual interest rate for these loans ranged between six (6%) percent and ten (10%) percent. One loan in the principal amount of $11,500 together with accrued interest of $4,294 at December 31, 1999 is secured by the assets of Tech Labs. In October of 1999, three short-term loans for a total of $200,000 at (10%) ten percent annual interest were completed. Certain contractural revenues were pledged to secure this loan. As of September 30, 2000, $150,000 of these October, 1999 loans had been repaid. (7) Common Stock In 1997, Tech Labs converted $217,500 of short term loans into 198,750 shares of common stock. In 1997 and 1998, Tech Labs completed a private placement of common stock pursuant to Rule 504 which raised $917,324. In 1999, Tech Labs began a self-underwritten public offering to raise between $2,000,000 (minimum) and $3,500,000 (maximum). This offering was completed in May, 2000. (8) Commitments and Contingencies Tech Labs entered into an exclusive agreement with Elektronik Apparatebau (EAG), FUA Safety Equipment and Double T Sports Ltd. whereby it received exclusive rights to manufacture and market IDS products until September 30, 2007 in the US, Canada and South America. Gross profits will be calculated according to GAAP and distributed quarterly 70% to Tech Labs and 30% to FUA until March 2001. Thereafter, until 2007 quarterly distribution will be based on pretax profits in excess of 16% being shared 70% to Tech Labs and 30% to FUA. In addition, FUA will receive a 5% royalty based on the cost of any IDS products Tech Labs manufactures and sells. F-7 (9) Subsequent Events On April 27, 1999, Tech Labs completed the purchase of existing inventories and test equipment of the discontinued DynaTraX(TM) Product Line from NORDX/CDT for $500,000. In accordance with the purchase price method of accounting, the purchase price for the assets referenced above was allocated to the assets acquired on the basis of preliminary fair market values, which may be revised at a later date. Results subsequent to the date of acquisition will be included in Tech Lab's financial statements. Had the results of the DynaTraX acqusition been included in our consolidated statements for 1997, 1998 and 1999, the effect would have been material. Year Ended Year Ended DynaTraX December 31, December 31, (Unaudited) 1998 1999 ----------- ----------- ----------- Net Sales $ 400,000 $ 100,000 Cost of Sales 300,000 20,000 ----------- ----------- Gross Profit 100,000 80,000 Research/Development 900,000 -0- Selling & G&A Expenses 1,700,000 50,000 ----------- ----------- Pre-Tax Inc./(Loss) $(2,500,000) $ 30,000 Income Tax (Expense)/ Benefit-Pro-Forma 1,150,000 -0- ----------- ----------- Net Income/(Loss) $(1,350,000) $ 30,000 ----------- ----------- Investment Purchase (Unaudited) Price* ---------- ----------- Inventory 2,700,000 $ 400,000 Test Equip. 355,000 100,000 ----------- ----------- Total 3,055,000 500,000 =========== =========== * Included in December 31, 1999 Tech Labs balance sheet. Effect on (Unaudited) Tech Labs Year Ended Year Ended (Pro-Forma) December 31, 1998 December 31, 1999 ----------------- ----------------- Net Sales $ 952,486 $ 535,160 Net Income/(loss) (1,519,104) $ (387,836) ----------- ----------- EPS $ (0.54) $ (0.14) =========== =========== F-8 November 17, 2000 TECH LABORATORIES, INC. 2,008,654 Shares of Common Stock ------------------------------------ PROSPECTUS ------------------------------------ - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson, or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of the company have not changed since the date hereof. ================================================================================ TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY......................................................... 1 RISK FACTORS............................................................... 2 USE OF PROCEEDS............................................................ 6 PRICE RANGE OF COMMON STOCK................................................ 7 DIVIDEND POLICY............................................................ 7 CAPITALIZATION............................................................. 8 SELECTED FINANCIAL DATA.................................................... 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 9 BUSINESS .................................................................. 11 MANAGEMENT................................................................. 17 CERTAIN TRANSACTIONS....................................................... 20 PRINCIPAL STOCKHOLDERS..................................................... 21 PLAN OF DISTRIBUTION....................................................... 22 OFFERING BY SELLING SECURITYHOLDERS........................................ 24 DESCRIPTION OF SECURITIES.................................................. 27 SHARES ELIGIBLE FOR FUTURE SALE............................................ 27 LEGAL MATTERS.............................................................. 28 EXPERTS .................................................................. 28 ADDITIONAL INFORMATION..................................................... 28 INFORMATION NOT REQUIRED IN PROSPECTUS..................................... 28 INDEX TO FINANCIAL STATEMENTS ............................................. F-1 Until _________, 2000 (25 days after the date of this prospectus), all dealers that effect transactions in these shares of Common Stock may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. INFORMATION NOT REQUIRED IN PROSPECTUS Indemnification of Directors and Officers Tech Labs is incorporated in New Jersey. Under Section ____ of the Corporation Law of the State of New Jersey, a New Jersey corporation has the power, under specified circumstances, to indemnify its directors, officers, employees, and agents in connection with actions, suits, or proceedings brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees, and agents, against expenses incurred in any action, suit, or proceeding. The Certificate of Incorporation and the By-laws of Tech Labs provide for indemnification of directors and officers to the fullest extent permitted by the General Corporation Law of the State of New Jersey. The General Corporation Law of the State of New Jersey provides that a certificate of incorporation may contain a provision eliminating the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that such provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section ____ (relating to liability for unauthorized acquisitions or redemptions of, or dividends on, capital stock) of the General Corporation Law of the State of New Jersey, or (d) for any transaction from which the director derived an improper personal benefit. Tech Labs's Certificate of Incorporation contains such a provision. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE. Other Expenses of Issuance and Distribution The following table sets forth the expenses in connection with this Registration Statement. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission. Filing Fee-- Securities and Exchange Commission $ 1,825 Fees and Expenses of Accountants $ 15,000 Fees and Expenses of Legal Counsel $ 70,000 Blue Sky Fees and Expenses $ 3,500 Printing and Engraving Expenses $ 7,500 Miscellaneous Expenses $ 2,175 Total.................................... $100,000 Recent Sales of Unregistered Securities As listed below, the Company issued shares of its common stock, par value $.01 per share, to the following individuals or entities for the consideration as listed in cash or services. All sales II-1 made within the United States or to United States citizens or residents were made in reliance upon the exemptions from registration under the Securities Act of 1933 as follows: 1. In November 2000 we issued to Barry Bendett, a consultant to Tech Labs, options to purchase 100,000 shares at $4.00 per share. The issuance of the options was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Benett is a sophisticated investor and had complete access to all relevant information regarding Tech Labs. 2. In October 2000 we issued a $1,500,000 principal amount convertible note which is due on October 13, 2000 to certain accredited investors. The issuance of the note was made pursuant to Rule 506 of Regulation D under the Securities Act. 3. In October 2000 we issued warrants to purchase 412, 500 shares of our common stock to accredited investors in connection with the issuance of the convertible note described above in Item 1. The issuance of the warrants was made pursuant to Rule 506 of Regulation D under the Securities Act. 4. In July 2000 we issued 25,000 shares to m3communications, Inc. pursuant to an asset purchase agreement between Tech Labs, Tech Labs Community Networks of the Southeast, Inc., a subsidiary of Tech Labs, and the shareholders of m3communications, Inc. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 5. In June 2000 we issued 25,000 shares to Nathan Perlmutter pursuant to a convertible note agreement dated September 5, 1997, which was part of the transaction described in item 12, below. 6. In July 2000 we issued 20,000 shares to Louis Tomasella, who is a former director of Tech Labs, pursuant to Mr. Tomasella's exercise of stock options granted to him under Tech Labs stock option plan. 7. In November 1999 we issued 75,000 shares to Mint Corporation for consulting services pursuant to our agreement with Mint dated March 10, 1999. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The principals of Mint are sophisticated and had complete access to all relevant information regarding Tech Labs. 8. In June 1999 we issued to Coby Capital Corporation, a consultant to Tech Labs, options to purchase 50,000 shares at $1.85 per share. The issuance of the options was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The principal of Coby Capital is accredited and had access to all relevant information regarding Tech Labs. 9. In June 1999 we sold 90,045 shares to two "accredited" investors for gross proceeds of $200,000. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. 10. In June 1999 we issued 25,000 shares to Mint Corporation for previously rendered consulting services pursuant to our agreement with Mint dated March 10, 1999. Pursuant to said agreement, Mint was also granted options to purchase 100,000 shares at $1.25 per share and 100,000 shares at $1.75 per share. The issuance of the shares and options was exempt from Registration under the Securities Act pursuant to Section 4(2) thereof. 11. In June 1999 we issued 50,000 shares to MPX Network Solutions, Inc. pursuant to a consulting agreement in exchange for services. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The principal of MPX is sophisticated and had complete access to all relevant information regarding Tech Labs. 12. In March 1999 we issued 600 shares to a noteholder in payment of $600 in interest in lieu of cash, as provided under the terms of the note. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The noteholder purchased the note beteween December 1996 and October 1997 as part of the transaction set forth in transaction No. 15. The noteholder was sophisticated and had the access to information described in transaction No. 15. 13. From September 1998 to April 1999, we sold shares of our common stock pursuant to Rule 504 of Regulation D under the Securities Act to eight investors who were either sophisticated or "accredited" as that term is defined under Rule 501(a) of Regulation D under the Securities Act. Each investor was given a private placement memorandum which included financial statements describing Tech Labs. Each investor also had access to Bernard M. Ciongoli, Tech Labs' president, and to other pertinent documentation. The offering raised a total of $443,200.00, $250,000 of which was raised in April 1999. 14. On July 10, 1998, we issued 20,300 shares of common stock for services rendered by prior counsel to Tech Labs for $22,167.40. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The prior counsel was sophisticated and had complete access to relevant information regarding Tech Labs. 15. From September 1997 to March 1998, we sold shares of our common stock pursuant to Rule 504 of Regulation D under the Securities Act to eleven investors who were either sophisticated or "accredited" as that term is defined under Rule 501(a) of Regulation D under the Securities Act. Each investor was given a private placement memorandum, which included financial statements, describing Tech Labs. Each investor also had access to Mr. Ciongoli and to other pertinent documentation. The offering raised a total of $665,791. II-2 16. In December 1998 we issued options to purchase 75,000 shares exercisable at $1.12 per share to Stursberg & Veith, counsel to Tech Labs, in exchange for services. The issuance of the options were exempt from registration under the Securities Act pursuant to Section 4(2) thereof. The partners of Stursberg & Veith are sophisticated and have complete access to all relevant information regarding Tech Labs. 17. In November 1998 we issued 15,000 shares to Mr. Sal Grisafi in exchange for consulting services. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Grisafi was a sophisticated investor and had complete access to all relevant information regarding Tech Labs. 18. In November 1998 we issued 40,000 shares to Emerson Callahan, a former director of the company, for consulting services. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Callahan was an accredited investor. 19. In November 1998, we issued 25,000 shares to Carmine Pellosie, a director of the company, for services rendered to Tech Logistics, Inc. The issuance of the shares was exempt from registration under the Securities Act pursuant to Section 4(2) thereof. Mr. Pellosie was an accredited investor. 20. In November 1998, we issued 15,000 shares to Carmine Pellosie, a director of the company, in exchange for his ownership of 20% of Tech Logistics, Inc. a partly owned subsidiary of our company. The issuance of the shares was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. Exhibits and Financial Statement Schedules EXHIBIT INDEX 3.1 Certificate of Incorporation.(1) 3.2 By-Laws of Tech Labs.(1) 5.1 Opinion of Stursberg & Veith* 10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing Agreement dated as of October 1, 1998 between Tech Labs and Elktronic Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG.(1) 10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli.(1) 10.3 First Amendment to Employment Agreement between Tech Labs and Bernard M. Ciongoli.(2) 10.6 Patent and Trademark assignments.(1) 10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint Corporation.(2) 10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX Network Solutions.(2) 10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby Capital Corporation.(2) 10.10 Assignment of Lease dated May 1, 1992 between William Tanis as Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.(2) 10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between NORDX/CDT, Inc. and Tech Labs.(2) 10.12 Tech Labs Stock Option Plan.(2) 10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby Capital Corporation.(2) 10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation.(2) 10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation.(2) 10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and TravelNet Technologies, Inc.(3) 10.17 Promissory Note and Security Agreement dated October 25, 1999 between Tech Labs and Peter B. Hirschfield, Trustee, Olive Cox-Sleeper Trust dated 10/3/58 f/b/o Bert L. Atwater.(4) 10.18 November 2000 Incentive Stock Option Plan 10.19 November 2000 Non-employee Stock Option Plan 10.20 Asset Purchase Agreement, dated June 1, 2000 by and between Tech Labs, M3communications, Inc. and the shareholders of m3. 10.21 Shareholders Agreement dated June 23, 2000 by and between Tech Labs Community Networks, Inc., the Shareholders of M3Communications, Inc. and Tech Labs Community Networks of the South East, Inc. 10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and delivered to m3communications, Inc. 10.23 First Amendment to Asset Purchase Agreement dated June 9, 2000 entered into by and between Tech Labs, M3communications, Inc. and the shareholders of M3. 