<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION NO. 333-3110
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NUWAVE TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 3663 22-3387630
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Numbers) Identification No.)
</TABLE>
ONE PASSAIC AVENUE, FAIRFIELD, NEW JERSEY 07004
(201) 882-8810
(Address and telephone number of principal executive offices and principal
place of business)
MR. GERALD ZARIN
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE PASSAIC AVENUE, FAIRFIELD, NEW JERSEY 07004
(201) 882-8810
(Name, address, and telephone number of agent for service)
-------------
COPIES OF COMMUNICATIONS TO:
Morris C. Brown, P.A. Charles P. Greenman, Esq.
Honigman Miller Schwartz and Cohn Timothy I. Kahler, Esq.
222 Lakeview Avenue, Suite 800 Parker Chapin Flattau & Klimpl, LLP
West Palm Beach, Florida 33401 1211 Avenue of the Americas
(407) 838-4521 New York, New York 10036
Facsimile (407) 832-3036 (212) 704-6000
Facsimile (212) 704-6288
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
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, check the following box. [X]
-------------
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.
<PAGE>
NUWAVE TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM SB-2
<TABLE>
<CAPTION>
Item Numbers of Form SB-2 and Title of Item Prospectus Caption
------------------------------------------ -------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus .................... Front of Registration Statement; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus ...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors .............. Prospectus Summary; Risk Factors
4. Use of Proceeds ................................... Use of Proceeds
5. Determination of Offering Price ................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution .......................................... Dilution
7. Selling Security Holders .......................... Concurrent Registration of Common Stock and
Warrants
8. Plan of Distribution .............................. Outside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings ................................. Not Applicable
10. Directors, Executive Officers, Promoters
and Control Persons .............................. Management
11. Security Ownership of Certain Beneficial
Owners and Management ............................ Principal Stockholders
12. Description of Securities ........................ Description of Securities
13. Interest of Named Experts and Counsel ............ Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ... Description of Securities
15. Organization Within Last Five Years .............. Not Applicable
16. Description of Business .......................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan
of Operation ...................................... Management's Discussion and Analysis
18. Description of Property .......................... Business -- Facilities
19. Certain Relationships and Related Transactions ... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters .............................. Not Applicable
21. Executive Compensation ........................... Management--Executive Compensation
22. Financial Statements ............................. Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure .............. Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED MAY 22, 1996
[LOGO] NUWAVE TECHNOLOGIES, INC.
2,000,000 SHARES OF COMMON STOCK AND
2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering (the "Offering") by Nuwave
Technologies, Inc. (the "Company") of 2,000,000 shares of common stock, par
value $.01 per share (the "Common Stock"), and 2,000,000 redeemable Common Stock
purchase warrants ( the "Warrants") through Rickel & Associates, Inc. (the
"Underwriter"). The shares of Common Stock and the Warrants offered hereby may
be purchased separately and the Warrants will be transferable separately after
issuance. The Common Stock is being offered at $5.00 per share and the Warrants
at $.10 per Warrant.
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an exercise price of $5.50 per share, subject to adjustment in
certain events, at any time commencing one year from the date hereof and
expiring on the fifth anniversary of the date hereof. The Warrants are subject
to redemption by the Company at $.10 per Warrant at any time commencing 12
months after the date hereof (or earlier with the prior written consent of the
Underwriter), on not less than 30 days prior written notice to the holders of
the Warrants, provided the average closing bid quotation of the Common Stock as
reported on the NASDAQ Stock Market, if traded thereon, of if not traded
thereon, the average closing bid quotation of the Common Stock if listed on a
national securities exchange (or other reporting system that provides last sale
prices), has been at least 150% of the then current exercise price of the
Warrants (initially, $8.25 per share), for a period of 20 consecutive trading
days ending on the third day prior to the date on which the Company gives notice
of redemption. The Warrants will be exercisable until the close of business on
the day immediately preceding the date fixed for redemption. See "Description of
Securities -- Redeemable Warrants." See "Underwriting." The Company has applied
for quotation of the Common Stock and the Warrants on the NASDAQ SmallCap Market
("NASDAQ") under the trading symbols "WAVE" and "WAVEW," respectively.