10.24 Consulting Agreement dated as of November 13, 2000 by and between Barry Bendette and Tech Labs. 10.25 Subscription Agreement entered into between the subscribers and Tech Labs dated October 13, 2000.(5) 10.26 Common Stock Purchase warrant entered into between the warrant holders and Tech Labs dated October 13, 2000.(5) 21.1 Subsidiaries of the Company 24.1 Consent of Charles J. Birnberg, CPA, certified public accountants 24.2 Consent of Stursberg & Veith.* 27 Financial Data Schedule - ---------- * To be filed by amendment. (1) Incorporated by reference to the Registrant's registration statement filed on Form SB-2 (file No. 333-82595) filed on July 9, 1999. (2) Incorporated by reference to the Registrant's amendment No. 1 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on October 18, 1999. (3) Incorporated by reference to the Registrant's amendment No. 2 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on November 19, 1999. (4) Incorporated by reference to the Registrant's amendment No. 3 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on December 17, 1999. (5) Incorporated by reference to the Registrant's current report filed on Form 8-K (file No. 000-27592) filed on October 17, 2000. (b) The following financial statement schedules are included in this Registration Statement: None. Undertakings The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (1) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (2) 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; (3) 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. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of 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 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 purpose of determining any liability under the Securities Act of 1933, 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 SIGNATURES As required by the Securities Act of 1933, this Offering Statement has been signed on behalf of the registrant in the City of North Haledon and State of New Jersey on the 17 day of November, 2000. TECH LABORATORIES, INC. By: /s/ Bernard M. Ciongoli ------------------------------ Bernard M. Ciongoli, President As required by the Securities Act of 1933, this Offering Statement has been signed by the following persons in the capacities and on the dates indicated. Know all men by these presents, that each of the undersigned constitutes and appoints Bernard M. Ciongoli as his true and lawful attorney-in-fact and agent, with full power of substitution, 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 offering statement or any offering statement relating to the offering to which this offering statement relates and any post effective amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Signature Title Date --------- ----- ---- /s/ Bernard M. Ciongoli President, Treasurer, CEO, November 17, 2000 - ----------------------------- CFO, and Director ------------------ Bernard M. Ciongoli /s/ Earl M. Bjorndal Vice President and Director November 17, 2000 - ----------------------------- ------------------ Earl M. Bjorndal /s/ Carmine O. Pellosie, Jr. Secretary and Director November 17, 2000 - ----------------------------- ------------------ Carmine O. Pellosie, Jr. /s/ Salvature Grisafi Director November 17, 2000 - ----------------------------- ------------------ Salvature Grisafi EXHIBIT INDEX 3.1 Certificate of Incorporation.(1) 3.2 By-Laws of Tech Labs.(1) 5.1 Opinion of Stursberg & Veith* 10.1 Amended Joint Marketing Agreement and Confidentiality and Manufacturing Agreement dated as of October 1, 1998 between Tech Labs and Elktronic Apparutebau Gmbh (EAG), W.T. Sports, Ltd. and FVA Safety Equipment, AG.(1) 10.2 Employment Agreement between Tech Labs and Bernard M. Ciongoli.(1) 10.3 First Amendment to Employment Agreement between Tech Labs and Bernard M. Ciongoli.(2) 10.6 Patent and Trademark assignments.(1) 10.7 Consulting Agreement dated March 10, 1999 between Tech Labs and Mint Corporation.(2) 10.8 Consulting Agreement dated March 22, 1999 between Tech Labs and MPX Network Solutions.(2) 10.9 Consulting Agreement dated June 2, 1999 between Tech Labs and Coby Capital Corporation.(2) 10.10 Assignment of Lease dated May 1, 1992 between William Tanis as Landlord, Forsee Corporation as Assignor and Tech Labs as Assignee.(2) 10.11 Asset Acquisition Agreement dated as of March 12, 1999 by and between NORDX/CDT, Inc. and Tech Labs.(2) 10.12 Tech Labs Stock Option Plan.(2) 10.13 Stock Option Agreement dated June 3, 1999 between Tech Labs and Coby Capital Corporation.(2) 10.14 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation.(2) 10.15 Stock Option Agreement dated March 10, 1999 between Tech Labs and Mint Corporation.(2) 10.16 Joint Marketing Agreement dated October 15,1999 between Tech Labs and TravelNet Technologies, Inc.(3) 10.17 Promissory Note and Security Agreement dated October 25, 1999 between Tech Labs and Peter B. Hirschfield, Trustee, Olive Cox-Sleeper Trust dated 10/3/58 f/b/o Bert L. Atwater.(4) 10.18 November 2000 Incentive Stock Option Plan 10.19 November 2000 Non-employee Stock Option Plan 10.20 Asset Purchase Agreement, dated June 1, 2000 by and between Tech Labs, M3communications, Inc. and the shareholders of m3. 10.21 Shareholders Agreement dated June 23, 2000 by and between Tech Labs Community Networks, Inc., the Shareholders of M3Communications, Inc. and Tech Labs Community Networks of the South East, Inc. 10.22 Warrant Agreement dated June 23, 2000 executed by Tech Labs and delivered to m3communications, Inc. 10.23 First Amendment to Asset Purchase Agreement dated June 9, 2000 entered into by and between Tech Labs, M3communications, Inc. and the shareholders of M3. 10.24 Consulting Agreement dates as of November 13, 2000 by and between Barry Bendette and Tech Labs. 10.25 Subscription Agreement entered into between the subscribers and Tech Labs dated October 13, 2000.(5) 10.26 Common Stock Purchase warrant entered into between the warrant holders and Tech Labs dated October 13, 2000.(5) 21.1 Subsidiaries of the Company 24.1 Consent of Charles J. Birnberg, CPA, certified public accountants 24.2 Consent of Stursberg & Veith.* 27 Financial Data Schedule - ---------- * To be filed by amendment. (1) Incorporated by reference to the Registrant's registration statement filed on Form SB-2 (file No. 333-82595) filed on July 9, 1999. (2) Incorporated by reference to the Registrant's amendment No. 1 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on October 18, 1999. (3) Incorporated by reference to the Registrant's amendment No. 2 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on November 19, 1999. (4) Incorporated by reference to the Registrant's amendment No. 3 to its registration statement filed on Form SB-2 (file No. 333-82595) filed on December 17, 1999. (5) Incorporated by reference to the Registrant's current report filed on Form 8-K (file No. 000-27592) filed on October 17, 2000. EX-10.18 2 ex10-18_23192.txt INCENTIVE STOCK OPTION PLAN TECH LABORATORIES, INC. NOVEMBER 2000 INCENTIVE STOCK OPTION PLAN 1. PURPOSE. The purpose of the November 2000 Incentive Stock Option Plan (the "Plan") is to provide an incentive to selected directors, officers and employees of Tech Laboratories, Inc., and any subsidiaries of Tech Laboratories, Inc. (collectively, the "Company"), to acquire a proprietary interest in the Company, to continue as directors, officers and employees and to increase their efforts on behalf of the Company. 2. THE PLAN. The Plan provides for the grant of Options to acquire shares of the Company's common stock, par value $.01 (the "Stock"). Options granted under the Plan are intended to qualify as incentive stock options (the "Incentive Stock Options" or "Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. ADMINISTRATION. (a) The Plan shall be administered by a committee (the "Committee") composed of one or more of the independent members of the Board of Directors of the Company (the "Board") to operate and administer the Plan in its stead. A member of the Board shall be ineligible to receive an Option under the Plan unless he is an employee of the Company. (b) The Committee shall have plenary authority in its discretion, subject only to the express provisions of the Plan and, in reference to the Options, of Code Section 422; (i) to select the eligible persons who shall be granted Options (the "Grantees"), the number of Shares subject to each Option and terms of the Option granted to each Grantee, provided that, in making its determination, the Committee shall consider the position and responsibilities of the employee, the nature and value to the Company, of his or her services and accomplishments, the employee's present and potential contribution to the success of the Company and any other factors that the Committee may deem relevant. (ii) to determine the dates of the Option grants; (iii) to prescribe the form of the instruments evidencing Options; (iv) to adopt, amend and rescind rules and regulations for the administration of the Plan and for its own acts and proceedings; (v) to decide all questions and settle all controversies and disputes of general applicability that may arise in connection with the Plan; and (vi) to amend certain terms of the Plan as provided in Section 9. All decisions, determinations and interpretations with respect to the foregoing matters shall be made by the Committee and shall be final and binding upon all persons. (c) EXCULPATION. No member of the Committee shall be personally liable for monetary damages for any action taken or any failure to take any action in connection with the administration of the Plan or the granting of Options under it unless such action or failure to take action constitutes self-dealing, wilful misconduct or recklessness; provided, however, that the provisions of this subsection shall not apply to the responsibility or liability of a director pursuant to any criminal statute or to the liability of a director for the payment of taxes pursuant to local, state or federal law. (d) INDEMNIFICATION. Each member of the Committee shall be entitled without further act on his part or her part to indemnity from the Company to the fullest extent provided by applicable law and the Company's Certificate of Incorporation or Bylaws in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options under it in which he or she may be involved by reason of being or having been a member of the Committee at the time of the action, suit or proceeding. 4. EFFECTIVENESS AND TERMINATION OF THE PLAN. The Plan shall become effective as of November 14, 2000, the date of its adoption by the Board, provided that the Plan is approved by the stockholders of the Company within one year of its adoption. Any Option outstanding under the Plan at the time of termination under the Plan shall remain in effect in accordance with its terms and conditions and those of the Plan. The Plan shall terminate on the earliest of: (a) November 14, 2010; or (b) the date when all shares of Stock reserved for issuance under the Plan shall have been acquired through exercise of Options granted under the Plan; or (c) such earlier date as the Board or Committee may determine. 5. THE STOCK. The aggregate number of shares of Stock issuable under the Plan shall be one hundred fifty thousand (150,000) shares or the number and kinds of shares of capital stock or other securities substituted for the Stock as provided in Section 8. The aggregate number of shares of Stock issuable under the Plan may be set aside out of the authorized but unissued shares of Stock not reserved for any other purpose or out of shares of Stock held in or acquired for the treasury of the Company. All shares of Stock subject to an Option that terminates unexercised for any reason may thereafter be subjected to a new Option under the Plan. 6. OPTION AGREEMENT. Each Grantee shall enter into a written agreement with the Company setting forth the terms and conditions of the Option issued to the Grantee, consistent with the Plan. The form of agreement to evidence Options may be established at any time or from time to time by the Committee. No Grantee -2- shall have rights in any Option unless and until a written option agreement is entered into with the Company. 7. TERMS AND CONDITIONS OF OPTIONS. Options may be granted by the Committee at any time and from time to time prior to the termination of the Plan. Except as hereinafter provided, Options granted under the Plan shall be subject to the following terms and conditions: (a) GRANTEES. The Grantees shall be those employees of the Company (including officers and directors) and any subsidiaries of the Company, selected by the Committee, provided that no Incentive Stock Options shall be granted to (i) any person owning Stock or other capital stock in the Company possessing more than 10% of the total combined voting power of all classes of capital stock of the Company, unless such Grantee meets the requirements of 7(b) and 7(e); or, (ii) any director who is not an employee. The maximum number of Options which may be granted to a Grantee within a calendar year is fifty thousand (50,000) shares of the Company's Stock. (b) PRICE. The exercise price of an Option shall be no less than the fair market value of the Stock, without regard to any restriction, at the time the Option is granted. If a Grantee owns more than 10% of the total combined voting power of all classes of stock of the Company, the share price of any Options granted to such individual shall be 110% of the fair market value of the Stock. The Committee shall establish procedures to determine the fair market value of the Stock. (c) PAYMENT FOR STOCK. The exercise price of an Option shall be paid in full at the time of the exercise in (i) cash, or (ii) by certified check payable to the Company, or (iii) by other mode of payment as the Committee may approve. (d) LIMITATION. Notwithstanding any provision of the Plan to the contrary, an Option shall not be treated as an Incentive Stock Option to the extent to which the aggregate fair market value (determined as of the time an Incentive Stock Option is granted) of Stock for which Incentive Stock Options are exercisable for the first time buy a Grantee during any calendar year exceeds $100,000. (e) DURATION AND EXERCISE OF OPTIONS. Options may be exercised for terms of up to but not exceeding ten years from the date of grant. Subject to the foregoing, Options shall be exercisable at the times and in the amounts (up to the full amount thereof) determined by the Board or Committee at the time of grant. If an Option granted under the Plan is exercisable in installments the Board or Committee shall determine what events, if any, will make it subject to acceleration. If an Option is granted to an employee who owns more than 10% of the combined voting power of all classes of stock of the Company, the Option must be exercised within 5 years. (f) TERMINATION OF EMPLOYMENT. Upon the termination of the Grantee's employment, the right to exercise an Option shall be set forth in the agreement entered into between the Company and the Grantee. (g) TRANSFERABILITY OF OPTION. No Option shall be transferable except by will or the laws of descent and distribution. An Option shall be exercisable during the Grantee's lifetime only by the Grantee. -3- (h) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options granted under the Plan, or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution thereof. Notwithstanding the foregoing, however, no modification of an Option shall, without the consent of the Grantee, alter or impair any rights or obligations under any Option theretofore granted under the Plan or adversely affect the status of an Incentive Stock Option. (i) OTHER TERMS AND CONDITIONS. Option agreements may contain any other provision not inconsistent with the Plan that the Committee deems appropriate. 8. ADJUSTMENT FOR CHANGES IN THE STOCK. (a) In the event the shares of Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares or other securities of the Company (whether by reason of merger, consolidation, recapitalization, reclassification, split, reverse split, combination of shares or otherwise), then there shall be substituted for or added to each share of Stock theretofore or thereafter subject to an Option the number and kind of shares of capital stock or other securities into, which each outstanding share of Stock shall be changed, or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. The price and other terms of outstanding Options shall also be appropriately amended to reflect the foregoing events. In the event there shall be any other change in the number or kind of outstanding shares of the Stock, or of any capital stock or other securities into which the Stock shall have been changed or for which it shall have been exchanged, if the Committee shall, in its sole discretion, determine that the change equitably requires an adjustment in any Option theretofore granted or which may be granted under the Plan, then adjustments shall be made in accordance with its determination. (b) Fractional shares resulting from any adjustment in Options pursuant to this Section 8 may be settled in cash or otherwise as the Committee shall determine. Notice of any adjustment shall be given by the Company to each holder of an Option that shall have been so adjusted, and the adjustment (whether or not notice is given) shall be effective and binding for all purposes of the plan. (c) Notwithstanding Section 8(a), the Committee shall have the power, in the event of the disposition of all or substantially all of the assets of the Company, or the dissolution of the Company, or the merger or consolidation of the Company, or the making of a tender offer to purchase all or a substantial portion of outstanding Stock of the Company, to amend all outstanding Options (upon such conditions as it shall deem fit) to (i) permit the exercise of Options prior to the effective date of the transaction and to terminate all unexercised Options as of that date, or (ii) require the forfeiture of all Options, provided the Company pays to each Grantee the excess of the fair market value of the Stock subject to the Option (determined in accordance with Section 7(b)) over the exercise price of the Option, or (iii) make any other provisions that the Committee deems equitable. 9. AMENDMENT OF THE PLAN. The Committee may amend the Plan, may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option in the manner and to the extent deemed desirable to carry out the Plan without action on the part of the stockholders of the Company; provided, however, that, except as provided in Section 8 and this Section 9, unless the stockholders of the Company shall have first -4- approved thereof (i) the total number of shares of Stock subject to the Plan shall not be increased, (ii) no Option shall be exercisable more than ten years after the date it is granted, (iii) the expiration date of the Plan shall not be extended and (iv) no amendment shall permit the exercise price of any Option to be less than the fair market value of the Stock at the time of grant, increase the number of shares of Stock to be received on exercise of an Option, materially increase the benefits accruing to a Grantee under an Option or modify the eligibility requirements for participation in the Plan. 10. INTERPRETATION AND CONSTRUCTION. The interpretation and construction of any provision of the Plan by the Committee shall be final, binding and conclusive for all purposes. 11. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Stock pursuant to this Plan will be used for general corporate purposes. 12. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall impose no obligation upon the Grantee to exercise an Option. 13. PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan is not a contract of employment, and the terms of employment of any Grantee shall not be affected in any way by the Plan or related instruments except as specifically provided therein. The establishment of the Plan shall not be construed as conferring any legal rights upon any Grantee for a continuance of employment; nor shall it interfere with the right of the Company to discharge Grantee. 14. EXPENSE OF THE PLAN. All of the expenses of administering the Plan shall be paid by the Company. 15. COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates for shares of Stock issuable upon exercise of an Option unless and until the Company is advised by its counsel that the issuance and delivery of the certificates is in compliance with all applicable laws, regulations of government authorities and the requirements of any exchange upon which shares of stock are traded. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of certificates to comply with any of those laws, regulations or requirements. The Committee may require, as a condition of the issuance and delivery of certificates and in order to ensure compliance with those laws, regulations and requirements, that the Grantee make such covenants, agreements and representations as the Board or Committee, in its sole discretion, deems necessary or desirable. Each Option shall be subject to the further requirement that if at any time the Committee shall determine in its discretion that the listing or qualification of the Shares of Stock subject to the Option, under any securities exchange requirements or under any applicable law, or the consent or approval of any regulatory body, is necessary in connection with the granting of the Option or the issuance of stock thereunder, the Option may not be exercised in whole or in part unless -5- the listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 16. GOVERNING LAW. Except to the extent preempted by federal law, this Plan shall be construed and enforced in accordance with, and governed by, the laws of the State of New Jersey. -6- EX-10.19 3 ex10-19_23192.txt NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN TECH LABORATORIES, INC. NOVEMBER 2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. PURPOSE. The purpose of the Tech Laboratories, Inc. ("Tech Labs" or the "Company") November 2000 Non- employee Director Stock Option Plan (the "Plan") is to provide for the grant of stock options as an incentive to selected non-employee directors of Tech Labs and any Subsidiary of the Company, to acquire a proprietary interest in the Company, to continue as directors, and to increase their efforts on behalf of the Company. 2. THE PLAN. The Plan provides for the grant of options to acquire shares of the Company's common stock, par value $.01 (the "Stock"). Options granted under the Plan are not intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 3. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Board " shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (c) "Company" shall mean Tech Labs, a New Jersey corporation, and any successor corporation. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (e) "Fair Market Value" means, as of any date, the value of Stock or other property determined as follows: (i) If the Stock is listed on any established stock exchange or a national market system, including without limitation the Bulletin Board, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination; (ii) If the Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Stock on the last market trading day prior to the day of determination; or (f) "Grantee" shall mean a non-employee director of the Company to whom an Option has been granted under the terms of the Plan. (g) "Nonemployee Director" shall mean a director of the Company who is a "nonemployee director" within the meaning of Rule 16b-3. (h) "Option" shall mean the option to purchase the common stock of the Company pursuant to this Plan. (i) "Option Agreement" shall mean a written agreement between the Company and a Grantee as described in Section 6. (j) "Outside Director" shall mean a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code. (k) "Plan" shall mean this Tech Labs 2000 Non-employee Director Stock Option Plan, as amended from time to time. (l) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation. (m) "Stock" shall mean shares of Common Stock, $.01 par value, of the Company or such other securities or property as may become subject to Options pursuant to an adjustment made under Section 8. (n) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns more than 50% of the total combined voting power of all classes of stock in one of the other corporations in such chain. 4. ADMINISTRATION. (a) The Plan shall be administered the Board. (b) The Board shall have plenary authority in its discretion, subject only to the express provisions of the Plan: (i) to select the Grantees, the number of shares of Stock subject to each Option and terms of the Option granted to each Grantee (including without limitation the period during which such Option can be exercised and any restrictions on exercise), provided that, in making its determination, the Committee shall consider the value and accomplishment of the individual to the Company, the individual's present and potential contribution to the success of the Company, and any other factors that the Committee may deem relevant. (ii) to determine the dates of the Option grants; (iii) to prescribe the form of the Option Agreements; (iv) to adopt, amend and rescind rules and regulations for the administration of the Plan and for its own acts and proceedings; -2- (v) to decide all questions and settle all controversies and disputes of general applicability that may arise in connection with the Plan; and (vi) to modify or amend any outstanding Option as provided in Section 8(h). All decisions, determinations and interpretations with respect to the foregoing matters shall be made by the Board and shall be final and binding upon all persons. (c) EXCULPATION. No member of the Board shall be personally liable for monetary damages for any action taken or any failure to take any action in connection with the administration of the Plan or the granting of Options under it unless such action or failure to take action constitutes self-dealing, willful misconduct or recklessness; provided, however, that the provisions of this subsection shall not apply to the responsibility or liability of a director pursuant to any criminal statute or to the liability of a director for the payment of taxes pursuant to local, state or federal law. (d) INDEMNIFICATION. Each member of the Board shall be entitled without further act on his part or her part to indemnity from the Company to the fullest extent provided by applicable law and the Company's Certificate of Incorporation or Bylaws in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options under it in which he or she may be involved by reason of being or having been a member of the Board at the time of the action, suit or proceeding. 5. EFFECTIVENESS AND TERMINATION OF THE PLAN. The Plan shall become effective as of November 14, 2000, the date of its adoption by the Board, provided that the Plan is approved by the stockholders of the Company within one year of its adoption. Any Option outstanding at the time of termination of the Plan shall remain in effect in accordance with its terms and conditions and those of the Plan. The Plan shall terminate on the earliest of: (a) November 14, 2010; or (b) the date when all shares of Stock reserved for issuance under Section 6 of the Plan shall have been acquired through exercise of Options granted under the Plan; or (c) such earlier date as the Board may determine. 6. THE STOCK. The aggregate number of shares of Stock issuable under the Plan shall be one hundred thousand (100,000) shares or the number and kinds of shares of capital stock or other securities substituted for the Stock as provided in Section 9. The aggregate number of shares of Stock issuable under the Plan may be set aside out of the authorized but unissued shares of Stock not reserved for any other purpose, or out of shares of Stock held in or acquired for the treasury of the Company. All shares of Stock subject to an Option that terminates unexercised for any reason may thereafter be subjected to a new Option under the Plan. -3- 7. OPTION AGREEMENT. Each Grantee shall enter into an Option Agreement with the Company setting forth the terms and conditions of the Option issued to the Grantee, consistent with the Plan. The form of Option Agreement may be established at any time or from time to time by the Committee. No Grantee shall have rights in any Option unless and until an Option Agreement is entered into with the Company. 8. TERMS AND CONDITIONS OF OPTIONS. Options may be granted by the Committee at any time and from time to time prior to the termination of the Plan. Except as hereinafter provided, Options granted under the Plan shall be subject to the following terms and conditions: (a) GRANTEES. The Grantees shall be those non-employee directors of the Company or its Subsidiaries selected by the Committee. The maximum number of shares of Stock which may be issued pursuant to Options granted to a Grantee within a calendar year is 50,000. (b) PRICE. The exercise price of an Option shall be set by the Board but shall be no less than the Fair Market Value of the Stock at the time the Option is granted. (c) PAYMENT FOR STOCK. The exercise price of an Option shall be paid in full at the time of the exercise in (i) cash, or (ii) by certified check payable to the Company, or (iii) by other mode of payment as the Committee may approve. (d) DURATION AND EXERCISE OF OPTIONS. Options may be exercised for terms of up to but not exceeding ten years from the date of grant. Subject to the foregoing, Options shall be exercisable at the times and in the amounts (up to the full amount thereof) determined by the Committee at the time of grant. If an Option granted under the Plan is exercisable in installments the Committee shall determine what events, if any, will make it subject to acceleration. (e) STATUS OF NON-EMPLOYEE DIRECTOR. Upon the happening of any event which causes Grantee to lose status as a non-employee director, Options held by the Grantee may only be exercised to the extent and during the period, if any, set forth in the Option Agreement. (f) TRANSFERABILITY OF OPTION. No Option shall be transferable except by will or the laws of descent and distribution. An Option shall be exercisable during the Grantee's lifetime only by the Grantee. (g) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms and conditions and within the limitations of the Plan, the Board may modify, extend or renew outstanding Options granted under the Plan, or accept the surrender of outstanding options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution thereof. Notwithstanding the foregoing, however, no modification of an Option shall, without the consent of the Grantee, alter or impair any rights or obligations under any Option theretofore granted under the Plan. (h) OTHER TERMS AND CONDITIONS. Option Agreements may contain any other provision not inconsistent with the Plan that the Board deems appropriate. -4- 9. ADJUSTMENT FOR CHANGES IN THE STOCK. (a) In the event the shares of Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares or other securities of the Company (whether by reason of merger, consolidation, recapitalization, reclassification, split, reverse split, combination of shares or otherwise), then there shall be substituted for or added to each share of Stock theretofore or thereafter subject to an Option the number and kind of shares of capital stock or other securities into, which each outstanding share of Stock shall be changed, or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. The price and other terms of outstanding Options shall also be appropriately amended to reflect the foregoing events. In the event there shall be any other change in the number or kind of outstanding shares of the Stock, or of any capital stock or other securities into which the Stock shall have been changed or for which it shall have been exchanged, if the Board shall, in its sole discretion, determine that the change equitably requires an adjustment in any Option theretofore granted or which may be granted under the Plan, then adjustments shall be made in accordance with its determination. (b) Fractional shares resulting from any adjustment in Options pursuant to this Section 9 may be settled in cash or otherwise as the Board shall determine. Notice of any adjustment shall be given by the Company to each holder of an Option that shall have been so adjusted, and the adjustment (whether or not notice is given) shall be effective and binding for all purposes of the plan. (c) Notwithstanding Section 9(a), the Board shall have the power, in the event of the disposition of all or substantially all of the assets of the Company, or the dissolution of the Company, or the merger or consolidation of the Company, or the making of a tender offer to purchase all or a substantial portion of outstanding Stock of the Company, to amend all outstanding Options (upon such conditions as it shall deem fit) to (i) permit the exercise of Options prior to the effective date of the transaction and to terminate all unexercised Options as of that date, or (ii) require the forfeiture of all Options, provided the Company pays to each Grantee the excess of the Fair Market Value of the Stock subject to the Option over the exercise price of the Option, or (iii) make any other provisions that the Board deems equitable. 