Concurrently with this Offering, the Company has registered the offering of
1,070,000 shares of Common Stock (collectively, the "Selling Stockholders'
Shares") under the Securities Act of 1933, as amended (the "Securities Act"), on
behalf of certain of its stockholders (the "Selling Stockholders") pursuant to a
Selling Stockholders' Prospectus included within the Registration Statement of
which this Prospectus forms a part. The Selling Stockholders' Shares are not
part of this underwritten offering, however, and may not be sold prior to the
expiration of 12 months (in the case of 400,000 of such shares) or 18 months (in
the case of 670,000 of such shares) after the date of this Prospectus without
the prior written consent of the Underwriter. The Company will not receive any
of the proceeds from the sale of the Selling Stockholders' Shares. See
"Concurrent Registration of Common Stock."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. THE COMPANY IS A DEVELOPMENT STAGE COMPANY AND HAS HAD NO OPERATING
REVENUES. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE
INVESTMENT SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS
REGARDING AN INVESTMENT IN THE COMPANY AND IMMEDIATE SUBSTANTIAL
DILUTION, SEE "RISK FACTORS" (PAGE 9) AND "DILUTION" (PAGE 20).
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
==============================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- -----------------------------------------------------------------------------
Per Share .... $5.00 $.50 $4.50
- -----------------------------------------------------------------------------
Per Warrant .. $.10 $.01 $.09
- -----------------------------------------------------------------------------
Total(3) ..... $10,200,000 $1,020,000 $9,180,000
==============================================================================
(footnotes appear on page 3)
--------------
RICKEL & ASSOCIATES, INC.
--------------
The date of this Prospectus is , 1996.
<PAGE>
[INSERT PICTURE]
Actual photograph of the Company's Application Specific Integrated Circuit
("ASIC") chip which provides the controlling software for the NUWave Dual
TBC, with the Company's logo superimposed, and magnified approximately 5x.
The NUWave Dual TBC synchronizes up to three video signals from any source
including a satellite downlink, the Internet, a personal computer ("PC"), a
VCR or a video camera. Synchronized videos can be displayed simultaneously
as dissolves, split screens or overlays such as titles or animated logos.
The chip is soldered onto an etched printed circuit board that inserts into
a PC board slot.
- ------------------------------------------------------------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
(1) Does not include additional compensation to the Underwriter consisting of
(i) a non-accountable expense allowance equal to 3% of the gross proceeds
of the Offering, of which $50,000 has been paid by the Company to date,
(ii) warrants (the "Underwriter's Warrants") entitling the Underwriter to
purchase up to 200,000 shares of the Common Stock and 200,000 Warrants
offered to the public, and (iii) a financial consulting agreement with
the Underwriter for 24 months from the closing of the Offering at an
annual fee of $29,000, all of which ($58,000) is payable at the closing
of the Offering. The Company has agreed to pay to the Underwriter, under
certain circumstances, a warrant solicitation fee of 5% of the exercise
price for each Warrant exercised. The Company has also agreed to
indemnify the Underwriter against certain civil liabilities, including
those arising under the Securities Act. See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriter, but
before payment of the Underwriter's non-accountable expense allowance
($306,000, or $351,900 if the Underwriter's Over-allotment Option (as
defined below) is exercised in full), the other expenses of the Offering
payable by the Company (estimated at $700,000) and the consulting fee
($58,000). See "Underwriting."
(3) The Company has granted the Underwriter an option, exercisable for a
period of 45 days after the closing of the Offering, to purchase up to an
additional 15% of the Common Stock and/or Warrants, upon the same terms
and conditions solely for the purpose of covering over-allotments, if any
(the "Underwriter's Over-allotment Option"). If the Underwriter's
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$11,730,000, $1,173,000 and $10,557,000, respectively. See
"Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that any such market for
the Common Stock or the Warrants will develop after the closing of the
Offering or that, if developed, it will be sustained. The offering price of
the Common Stock and the Warrants and the initial exercise price and other
terms of the Warrants were established by negotiation between the Company and
the Underwriter and do not necessarily bear any direct relationship to the
Company's assets, earnings, book value per share or other generally accepted
criteria of value.
The Common Stock and the Warrants are being offered by the Underwriter on
a firm commitment basis, subject to prior sale, when, as and if delivered to
the Underwriter and subject to certain conditions. Subject to the provisions
of the underwriting agreement between the Underwriter and the Company, the
Underwriter reserves the right to withdraw, cancel or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates will be made against payment therefor at the office of the
Underwriter, 875 Third Avenue, New York, New York 10022, on or about ------,
1996.