10. AMENDMENT OF THE PLAN. The Board may amend the Plan, may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option in the manner and to the extent deemed desirable to carry out the Plan without action on the part of the stockholders of the Company; provided, however, that, except as provided in Section 9 and this Section 10, unless the stockholders of the Company shall have first approved thereof (i) the total number of shares of Stock subject to the Plan shall not be increased, (ii) no Option shall be exercisable more than ten years after the date it is granted, (iii) the expiration date of the Plan shall not be extended and (iv) no amendment shall permit the exercise price of any Option to be less than the Fair Market Value of the Stock at the time of grant, increase the number of shares of Stock to be received on exercise of an Option, materially increase the benefits accruing to a Grantee under an Option or modify the eligibility requirements for participation in the Plan. 11. INTERPRETATION AND CONSTRUCTION. The interpretation and construction of any provision of the Plan by the Board shall be final, binding and conclusive for all purposes. -5- 12. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Stock pursuant to this Plan will be used for general corporate purposes. 13. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall impose no obligation upon the Grantee to exercise an Option. 14. NO RIGHT TO CONTINUE AS DIRECTOR. Neither the Plan nor any Option Agreement shall constitute an agreement or understanding, expressed or implied, that the Company will retain a Grantee as a Director for any period of time. 15. EXPENSE OF THE PLAN. All of the expenses of administering the Plan shall be paid by the Company. 16. COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates for shares of Stock issuable upon exercise of an Option unless and until the Company is advised by its counsel that the issuance and delivery of the certificates is in compliance with all applicable laws, regulations of government authorities and the requirements of any exchange upon which shares of Stock are traded. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of certificates to comply with any of those laws, regulations or requirements. The Committee may require, as a condition of the issuance and delivery of certificates and in order to ensure compliance with those laws, regulations and requirements, that the Grantee make such covenants, agreements and representations as the Committee, in its sole discretion, deems necessary or desirable. Each Option shall be subject to the further requirement that if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of Stock subject to the Option, under any securities exchange requirements or under any applicable law, or the consent or approval of any regulatory body, is necessary in connection with the granting of the Option or the issuance of Stock thereunder, the Option may not be exercised in whole or in part unless the listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 17. GOVERNING LAW. Except to the extent preempted by federal law, this Plan shall be construed and enforced in accordance with, and governed by, the laws of the State of New Jersey. -6- EX-10.20 4 d23192_ex10-20.txt ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT This AGREEMENT made this 1st day of June, 2000, by and between Tech Laboratories, Inc., a New Jersey corporation having its principal place of business at 955 Belmont Avenue, North Haledon, New Jersey 07508 ("Tech Labs"), Tech Labs Community Networks of the Southeast, Inc., a Delaware corporation having its principal place of business at 955 Belmont Avenue, North Haledon, New Jersey 07508 ("TL Southeast" or "Purchaser"), m3communications, Inc., a Florida corporation having its principal place of business at 806 Sarasota Quay, Sarasota, Florida 34236 ("Seller") and the shareholders of the Seller set forth on Schedule A (the "Selling Shareholders"). Each of Tech Labs, TL Southeast, the Seller and the Selling Shareholders are individually referred to as a "Party" and collectively as the "Parties." WITNESSETH: WHEREAS, Tech Labs is in the business of providing telecommunications distribution and management equipment; and WHEREAS, the Seller has entered into certain contracts to provide telecommunications services to property developments (the "Property Contracts") and certain assets (the "Assets"); and WHEREAS, Tech Labs' wholly owned sub-subsidiary, TL Southeast, has the exclusive authority to develop the Tech Labs' business of providing telecommunications services to property developments to customers in the States located in the Territory (as defined below); and WHEREAS, the Seller desires to sell and assign to TL Southeast the Property Contracts and the Assets, and Tech Labs and TL Southeast desire to purchase and have the Property Contracts assigned to TL Southeast as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. Purchase and Sale at the Closing. 1.1. On the terms and subject to the conditions provided in this Agreement, at the "Closing" (as hereinafter defined), Seller shall convey, sell, transfer, assign, and deliver to TL Southeast, and Tech Labs shall purchase and TL Southeast shall accept, all the right, title, and interest in the Property Contracts and the Assets, which are all set forth on Schedule B, annexed hereto and made a part hereof. 1.2. The Property Contracts and Assets shall be acquired free and clear of any liens, claims, and encumbrances. 1.3. The transfer of the Property Contracts and Assets as herein provided shall be effected by bills of sale, assignments and other instruments of transfer and conveyance delivered to TL Southeast on the Closing Date in form sufficient to transfer the Property Contracts and Assets as contemplated by this Agreement and as shall be reasonably requested by TL Southeast. 2. Assumption of Contract Obligations. On the Closing Date, TL Southeast shall assume all the liabilities and contractual obligations of the Property Contracts and Assets. 3. Consideration. In consideration for Seller's transfer of the Property Contracts and Assets to Tech Labs' wholly-owned sub-subsidiary, TL Southeast, Tech Labs shall pay to the Seller as follows: 3.1. Twenty-five thousand (25,000) shares of the common stock of Tech Labs which, at the time of Closing, will be duly authorized, validly issued, fully paid, and non-assessable, and which shall be delivered to Seller at Closing pursuant to a stock representation letter (the "Stock Representation Letter") executed by Tech Labs and Seller; providing, among other things, that the sale of the shares is not registered under the federal securities laws and the shares are being purchased for investment purposes and not with a view toward resale. 3.2. Warrants to purchase one hundred thousand (100,000) shares of common stock of Tech Labs, exercisable within three (3) years from the Closing Date at an exercise price equal to the closing price of Tech Labs' common stock on the Closing Date, which shall be delivered to Seller at Closing pursuant to a warrant agreement (the "Warrant Agreement"); 3.3. Twenty percent (20%) of the shares of common stock of TL Southeast which, at the time of Closing, shall be duly authorized, validly issued, fully paid, and non-assessable, and which shall be delivered to Seller at Closing and will bear the customary restrictive legend against transfer and a legend stating that the shares are subject to the terms of a certain shareholders' agreement dated _______, 2000 by and between Tech Labs Community Networks, Inc. ("Community Networks"), a wholly owned subsidiary of Tech Labs and parent corporation of TL Southeast, TL Southeast and m3 (the "Shareholders' Agreement"); and 3.4. In accordance with the accounting and distribution procedures to be adopted by Bernard M. Ciongoli, Terry Nelson and/or a member of the board of directors of TL Southeast designated by the Seller, TL Southeast shall pay to Seller twenty percent (20%) of the monthly "adjusted gross income", as such term is defined under generally accepted accounting principles, generated from each contract for telecommunications services to property developments that TL Southeast enters into within one hundred and twenty (120) days of the date hereof within the states of Virginia, North Carolina, South Carolina, Kentucky, Tennessee, Georgia, Alabama, Louisiana, Mississippi and Florida (such states are hereinafter referred to as the "Territory"). 4. The Closing. The closing of the transaction contemplated by this Agreement (the "Closing") shall be held at the offices of Stursberg & Veith at such time and date as may be agreed to by the Parties (the "Closing Date"), but in no event later than June 9, 2000. 5. Representations and Warranties of the Seller and Selling Shareholders. The Seller and the Selling Shareholders represent and warrant to Tech Labs and TL Southeast that the statements contained in this Section 5 are true, correct, and complete as of the date of this Agreement and will be true, correct, and complete as of the Closing Date: 5.1. The Seller has the corporate power and authority to enter into this Agreement and the agreements, as of Closing, set forth in Section 3 of this Agreement (which agreements are hereinafter collectively referred to as the "Selling Agreements"), and to carry-out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Selling Agreements, as of Closing, and the consummation of the transaction contemplated hereby and thereby have been duly authorized by the Seller's Board of Directors. This Agreement constitutes the valid and binding obligation of the Seller, and the Selling Agreements, when executed and delivered, will constitute the valid and binding obligations of the Seller and Selling Shareholders, in each case enforceable in accordance with their terms. -2- Except for the approval of the Selling Shareholders, no other corporate proceedings on the part of the Seller are necessary to authorize this Agreement and the Selling Agreements and the transactions contemplated hereby and thereby. 5.2. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida, and has all requisite corporate power and authority to own, lease and operate its assets, properties and business and to carry on its business as now being conducted. 5.3. The Seller has heretofore delivered to Tech Labs true and complete copies of the Seller's certificate of incorporation, by-laws and currently valid letter of good standing. 5.4. The Seller is not in violation of any applicable order, judgement, injunction, award or decree, law, ordinance or regulation or any other requirement of any Governmental Entity applicable to the Seller. Neither the Seller nor the Selling Shareholders have received notice that any such violation has been alleged or is being investigated. 5.5. The Seller has good, valid title to all Property Contracts and Assets, and has the power to transfer, convey, and assign the Property Contracts and Assets. The Property Contracts and Assets are free and clear of all, as applicable, liens, claims, charges, security interests, or other encumbrances of any nature whatsoever, including, without limitation, leases, chattel mortgages, conditional sales contracts, collateral security arrangements, and other title or interest retention arrangements. 5.6. To the best of Seller's and Selling Shareholders' knowledge, the Seller is not in default under any of the Property Contracts, and has no knowledge of any threat of cancellation or termination of the Property Contracts. Neither the execution of this Agreement, the Selling Agreements or the transactions contemplated by this Agreement or the Selling Agreements, will result in a default under any of the Property Contracts, or create the right to terminate the Property Contracts. Each of the Property Contracts is valid and in full force and effect, and will remain and continue in full force and effect upon the assignment thereof by Seller to Purchaser. 5.7. The Seller has the authority under the terms of each of the Property Contracts to assign the Property Contracts as contemplated by this Agreement. By Closing, the transfer, assignment, and delivery of the Property Contracts and Assets to TL Southeast shall have been duly authorized by all requisite corporate action on behalf of the Seller. 5.8. The Seller has duly and timely filed all federal, state, foreign and other tax returns and reports required to be filed on or before the date hereof, and has paid all taxes due and payable. 5.9. Seller, by Closing, has obtained all necessary consents and approvals necessary to effectuate the transactions contemplated by this Agreement and the Selling Agreements, including but not limited to the assignments of the Property Contracts and bills of sale for the Assets. 5.10. Selling Shareholders, by Closing, have ratified and approved the transfer and assignment of the Property Contracts and Assets, the execution of this Agreement and the Selling Agreements and related transactions. A true and complete copy of such shareholder resolutions has been delivered to Tech Labs. 5.11. The Seller and Selling Shareholders have been advised by counsel that the State of Florida has repealed its so-called "Bulk Sales Laws" or "Bulk Transfer Laws," and, accordingly, there are -3- no requirements under the laws of the State of Florida to notify creditors of the transaction contemplated by this Agreement. 5.12. Neither the execution and the delivery of this Agreement and the Selling Agreements, nor the consummation of the transactions contemplated hereby and thereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller or any of its properties or Property Contracts and Assets is subject or any provision of the charter or bylaws of the Seller, or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any third party the right to accelerate, terminate, or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Seller is a party or by which it is bound or to which any of its properties or Property Contracts and Assets is subject, or (C) result in the imposition of any mortgage, pledge, lien, encumbrance, charge, or other security interest upon any of its properties or Property Contracts and Assets, except for encumbrances that do not in any material respect adversely detract from the value of the property subject thereto or materially impair the operation of the business of Tech Labs and TL Southeast. 5.13. Schedule A contains a true and complete list of all shareholders of the Seller. 5.14. Schedule C contains a true and complete list of all parties which have entered into non-competition agreements with Seller. 6. Representations and Warranties of Tech Labs and TL Southeast. Tech Labs and TL Southeast represent and warrant to the Seller and Selling Shareholders that the statements contained in this Section 6 are true, correct, and complete as of the date of this Agreement and will be true, correct, and complete as of the Closing Date, except as disclosed in writing to the Seller and Selling Shareholders prior to Closing. 6.1. TL Southeast shall be on the Closing Date a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware. TL Southeast has all requisite corporate power and authority to carry-out the obligations of the Property Contracts and to conduct the proposed business of TL Southeast. 6.2. Tech Labs is and shall be on the Closing Date a corporation duly organized and validly existing and in good standing under the laws of the State of New Jersey. 6.3. The execution, delivery and performance of this Agreement by Tech Labs and TL Southeast have been duly authorized by Tech Labs and TL Southeast, respectively, and will not result in a breach of any term or provision of, or constitute a default under, any agreement or other instrument to which either Tech Labs or TL Southeast is a party or by which either is bound. This Agreement is binding upon and enforceable against Tech Labs and TL Southeast. 6.4. The shares of Tech Labs and TL Southeast common stock being issued and sold pursuant to this Agreement, when paid for as set forth herein, will be duly authorized, validly issued, fully paid and non-assessable. 6.5. Tech Labs has reserved and set aside, out of its authorized but unissued shares of common stock, a sufficient number of shares of common stock for issuance upon conversion of the Warrants issued pursuant to the Warrant Agreement. -4- 6.6. Tech Labs represents and acknowledges that TL Southeast shall have the right to enter into, develop and fulfill all contracts for providing telecommunications services to property developments in the Territory; and, provided that Seller or any affiliate or subsidiary of Seller or any of the Selling Shareholders shall not enter into, develop or fulfill any contract for telecommunications services to property developments in the Territory, neither Tech Labs nor any subsidiary or affiliate of Tech Labs (with the exception of TL Southeast) shall have the right to enter into, develop and fulfill any contract for providing telecommunications services to property developments in the Territory. 7. Conditions Precedent to Seller's and Selling Shareholders' Obligations. The obligations of Seller and Selling Shareholders to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing Date, of the following conditions: 7.1. Except as disclosed in writing to Seller and Selling Shareholders prior to Closing, all representations, warranties and covenants made in this Agreement by Tech Labs and TL Southeast shall be true as of the Closing Date as fully as though such representations, warranties and covenants had been made on and as of the Closing Date, and Tech Labs and TL Southeast shall not have violated or shall not have failed to perform in accordance with any covenant contained in this Agreement. 7.2. Delivery of an officer's certificate certifying the accuracy of Seller's representations and warranties as of the Closing Date in a form acceptable to Tech Labs, which shall include at a minimum the officer's certification that (i) the Selling Shareholders have ratified and approved the Agreement, and (ii) that the Seller has assigned the Property Contracts and Assets in a manner acceptable to Tech Labs and TL Southeast. 7.3. Acceptance by Seller and Selling Shareholders of the terms set forth in the Stock Representation Letter, the Warrant Agreement, and the Shareholders' Agreement. 8. Conditions Precedent to Tech Labs' and TL Southeast's Obligations The obligations of Tech Labs and TL Southeast to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or at the Closing Date, of the following conditions: 8.1. Except as disclosed in writing to Tech Labs and TL Southeast prior to Closing, all representations and warranties made in this Agreement by Seller and Selling Shareholders shall be true as of the Closing Date as fully as though such representations, warranties and covenants had been made on and as of the Closing Date, and, as of the Closing Date, neither Seller nor Selling Shareholders shall have violated or shall have failed to perform in accordance with any covenant contained in this Agreement. 8.2. The execution and delivery, either prior to or simultaneous with the Closing, of the Stock Representation Letter, the Warrant Agreement, and the Shareholders' Agreement, the Assignment, and such other documents as Tech Labs and TL Southeast shall reasonably request. 9. Covenant Not to Compete; Nondisclosure 9.1. Noncompetition. (a) For the greater of (i) a period of one (1) year after the Closing Date or (ii) for such period of time that Seller and Community Networks are parties to the Shareholders' Agreement, the Seller, or Seller's successor in interest, and Selling Shareholders, as applicable, shall not, directly or indirectly, (1) own an interest in; or (2) participate (as an officer, director, or in any other -5- capacity) in the management, operation, or control of; or (3) perform services as or act in the capacity of an employee, independent contractor, consultant, or agent of any enterprise engaged, directly or indirectly, in the business of providing telecommunication services to property developments or in competition with any other business conducted by Tech Labs or TL Southeast except with the prior written consent of Tech Labs; provided, however, Selling Shareholders may (i) purchase securities, for investment purposes only, in companies listed on a national securities exchange or actively traded over the counter so long as such investments do not collectively, among all Selling Shareholders in the aggregate, exceed five percent (5%) of the outstanding securities of such companies, and (ii) individually work as an employee in a non-executive capacity for companies providing telecommunications services so long as such individual has no equity ownership, directly or indirectly, in such employer. (b) For the greater of (i) a period of one (1) year after the Closing Date or (ii) for such period of time that Seller and Community Networks are parties to the Shareholders' Agreement, neither Tech Labs nor any subsidiary or affiliate of Tech Labs (with the exception of TL Southeast) shall have the right to enter into, develop, and fulfill any contract for providing telecommunications services to property developments in the Territory. (c) The parties agree that if either (i) the Seller and/or any of the Selling Shareholders or (ii) Tech Labs and/or TL Southeast breach this covenant not to compete, the other non- breaching party shall not be obligated to abide by the covenant not to compete. (d) The Seller, Selling Shareholders, Tech Labs, and TL Southeast further agree that the time limitations set forth in this Section 9.1 not to compete are reasonable. 9.2. Confidentiality. The Seller and Selling Shareholders agree not to, at any time, directly or indirectly, use, communicate, disclose or disseminate any and all information relating to the business and operations of Tech Labs and/or TL Southeast or the Property Contracts. 9.3. Injunction. The Parties agree that it would be difficult to measure the damage to Tech Labs and TL Southeast or Seller or Seller's successor in interest (as the case may be) from any breach of Section 9 and that monetary damages would be an inadequate remedy for any such breach. Accordingly, the Parties agree that if there shall be a breach of Section 9, Tech Labs and/or Community Networks or Seller or Seller's successor in interest (as the case may be) shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by Tech Labs and/or TL Southeast or Seller or Seller's successor in interest (as the case may be). 9.4. Scope of Restriction. It is the intent of the Parties that the covenants contained in this Section 9 shall be enforced to the fullest extent permissible under the laws of the state in which enforcement is sought. The Parties agree that if any one or more of the provisions of Section 9 shall be adjudicated to be invalid or unenforceable for any reason whatsoever, said provision shall be construed by limiting and reducing it so as to be enforceable to the extent permissible. 10. Survival of Representations and Warranties The representations, warranties, covenants, agreements, and indemnification, as applicable, of each of the Parties contained in this Agreement shall survive the Closing Date and shall be deemed to be material and to have been relied upon by the Parties notwithstanding any investigation heretofore or hereafter made by the Parties, or on their respective behalfs. -6- 11. Miscellaneous 11.1. Default. In the event a Party fails to comply with the terms of this Agreement, any other party to this Agreement shall be entitled to (a) injunctive relief, as a matter of right, in any court of competent jurisdiction; (b) any other relief or remedy that may be available pursuant to this Agreement or at law or equity. 11.2. Notices. All notices hereunder shall be in writing and be given by registered or certified mail, postage and registration fees prepaid, or by overnight delivery, and shall be deemed given when so mailed as follows: If to Tech Labs and/or TL Southeast: Bernard M. Ciongoli Tech Laboratories, Inc. 955 Belmont Avenue North Haledon, New Jersey 07508 with a copy to: Walter Stursberg Stursberg & Veith 405 Lexington Avenue, Suite 4949 New York, New York 10174 If to the Seller and/or the Selling Shareholders: m3communications, Inc. 806 Sarasota Quay Sarasota, Florida 34236 with a copy to: Peter A. Shoemann Holland & Knight 400 North Ashley Drive, Suite 2300 P.O. Box 1288 (Zip 33601-1288) Tampa, FL 33602-4300 The foregoing addresses may be changed by notices given in the manner set forth in this section. 11.3. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New Jersey without giving effect to the principals of the conflict of laws thereof. -7- 11.4. Waivers. The waiver by the undersigned of any of the provisions of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 11.5. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect the construction and interpretation of this Agreement. 11.6. Severability. Should any clause, section, or part of this Agreement be held or declared to be void or illegal for any reason, all other clauses, sections, or parts of this Agreement that can be effected without such illegal clause, section, or part shall nevertheless remain in full force and effect. 11.7. Binding Effect; Benefits. This Agreement shall not be assigned without the prior written consent of the Parties; provided, however, Tech Labs and/or TL Southeast may assign this Agreement, provided that such assignment does not circumvent or harm the interests of Seller and Selling Shareholders, as such interests are set forth in this Agreement, to one or more of their respective affiliates, except that Tech Labs may not assign its obligation, as set forth in Section 3 hereof, to issue the securities to Seller, nor in anyway affect the delivery of the remaining consideration to Seller pursuant to Section 3 hereof. This Agreement shall be binding upon and inure to the benefit of the Parties, their heirs, personal representatives, successors, and permitted assignees. 11.8. Interpretation of Syntax and Captions. All references made and pronouns used herein shall be construed in the singular or plural, and in such gender, as the sense and circumstances require. 11.9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. This Agreement may contain more than one counterpart of the signature page and may be executed by the affixing of the signatures of the Parties to one of these counterpart signature pages. All of the counterparts signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 11.10.Execution of Documents. The Parties hereto agree to execute and deliver, without cost or expense to any other party, any and all such further instruments or documents and to take any and all such further action reasonably requested by such other of the Parties hereto as may be necessary or convenient in order to effectuate this Agreement and the interests and purposes thereof. 11.11. Submission to Jurisdiction; Venue. Any action or proceeding against any Party hereto with respect to this Agreement shall be brought in the courts of the State of New Jersey or of the United States of America for the District of New Jersey, and, by execution and delivery of this Agreement, each Party hereto hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Party hereto irrevocably consents to the service of process at the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Party at its address set forth in Section 10.2, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of any Party hereto to serve process on any other Party hereto in any other manner permitted by law. Each Party hereto irrevocably waives any objection which it may now have or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the court referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. -8- 11.12. Indemnification. Seller and Selling Shareholders shall defend and promptly indemnify Tech Labs and/or TL Southeast and save and hold them harmless from, against, for, and in respect of, and pay any and all damages, losses, obligations, liabilities, claims, encumbrances, deficiencies, costs, and expenses, including, without limitation, reasonable attorneys' fees, and other costs and expenses incident to any suit, action, investigation, claim, or proceeding suffered, sustained, incurred, or required to be paid by Tech Labs and/or TL Southeast resulting from any breach or failure of observance or performance of any representation, warranty, covenant, or agreement made by Seller and/or Selling Shareholders hereunder or relating to or as a result of any such representation, warranty, covenant, or agreement being untrue or incorrect in any respect. 11.13. Entire Agreement. This Agreement, including the attached Schedules A, B and C, the Stock Representation Letter, a copy of which is attached as Exhibit A, the Warrant Agreement, a copy of which is attached as Exhibit B, and the Shareholders Agreement, a copy of which is attached as Exhibit C, constitute the complete and exclusive statement of the terms and conditions between the Parties. The Parties are not bound by any oral statements that are made outside of this Agreement. This Agreement may not be modified or altered except by written instrument duly executed by the Parties. WHEREFORE, the Parties have executed this Agreement as of the date above written. M3COMMUNICATIONS, INC. TECH LABORATORIES, INC. By: /s/ Paul Hansen By: /s/ Bernard M. Ciongoli -------------------------------- ------------------------------- Paul Hansen Bernard M. Ciongoli President President TECH LABS COMMUNITY NETWORKS OF THE SOUTHEAST, INC. By: /s/ Bernard M. Ciongoli ------------------------------- Bernard M. Ciongoli President -9- SELLING SHAREHOLDERS /s/ Terry Nelson - ---------------------------------------- Terry Nelson /s/ John Ellis - ---------------------------------------- John Ellis /s/ Rick Pettis - ---------------------------------------- Rick Pettis /s/ Edward Branca - ---------------------------------------- Edward Branca /s/ Bruce Frankel, Trustee - ---------------------------------------- Bruce Frankel Revocable Trust /s/ Allan M. Parvey, Trustee - ---------------------------------------- Allan M. Parvey Revocable Trust /s/ on behalf of Molzan Enterprises, LTD - ---------------------------------------- Molzan Enterprises, LTD /s/ Joan Szypulski - ---------------------------------------- Joan Szypulski /s/ Naomi Aleman - ---------------------------------------- Naomi Aleman /s/ Jeff Jewett - ---------------------------------------- Jeff Jewett /s/ Brenda Grewell - ---------------------------------------- Brenda Grewell /s/ David Sudderth - ---------------------------------------- David Sudderth /s/ Daniel Olson - ---------------------------------------- Daniel Olson /s/ Paul Hansen - ---------------------------------------- Paul Hansen /s/ Henry Kavett - ---------------------------------------- Henry Kavett /s/ Julene Pettis - ---------------------------------------- Julene Pettis /s/ Bruce Frankel - ---------------------------------------- Bruce Frankel /s/ Allan M. Parvey - ---------------------------------------- Allan M. Parvey /s/ Frank D'Alessandro - ---------------------------------------- Frank D'Alessandro /s/ Greg Szypulslki - ---------------------------------------- Greg Szypulslki /s/ Laurine Nelson - ---------------------------------------- Laurine Nelson /s/ Michael Aleman - ---------------------------------------- Michael Aleman /s/ James Reilley - ---------------------------------------- James Reilley /s/ Wayne Grewell - ---------------------------------------- Wayne Grewell /s/ Lou Simon - ---------------------------------------- Lou Simon -9- EX-10.21 5 d23192_ex10-21.txt STOCKHOLDERS' AGREEMENT STOCKHOLDERS' AGREEMENT AGREEMENT entered into as of the 22nd day of June, 2000, between Tech Labs Community Networks, Inc., a Delaware corporation ("Community Networks"), Tech Labs Community Networks of the Southeast, Inc., a Delaware corporation (the "Company") and m3communications, Inc., a Florida corporation ("m3"). Community Networks and m3 are individually referred to as a "Stockholder" and collectively as the "Stockholders." WITNESSETH: The Company is a corporation organized under and by virtue of the laws of the State of Delaware and has an authorized capitalization of one thousand five hundred (1,500) shares of common stock, no par value (the "Common Stock"), of which no shares are issued and outstanding. Upon the closing of the transactions by and between Tech Laboratories, Inc. ("Tech Labs"), Community Networks, the Company, m3, and the shareholders of m3, pursuant to which m3 is selling to the Company certain assets and contracts to provide telecommunications services to property developments in consideration for Tech Labs' and Community Networks' transfer of shares of common stock in Tech Labs and the Company to m3, the Stockholders shall own all of the issued and outstanding shares of Common Stock of the Company, the holdings of each Stockholder being as follows: Community Networks 1,200 shares m3 300 shares The shares of stock of the Company described above as owned by the Stockholders and any shares of such stock hereafter acquired by such Stockholders and permitted transferees are referred to herein as the "Stock." The parties hereto deem it expedient for the best interests and welfare of the Company and its Stockholders to provide for the future disposition of the Stock by imposing certain restrictions and obligations on themselves and such Stock. NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants herein contained, it is agreed as follows: SECTION 1. DEFINITIONS AND TERMS 1.1. Definitions. The following terms, as used herein, shall have the following meanings: "Common Stock" means the shares of the Company's common stock on a fully diluted basis, no par value, or shares of any other class of stock of the Company which are convertible into shares of the Common Stock. "Company" has the meaning set forth in the preface above. "Party" has the meaning set forth in the preface above. "Proposed Purchaser" has the meaning set forth in Section 3.1.1. "Purchase Allotment" has the meaning set forth in Section 3.2.1. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (A) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (B) purchase money liens securing rental payments under capital lease arrangements, and (C) liens, charges, encumbrances, easements, rights-of-way, building and use restrictions, exceptions, reservations and limitations that do not in any material respect adversely detract from the value of the property subject thereto or materially impair the operation of the Company. "Stock" shall have the meaning set forth in the preface above. "Stockholders" has the meaning set forth in the preface above. "Tag Along Notice" has the meaning set forth in Section 3.1.3. "Transfer Allotment" has the meaning set forth in Section 3.1.2 of this Agreement. "Transfer Date" has the meaning set forth in Section 3.1.2 of this Agreement. "Transfer Notice" has the meaning set forth in Section 3.1.2 of this Agreement. 1.2. Other Terms. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement. 1.3. Other Definitional Provisions. The words "herein", "hereof", "hereto" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provisions of this Agreement. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa, and in such gender, as the sense and circumstances require. SECTION 2. RESTRICTION OF SALE OR TRANSFER; PUT OPTION. 2.1. Restriction. M3, or its successors or assigns, shall not sell, assign, hypothecate, transfer, pledge, encumber, give away or otherwise dispose of any Stock except in compliance with the terms and conditions of this Agreement; provided, however, m3 may transfer, as permitted by law, shares of the Stock to its shareholders, which transfer shall not be prohibited by the terms of this Agreement. 2.2. Offer. Should m3 or its successors or assigns desire to sell or otherwise dispose of all or any portion of its Stock, m3 or its successors or assigns shall make an offer to Community Networks specifying the terms of sale of such stock. Community Networks shall have the absolute -2- right and option to purchase such shares of Stock before the shares of Stock may be offered to any other party, which may only be offered to any third party on terms no more favorable than those offered to Community Networks. 2.3. General. Every offer pursuant to this Section 2 shall be in writing and shall state that m3, or its successors or assigns, offers to sell all or a portion (specifying such number), as the case may be, of its Stock to Community Networks. Community Networks shall have the option, within thirty (30) days after receipt of such offer, to purchase all or a portion of the shares of Stock offered for sale by m3 or its successors or assigns. 2.4. Remaining Shares. Any shares of Stock offered for sale but not acquired by Community Networks as provided in this Section 2 may be sold on the open market free of the restrictions contained in this Agreement, providing that (i) any such sale shall be on terms not more favorable to the purchaser(s) than those provided for in the offer, (ii) such sale shall be made within ninety (90) days from the last date upon which Community Networks was entitled to purchase said shares under the provisions of this Agreement and (iii) such sale in the manner proposed to be made by m3 would not, in the written opinion of counsel to the Company, be in violation of the Securities Act of 1933 or the Rules and Regulations of the Securities and Exchange Commission thereunder, or of any applicable state securities or "Blue Sky" laws or any rules and regulations promulgated thereunder. If no such sale is made by m3 within said ninety (90) days period, then all of the provisions of this Agreement shall apply to any disposition of the shares as if no offer to sell had been made. SECTION 3. PREEMPTIVE RIGHTS 3.1. Rights of Inclusion. 3.1.1. General. Except as provided in Section 3.1.6., if, at any time, Community Networks or its successors or assigns proposes to transfer Stock in the Company to a third party (a "Proposed Purchaser"), Community Networks shall afford m3 or its successors or assigns the opportunity to participate in such transfer to such third party in accordance with this Section 3.1. 3.1.2. Right to Participate. M3 or its successors or assigns, with respect to the proposed transfers set forth in Section 3.1.1., shall have the right to transfer its Stock in the Company in proportion to the amount of Stock proposed to be transferred by Community Networks or its successors or assigns (the "Transfer Allotment"), at the same price and upon identical terms and conditions as such proposed transfer. At the time any transfer to a Proposed Purchaser is proposed, Community Networks or its successors or assigns shall give notice to m3 of its right to sell Shares hereunder (the "Transfer Notice"), which notice shall identify the Proposed Purchaser and state the number of shares of Common Stock proposed to be transferred, the proposed offering price, the proposed date of any such transfer (the "Transfer Date") and any other material terms and conditions of the proposed transfer. The Transfer Notice shall also contain a complete and correct copy of any offer to Community Networks or its successors or assigns by the Proposed Purchaser to purchase such Common Stock. -3- 3.1.3. Notice. If m3 or its successors or assigns wishes to participate in the transfer it shall provide written notice (the "Tag-Along Notice") to Community Networks or its successors or assigns no less than seven (7) days prior to the Transfer Date; provided that Community Networks or its successors or assigns shall use its best efforts to deliver the Transfer Notice at least thirty (30) days prior to the Transfer Date and in no event shall Community Networks or its successors or assigns provide such Transfer Notice later than fifteen (15) business days prior to the Transfer Date. The Tag-Along Notice shall set forth the number of shares of Stock that m3 or its successors or assigns elects to include in the transfer, which shall not exceed the Transfer Allotment. The Tag-Along Notices given by m3 or its successors or assigns shall constitute a binding agreement to sell such shares on the terms and conditions applicable to the transfer. 3.1.4. Non Participation. If a Tag-Along Notice is not received by Community Networks prior to the seven (7) day period specified above, Community Networks or its successors or assigns shall have the right to sell or otherwise transfer the Stock specified in the Transfer Notice to the Proposed Purchaser without any participation by m3 or its successors or assigns, but only on terms and conditions with respect to the consideration offered by the Proposed Purchaser and other material terms a reasonable investor would consider in making its decision to invest, which are no more favorable in any material respect to Community Networks or its successors or assigns than as stated in the Transfer Notice, and only if such transfer occurs on a date within sixty (60) days of the Transfer Date. 3.1.5. Representations. M3 or its successors and assigns shall only be obligated to make representations as to (A) good title and the absence of a Security Interest against m3's stock, (B) the validity and binding effect of any agreements entered into by m3 in connection with such transfer. 3.1.6. Exceptions. The provisions of this Section 3 shall not apply to a transfer by Community Networks to an affiliate or subsidiary corporation of Community Networks. 3.2. Right of First Offer. 3.2.1. General. Subject to the terms and conditions specified in this Section 3.2., Community Networks and the Company hereby grant to m3 a right of first offer with respect to any new issuances or future sales by the Company of the Company's Common Stock. Each time the Company proposes to offer (A) additional Common Stock in the Company, (B) rights, options or warrants to purchase Common Stock in the Company, or (C) securities convertible into such Common Stock in the Company (the "New Offering"), the Company shall first offer to m3 the option of purchasing, at a maximum, such percentage of the New Offering which equals m3's current proportionate share of the Company's total Common Stock (the "Purchase Allotment") at the time of the proposed sale in accordance with the following provisions. 3.2.2. Notice. The Company shall provide a written notice (the "Offering Notice") of the New Offering to m3 stating (A) the Company's bona fide intention to offer such Common Stock, (B) the amount of the Common Stock being offered, and (C) the price and terms upon which it proposes to offer such Common Stock in the Company. -4- 3.2.3. Election to Purchase. Within twenty (20) days following the date of the Offering Notice (the "Election Period"), m3 may elect to purchase Common Stock in the New Offering, but in no event shall such amount be greater than the Purchase Allotment. 3.2.4. Transfer of Proposed Purchaser. At any time after the Offering Notice is given, the Company may offer for sale the Common Stock of the New Offering less the amount of (A) the amount m3 elects to purchase or (B) the Purchase Allotment, and, if the Common Stock referred to in the Offering Notice is not elected to be purchased as provided in Section 3.2.3., the Company may, during the ninety (90) day period following the expiration of the Election Period, offer for sale the remaining unsubscribed portion of the New Offering to any Person at a price not less than, and upon terms no more favorable to the offeree than those specified in the Offering Notice. If the Company does not consummate the sale of the New Offering within such period, the right provided hereunder shall be deemed to be revived and such shares shall not be offered unless first reoffered to m3 in accordance with this section. 3.2.5. Exceptions. The right of first offer in this Section 3.2 shall not be applicable (A) to the issuance of securities in connection with a strategic acquisition by the Company involving the assumption of control of another company, whether by merger, consolidation, sale of substantially all of its assets, sale or exchange of stock or otherwise, (B) to any affiliate or shareholder of m3 or any transferee receiving shares of Stock from m3 so long as such person executes a copy of this Agreement, or (C) the issuance of any equity security or the grant of any option warrant or other right to acquire any equity security to any employee, officer, or director of the Company so long as such issuance or grant is at market value on the date of such issuance or grant. SECTION 4. OBLIGATIONS UNDER PUBLIC OFFERING In the event the Company files, under the Securities Exchange Act of 1933, a public offering covering the registration of shares of Common Stock valued in excess of two million dollars ($2,000,000), the Stockholders covenant and agree as follows: 4.1. Lock-Up Period. The Stockholders shall not, to the extent requested by the underwriter of the Company, sell or otherwise transfer or dispose of any of its Stock, to the extent any of such shares are included in the registration statement, during the one hundred eighty (180) day period following the effective date of a registration statement; provided, however, that such agreement shall be applicable (i) only to the first registration statement of the Company that covers shares to be sold on its behalf to the public in the underwritten offering, and (ii) only a Stockholder holding in excess of more than five percent (5%) of the outstanding shares of Common Stock. SECTION 5. ELECTION OF DIRECTORS The Company, Community Networks, and all other Stockholders agree to vote for m3's nominee as a director on the Company's Board of Directors. M3 agrees to vote for Community Networks' nominees as directors of the Company. -5- SECTION 6. ENDORSEMENT ON STOCK CERTIFICATE Upon the execution of this Agreement, the certificate representing the Stock subject hereto and certificates representing Stock hereafter acquired by any Stockholder or transferee receiving shares of the Stock shall be endorsed with a legend in substantially the following form: "The transfer of shares represented by this certificate is restricted under the terms of an Agreement dated June ___, 2000, a copy of which is on file at the principal office of Tech Labs Community Networks of the Southeast, Inc." SECTION 7. TRANSFEREES 7.1. Restrictions on Successors. Any transferee receiving Stock permitted by this Agreement shall automatically be deemed to be a party to this Agreement, without the execution of any additional instruments, and shall be bound by the terms and conditions of this Agreement as if such transferee were an original party hereto. 7.2. Consent to Assignment. Notwithstanding Section 8.1 hereof, prior to transferring any Stock to any person or entity, the transferring Stockholder shall cause the prospective transferee to execute and deliver to the Company and other Stockholders a counterpart of this Agreement. SECTION 8. INSPECTION RIGHTS; CONFIDENTIALITY 8.1. Financial Statements. At the request of any Stockholder, the Company shall deliver, within ten (10) days, the following financial statements of the Company: 8.1.1. At any time after ninety (90) days after the end of each fiscal year of the Company, a statement of operations, a balance sheet of the Company as of the end of such fiscal year, and changes in financial position, which year-end financial reports shall be audited and certified by independent certified public accountants selected by the Company. 8.1.2. At any time after fifteen (15) days after the end of each calendar quarter, an unaudited statement of operations for such calendar quarter and a balance sheet as of the end of such calendar quarter. 8.2. Inspection Rights. The Company shall permit any representative designated by any Stockholder, upon reasonable notice and during normal business hours, to examine the corporate books and records of the Company. 8.3. Confidentiality. Each Stockholder agrees that it and its representative will at all times keep confidential and will not disclose or divulge, or use for any purpose other than to evaluate its investment in the Company, any information which Stockholder or its representative may examine pursuant to the Company's obligations to submit financial statements and allow review of its corporate records, except to the extent (i) disclosure of such information is required by law or (ii) the information becomes publicly known other than through the actions or inactions of such -6- Stockholders. In the event that any Stockholder is required by law to disclose any confidential information of the Company, such Stockholder shall promptly notify the Company in writing, which notification shall include the nature of the legal requirement and the extent of the required disclosure, and shall cooperate with the Company to preserve the confidentiality of such information consistent with applicable law. SECTION 9. MISCELLANEOUS 9.1. No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted transferees and assigns. 9.2. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New Jersey without giving effect to the principles of the conflict of laws thereof. 9.3. Submission to Jurisdiction; Venue. Any action or proceeding against any Party hereto with respect to this Agreement shall be brought in the courts of the State of New Jersey or of the United States of America for the District of New Jersey, and, by execution and delivery of this Agreement, each Party hereto hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Party hereto irrevocably consents to the service of process at the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Party at its address set forth in Section 10.8, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of any Party hereto to serve process on any other Party hereto in any other manner permitted by law. Each Party hereto irrevocably waives any objection which it may now have or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the court referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 9.4. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect the construction and interpretation of this Agreement. 9.5. Severability. The invalidity of all or any part of any section of this Agreement shall not render invalid the remainder of such section. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 9.6. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. This Agreement may contain more than one counterpart of the signature page and may be executed by the affixing of the signatures of each of the Parties to one of these counterpart signature pages. All of the counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. -7- 9.7. Notice. All notices required or agreed to be given hereunder by any party shall be in writing, given by a party or any attorney for a party hereto, delivered by hand, sent by facsimile, or sent by registered or certified mail or by delivery service providing evidence of delivery, addressed to the party intended to be notified at the addresses of the respective parties hereinafter set forth, or at such other address as notice thereof shall have been given in accordance with the provisions of this Section 10.8. Any such notice shall become effective (a) when mailed, three (3) days after having been deposited in the mails, postage prepaid, and (b) in the case of delivery by hand, facsimile or delivery service, upon delivery. Facsimile notices shall only be given to a party who has by notice provided a fax number to be used for this purpose. Such number may be changed or canceled by notice without providing any alternative facsimile number. To the Company or Community Networks: Tech Laboratories, Inc. 955 Belmont Avenue North Haledon, New Jersey 07508 Attn: Mr. Bernard Ciongoli Fax: (973) 427-5455 With a Copy to: Stursberg & Veith 405 Lexington Avenue Suite 4949 New York, New York 10174-4902 Attn: Walter Stursberg, Esq. Fax: (212) 922-0995 To m3: m3communications, Inc. 2000 Main Street, Suite 501 Ft. Myers, Florida 33901-3043 Attn: Mr. Terry Nelson Fax: (941) 334-0992 With a Copy to: Holland & Knight 400 North Ashley Drive Suite 2300 [P.O. Box 1288 (Zip 33601-1288)] Tampa, Florida 33602-4300 Attn: Patrick Meehan, Esq. Fax: (813) 229-0134 -8- 9.8. Termination. This Agreement shall terminate and the Stock shall be released from the terms of this Agreement upon the occurrence of either of the following: (i) Written agreement of all the Stockholders; or (ii) Upon the effective date of any registration by the Company of any shares of its Common Stock under the Securities Act of 1933 or the Securities Exchange Act of 1934, provided that such registration covers shares of Common Stock valued in excess of two million dollars ($2,000,000). Upon the termination of this Agreement for any of the foregoing reasons, the Stock held by each Stockholder shall be surrendered to the Company, and the Company shall issue new certificates for the same number of shares, but without the restrictive legend required herein. 9.9. Default. If any Stockholder or his personal representative should fail, neglect or refuse to offer or to sell any Stock to the Company or the other Stockholders or to deliver any certificate, or stock transfer power, to the Company or the other Stockholders as required herein, then so long as such default continues, such Stockholder or his representative, as the case may be, shall not have any voting power or be entitled to any dividends or other distributions with respect to the Company. 9.10. Entire Agreement. This Agreement (including the attached Asset Purchase Agreement and all of its exhibits and schedules), contain the entire agreement of the Parties. The Parties are not bound by any oral statements that are made outside of this Agreement. This Agreement may not be modified or altered except by written instrument duly executed by the parties. WHEREFORE, the Parties have executed this Agreement as of the date above written. M3COMMUNICATIONS, INC. TECH LABORATORIES COMMUNITY NETWORKS, INC. By:/s/ Paul Hansen By: /s/ Bernard M. Ciongoli ------------------------------- --------------------------------- Paul Hansen Bernard M. Ciongoli President President TECH LABS COMMUNITY NETWORKS OF THE SOUTHEAST, INC. By: /s/ Bernard M. Ciongoli --------------------------------- Bernard M. Ciongoli President -9- EX-10.22 6 d23192_ex10-22.txt WARRANT AGREEMENT WARRANT AGREEMENT dated as of June 23, 2000, between Tech Laboratories, Inc., a New Jersey corporation (the "Company"), and M3Communication, Inc., (the "Holder") a Florida corporation. WITNESSETH: WHEREAS, the Holder has entered into an Asset Purchase Agreement with the Company dated June 1, 2000, as amended June 9, 2000, pursuant to which the Company granted to the Holder a warrant (the "Warrant") to purchase one hundred thousand (100,000) shares of the common stock, $.01 par value per share, of the Company ("Common Stock"). NOW, THEREFORE, in consideration of the mutual promises herein contained, the Company and the Holder mutually covenant and agree as follows: 1. Grant. The Holder is hereby granted the right to purchase, at any time from the date hereof, until 5:30 p.m., New York time, on the third anniversary of the date of this Agreement, up to an aggregate of one hundred thousand (100,000) shares of Common Stock. 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. The Warrants are exercisable at the exercise price per share of Common Stock set forth in Section 6 hereof payable by certified or official bank check. Upon surrender of a Warrant Certificate with the annexed Form of Election to purchase duly executed, together with payment of the exercise price, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock underlying the Warrants). Warrants may be exercised to purchase all or part of the shares of Common Stock represented thereby. In the case of the purchase of less than all the shares of Common Stock purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock or other securities, properties or rights underlying such Warrants, shall be made forthwith (and in any event such issuance shall be made within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificate and the certificates representing the shares of Common Stock (and/or other securities, property or rights issuable upon exercise of the Warrants) shall be executed on behalf of the Company by the manual or facsimile signature of the President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the Secretary of the Company. The Warrant Certificate shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. Restriction on Transfer of Warrants. The Holder of the Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof. 6. Exercise Price. The exercise price of the Warrant shall be $5.75 per share of Common Stock (the "Exercise Price"). 7. Adjustments to Exercise and Number of Securities. 7.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 7.2 Adjustment in Number of Securities. Upon an adjustment of the Exercise Price pursuant to the provisions of this Section 7, the number of Securities issuable upon the exercise of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 7.3 Definition of Common Stock. For the purposes of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as may be amended as of the date hereof, or (ii) any other class of stock - 2 - resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that the Company shall, after the date hereof, issue securities with greater or superior voting rights than the shares of Common Stock outstanding as of the date hereof, the Holder, at its option, may receive upon exercise of any Warrant either shares of Common Stock or a like number of such securities with greater or superior voting rights. 7.4 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the Holder shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such warrant might have been exercised immediately prior to such consolidation, merger or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 7. The above provision of this Subsection shall similarly apply to successive consolidations or mergers. 7.5 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made: (a) upon the issuance or sale of the Warrants or the shares of Common Stock issuable upon the exercise of the Warrants; or (b) if the amount of said adjustment shall be less than two cents ($.02) per Security; provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least two cents ($.02) per Security. 7.6 Dividends and Other Distributions. In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend (other than a dividend consisting solely of shares of Common Stock) or otherwise distribute to its stockholders any assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another, or any other thing of value, the Holder of the unexercised Warrants shall thereafter be entitled, - 3 - in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such dividend or distribution as if the Warrants had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Subsection 7.6. 8. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in the case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 9. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interest, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights. 10. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted by NASDAQ. - 4 - 11. Notice to Warrant Holder. Nothing contained in this Agreement shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other manner, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchange for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of the closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 12. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the Holder: m3communications, Inc., 806 Sarasota Quay, Sarasota, Florida, 34236, as shown on the books of the Company; or (b) If to the Company: Tech Laboratories, Inc., 955 Belmont Avenue, North Haledon, NJ 07508. - 5 - 13. Supplements and Amendments. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the parties hereto. Any waiver, permit, consent or approval of kind or character on the part of each Company or the Holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. 14. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holder and their respective successors and assigns hereunder. 15. Governing Law; Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New Jersey and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company and the Holder hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New Jersey or of the United States of America for the District of New Jersey, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company and the Holder hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company and the Holder (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address as set forth in Section 12 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action or proceeding shall be entitled to recover from the other party(ies) all of its/their reasonable legal costs and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 16. Entire Agreement; Modification. This Agreement, that certain letter agreement dated June 23, 2000, and the Asset Purchase Agreement and all of its exhibits and schedules contain the entire understanding between the Parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 17. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. - 6 - 18. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 19. Benefits of this Agreement. Nothing in this Agreement shall be construed to give any person or corporation other than the Company and the Holder any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the Company and the Holder. 20. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, as of the day and year first above written. TECH LABORATORIES, INC. By: /s/ Bernard M. Ciongoli ------------------------------- Bernard M. Ciongoli, President M3COMMUNICATIONS, INC. By: /s/ Paul Hansen -------------------------------- Paul Hansen, President - 7 - EX-10.23 7 d23192_ex10-23.txt FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT THIS FIRST AMENDMENT (the "First Amendment") to the Asset Purchase Agreement dated as of the 1st day of June, 2000, is entered into as of the 9th day of June, 2000 by and between Tech Laboratories, Inc., a New Jersey corporation having its principal place of business at 955 Belmont Avenue, North Haledon, New Jersey 07508 ("Tech Labs"), Tech Labs Community Networks of the Southeast, Inc., a Delaware corporation having its principal place of business at 955 Belmont Avenue, North Haledon, New Jersey 07508 ("TL Southeast" or "Purchaser"), m3communications, Inc., a Florida corporation having its principal place of business at 806 Sarasota Quay, Sarasota, Florida 34236 ("Seller") and the shareholders of the Seller (the "Selling Shareholders"). Each of Tech Labs, TL Southeast, the Seller and the Selling Shareholders are individually referred to as a "Party" and collectively as the "Parties." WHEREAS, the undersigned are the Parties to an Asset Purchase Agreement dated as of June 1, 2000 (the "Asset Purchase Agreement"); and WHEREAS, under Paragraph 11.13 of the Asset Purchase Agreement the Parties may amend the Asset Purchase Agreement in a writing signed by the Parties; NOW, THEREFORE, the Parties hereby amend the Asset Purchase Agreement as follows: FIRST: Section 3.4 of the Asset Purchase Agreement is hereby deleted in its entirety and the following new paragraph is hereby inserted in lieu thereof: In accordance with the accounting and distribution procedures to be adopted by Bernard M. Ciongoli, Terry Nelson and/or a member of the board of directors of TL Southeast designated by the Seller, TL Southeast shall pay to Seller twenty percent (20%) of the monthly "operating income", as such term is defined under generally accepted accounting principles, generated from each contract for telecommunications services to property developments that TL Southeast enters into within one hundred and twenty (120) days of the date hereof within the states of Virginia, North Carolina, South Carolina, Kentucky, Tennessee, Georgia, Alabama, Louisiana, Mississippi and Florida (such states are hereinafter referred to as the "Territory"). SECOND: Section 4 of the Asset Purchase Agreement is hereby deleted in its entirety and the following new paragraph is hereby inserted in lieu thereof: The Closing. The closing of the transaction contemplated by this Agreement (the "Closing") shall be held at the offices of Stursberg & Veith at such time and date as may be agreed to by the Parties (the "Closing Date"), but in no event later than July 7, 2000. IN WITNESS WHEREOF, the Parties hereto have caused this First Amendment to the Asset Purchase Agreement to be entered into as of the date and year herein above first set forth. M3COMMUNICATIONS, INC. TECH LABORATORIES, INC. By: /s/ Paul Hansen By: /s/ Bernard M. Ciongoli ------------------------------- ----------------------------------- Paul Hansen Bernard M. Ciongoli President President TECH LABS COMMUNITY NETWORKS OF THE SOUTHEAST, INC. By: /s/ Bernard M. Ciongoli ----------------------------------- Bernard M. Ciongoli President -2- EX-10.24 8 ex24_23192.txt CONSULTING AGREEMENT CONSULTING AGREEMENT CONSULTING AGREEMENT ("Agreement") made and entered as of November 13, 2000, by and between Tech Laboratories, Inc. (the "Company"), a New Jersey corporation, with offices located at 955 Belmont Avenue, North Haledon, New Jersey 07508, and Barry Bendett (the "Consultant"), residing at 205 Chestnut Drive, East Hills, New York. BACKGROUND The parties desire to enter into a consulting agreement to set forth terms and conditions of the Consultant's relationship with the Company. Accordingly, in consideration of the mutual covenants and agreements set forth herein and the mutual benefits to be derived therefrom, and intending to be legally bound, the Company and the Consultant agree as follows: 1. Consulting Relationship. (a) Duties. The Company shall engage the Consultant as a consultant for business development, including, but not limited to, expansion of its customer base, financial planning, corporate structuring, and marketing matters on the terms set forth in this Agreement. The Consultant accepts such engagement by the Company and shall perform and fulfill such reasonable duties as are assigned to him in this Agreement by the president of the Company and by the Board of Directors of the Company (the "Board"). The Consultant shall use his best efforts in his independent professional judgment in the performance and fulfillment of his duties and to the advancement of the interests of the Company, subject only to the approval and directives of the Company's president and the Board of Directors. (b) Place of Performance. In connection with his duties under this Agreement, the Consultant shall be based in the New York City metropolitan area or such other geographical locations as mutually agreed to by the Company and Consultant from time to time. 2. Term. The Consultant's engagement under this Agreement shall be for a two-year term (the "Term") commencing as of November 13, 2000 (the "Commencement Date") and shall, unless sooner terminated in accordance with Section 5. of this Agreement, continue uninterrupted until November 13, 2002 (the "Expiration Date"). 3. Compensation. Upon the execution of this Agreement, the Company will issue the Consultant an option to purchase 100,000 shares of the Company's common stock (the "Option Shares") at an exercise price of $4.00 per share, exercisable at any time until November , 2003. Unless this Agreement is terminated as provided in Section 5 hereof, as additional compensation, the Company will issue 170,000 shares of the Company's common stock (the "Shares") as follows: (a) 65,000 shares in consideration for (i) services performed by Consultant prior to the date hereof and (ii) for services to be performed through January 15, 2001 (the "First Payment Date"); (b) 35,000 shares on April 15, 2001; (c) 35,000 shares on July 15, 2001; and (d) 35,000 shares on October 15, 2001. The Company agrees to include in its first Registration Statement on Form S-8 (the "Registration Statement") all of the Option Shares and the Shares, including any resales by the Consultant, if required. The Company agrees to use its best efforts to cause such Registration Statement to be declared effective and to keep the Registration Statement current until the earlier of such time as (i) Consultant has sold all the Option Shares and Shares or (ii) Consultant can sell such Option Shares and Shares under Rule 144 promulgated under the Securities Act of 1933, as amended. 4. Reimbursement of Expenses. The Consultant shall be reimbursed for all items of travel, entertainment, and miscellaneous expenses which the Consultant reasonably incurs in connection with the performance of his duties hereunder, provided that the Consultant submit to the Company such statements and other evidence supporting said expenses as the Company may reasonably require. 5. Termination. (a) Voluntary Termination by Consultant. Consultant may, by written notice to the Company at any time during the Term, voluntarily terminate this Agreement. The effective date of such termination shall be the date on which such notice is given. (b) By Company for Cause. Company may, at any time during the Term, by written notice to Consultant, terminate this Agreement for "Cause." As used herein, "Cause" shall mean (i) incompetence, fraud, personal dishonesty, defalcation or acts of gross negligence or gross misconduct on the part of Consultant, (ii) an intentional breach of this Agreement by Consultant that is injurious to the Company, (iii) substantial and continued failure by the Consultant to perform his duties hereunder, (iv) willful failure by Consultant to follow the lawful directions of the president of the Company, (v) to directly or indirectly attempt in any way to remove the president and/or any of the directors of the Company from their present offices or position with the Company, (vi) Consultant's conviction by a court of competent jurisdiction of, or pleading "guilty" or "no contest" to, (x) a felony, or (y) any other criminal charge (other than minor traffic violations) which has or could reasonably be expected to have a material adverse impact on the Company's reputation and standing in the community, or (vii) Consultant's violation of any of the provisions of Section 7 herein. In the event of a termination of this Agreement for Cause, this Agreement shall terminate immediately upon written notice by the Company of termination for Cause. (c) Disability. During the Term, if, as a result of physical or mental incapacity or infirmity, Consultant shall be unable to perform his duties under this Agreement for (i) a continuous period of at least 60 days, or (ii) periods aggregating at least 60 days during any period of 12 consecutive months (each a "Disability Period"), and at the end of the Disability Period there is no reasonable probability that Consultant can promptly resume his duties hereunder, Consultant shall be deemed disabled (the "Disability") and Company, by written notice to Consultant, shall have the right to terminate the Agreement for Disability at, as of or after the end of the Disability Period. The existence of the Disability shall be determined by a reputable, licensed physician selected by Company in good faith, whose determination shall be final and binding on the parties. Consultant shall cooperate in all reasonable respects to enable an examination to be made by such physician. - 2 - (d) Death. This Agreement shall terminate on the date of Consultant's death. 6. Termination Compensation. (a) Termination. If this Agreement is terminated pursuant to the provisions of Section 5, the Company shall pay to Consultant, within thirty (30) calendar days of the date of termination all Shares vested as of the date of termination. Consultant shall not be entitled to any partial vesting of shares prior to a vesting date. (b) No Other Termination Compensation. Consultant shall not, except as set forth in this Section 6, be entitled to any compensation following termination of the Employment Period. 7. Restrictive Covenant. (a) Competition. The Consultant undertakes and agrees that from the date hereof until two (2) years after the Expiration Date, he will not compete, directly or indirectly, or participate as a director, officer, employee, consultant, agent, representative, or otherwise, or as a stockholder, partner, or joint venturer, or have any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any business competing directly or indirectly with the business of the Company or any of its subsidiaries. The Consultant further undertakes and agrees that during the Term of the Agreement, and for a period of two (2) years after the Expiration Date, he will not directly or indirectly engage, cause to be employed, or solicit for employment any of the Company's or its subsidiaries' employees. (b) Trade Secrets. During the Term, and after termination for any reason, the Consultant shall not disclose, divulge, copy, or otherwise use any trade secret of the Company or its subsidiaries, it being acknowledged that all such information and materials compiled or obtained by or disclosed to the Consultant while employed by the Company or its subsidiaries hereunder or otherwise are confidential and the exclusive property of the Company and its subsidiaries. (c) Scope of Covenant. Should the duration, geographical area, or range of proscribed activities contained in subparagraph (a), above, be held unreasonable by any court of competent jurisdiction, then such duration, geographical area, or range of proscribed activities shall be modified to such degree as to make it or them reasonable and enforceable. 8. Indemnity. (a) By Company. The Company shall indemnify and hold the Consultant harmless to the maximum extent permitted by law against any claim, action, demand, loss, damage, cost, expense, liability, or penalty arising out of any act, failure to act, omission, or decision by him while performing services as an officer, director, or employee of the Company, other than an act, omission, or decision by the Consultant which is not in good faith and is without his reasonable belief that same is, or was, in the best interests of the Company. To the extent permitted by law, the Company shall pay all attorneys' fees, expenses, and costs actually incurred by the Consultant in connection with the defense of any of the claims referenced herein. (b) By Consultant. The Consultant shall indemnify and hold the Company harmless to the maximum extent permitted by law against any claim, action, demand, loss, damage, cost, expense, liability, or penalty arising out of any act, failure to act, omission, or decision by him while performing - 3 - services as a consultant which is not in good faith and is without his reasonable belief that same is, or was, in the best interests of the Company. To the extent permitted by law, the Consultant shall pay all attorneys' fees, expenses, and costs actually incurred by the Company in connection with the defense of any of the claims referenced herein. 9. Miscellaneous. (a) Notices. Any notice, demand, or communication required or permitted under this Agreement shall be in writing and shall either be hand-delivered to the other party or mailed to the addresses set forth below by registered or certified mail, return receipt requested, or sent by overnight express mail or courier or facsimile to such address, if a party has a facsimile machine. Notice shall be deemed to have been given and received when so hand-delivered or after three (3) business days when so deposited in the U.S. Mail or when transmitted and received by facsimile or sent by express mail properly addressed to the other party. The addresses are: To the Company: Tech Laboratories, Inc. 955 Belmont Avenue North Haledon, New Jersey 07508 To the Consultant: Barry Bendett 205 Chestnut Drive East Hills, New York The foregoing addresses may be changed at any time by written notice given in the manner herein provided. (b) Integration; Modification. This Agreement constitutes the entire understanding and agreement between the Company and the Consultant regarding its subject matter and supersedes all prior negotiations and agreements, whether oral or written, between them with respect to its subject matters. This Agreement may not be modified except by a written agreement signed by the Consultant and a duly authorized member of the Company. (c) Enforceability. If any provision of this Agreement shall be invalid or unenforceable, in whole or in part, such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. (d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties, including their respective heirs, executors, successors, and assigns, except that this Agreement may not be assigned by the Consultant. (e) Waiver of Breach. No waiver by either party of any condition or of the breach by the other of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition, or the breach of any other term or covenant set - 4 - forth in this Agreement. Moreover the failure of either party to exercise any right hereunder shall not bar the later exercise thereof. (f) Governing Law and Interpretation. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York, New York County. Both parties executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorneys' fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. The parties further agree to the exclusive jurisdiction of the federal and state courts. (g) Headings. The headings of the various sections and paragraphs have been included herein for convenience only and shall not be considered in interpreting this Agreement. (h) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (i) Cumulative Rights and Remedies. All rights and remedies of the Company and the Consultant under this Agreement are not exclusive and are, in fact, cumulative in nature. The Company and the Consultant hereby agree that all rights and remedies set forth in this Agreement are in addition to any and all other rights and remedies which the parties hereto may have under any other agreement or under any law of any kind whatsoever. IN WITNESS WHEREOF, this Agreement has been executed by the Consultant and on behalf of the Company by its duly authorized officers on the date first above written. TECH LABORATORIES, INC. By: /s/ Bernard M. Ciongoli --------------------------------------- Bernard M. Ciongoli /s/ Barry Bendett --------------------------------------- Barry Bendett - 5 - EX-21.1 9 0009.txt SUBSIDIARIES OF TECH LABORATORIES Subsidiaries of Tech Laboratories, Inc. 1. Tech Logistics, Inc. 2. Tech Labs Community Networks, Inc. 3. Tech Labs Community Networks of the South East, Inc. (1) - ---------------------- (1) Tech Labs Community Networks, Inc. owns 80% of the outstanding shares and m3communications, Inc. owns the remaining 20%. EX-24.1 10 d23192_ex24-1.txt CONSENT OF INDEPENDENT AUDITORS CONSENT OF CHARLES J. BIRNBERG, CPA, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated November 17, 2000, in the Registration Statement (Form SB-2) and the related Prospectus of Tech Laboratories, Inc. /s/ Charles J. Birnberg ---------------------------------- Charles J. Birnberg Hackensack, New Jersey November 17, 2000 EX-27 11 d23192_ex27.txt FINANCIAL DATA SCHEDULE
5 12-MOS 9-MOS DEC-31-1999 SEP-30-2000 JAN-01-1999 JAN-01-1999 DEC-31-1999 SEP-30-2000 162,925 1,462,319 61,453 61,453 52,697 169,251 10,000 10,000 816,703 1,251,010 1,102,833 2,948,088 457,961 491,833 314,162 314,162 1,258,172 3,137,300 535,867 169,599 0 0 0 0 0 0 36,507 39,492 722,305 2,967,701 1,258,172 3,137,300 689,190 849,106 689,190 849,106 472,790 372,957 1,333,964 879,997 (10,155) 29,331 0 0 0 0 (654,929) (1,560) 0 0 (654,929) (1,560) 0 0 0 0 0 0 (654,929) (1,560) (0.18) 0 (0.18) 0
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