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy
and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices:
New York Regional Office, Suite 1300, 7 World Trade Center, New York, New
York 10048, and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and copies of such material may also be
obtained from the Public Reference Section of the Commission at prescribed
rates. The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
3
<PAGE>
[This Page Intentionally Left Blank]
4
<PAGE>
PROSPECTUS SUMMARY
Certain terms used in this Prospectus are defined in the Glossary appearing
on page 17.
The following summary is qualified in its entirety by reference to the
more detailed information and the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
information in this Prospectus, including share and per share data, assumes
no exercise of (i) the Underwriter's Over-allotment Option and (ii) the
Warrants.
THE COMPANY
The Company, a development stage company organized in July 1995, was
founded to develop, manufacture and market products to improve picture
quality in televisions, computer monitors and other display devices by
enhancing and manipulating video signals, including signals that have been
compressed for storage or for transmission over satellite and cable systems
and the Internet ("Video Enhancement Products"), and products to facilitate
the production of sophisticated videos by both amateurs and professionals
("Video Production Products"). The Company's Video Enhancement Products are
based on technology resulting from proprietary multi-zone mapping of Analog
Video Waves into which Analog Light Waves have been converted. This mapping
technology permits the alteration, augmentation and correction of the wave to
improve color, contrast, brightness and clarity (the primary characteristics
of an image perceived by the human eye). Each of the Company's Video
Enhancement Products has the ability to improve one or more of these
characteristics. The Company's Video Production Products integrate new and
existing components, including the Company's own Video Enhancement Products,
into a system that the Company believes will provide competitively priced,
sophisticated video production capabilities.
The Company believes that the telecommunication, personal computer and
home video markets are converging because of new technology that enables
services and products identified with each market to be used in conjunction
with each other, resulting in an increasing need for products that enhance
video presentation. Although the Company believes its products enhance video
images when used with individual products in each of the converging markets,
it also believes that its Video Enhancement Products will facilitate the
interaction of products in each of the converging markets by increasing the
acceptability of images displayed as a result of such interaction. See
"Business -- The Company's Video Enhancement Products." The Company believes
its Video Production Products will allow the combination and manipulation of
video images available in each of these markets to create sophisticated video
productions. See "Business -- The Company's Proposed Video Production
Products." The Company believes that the design and engineering features of
the Company's products result in simplified circuits and utilize fewer parts
allowing it to produce its products at costs low enough to make them
generally accessible to consumers unwilling or unable to purchase higher
priced products performing some of the same functions as the Company's
products. See "Business -- Marketing and Distribution."
Substantially all of the Company's technology was originated by Rave
Engineering Corporation ("Rave") prior to the Company's organization. The
technology is licensed to the Company by Rave pursuant to a licensing
agreement between the Company and Rave dated July 21, 1995 (the "License
Agreement"). The Company also has entered into a development agreement dated
July 21, 1995 with Rave (the "Development Agreement") and has relied
significantly on Rave in the continuing development of its products. In
addition, the Company has used outside consultants to develop software for
all of its products and to reconfigure certain circuitry to allow certain of
the products to be produced as ASICs. It has utilized its own personnel to
direct, supervise and coordinate the efforts of Rave and such outside
consultants.
The Company has produced and tested fully operational working prototypes
of the NUWave Analog Video Processor ("AVP"), the Magic Card and the NUWave
Dual TBC. It has produced and tested initial prototypes of the NUWave
Ministudio and expects to produce and test fully operational prototypes of
that product in the second half of 1996. See "Management's Discussion and
Analysis -- Research and Development" and "Business -- Research and
5
<PAGE>
Development." The AVP and the Magic Card (the Company's "Video Enhancement
Products") and the NUWave Dual TBC and the NUWave Ministudio (the Company's
"Video Production Products") are collectively called the "Initial Products." The
Company has not licensed or sold any of its technology.
The Company is a development stage company and has had only a limited
operating history. Since its inception in July 1995, the Company has been
engaged primarily in directing, supervising and coordinating Rave and the
Company's outside consultants in the continuing development of its Initial
Products and related technology, the recruitment of management and technical
personnel, including such outside consultants, the preparation of patent
applications with respect to certain of its Initial Products and technology
and raising capital to fund its operations.
The Company's prospects must be considered in light of the risks
associated with the establishment of a new business in the evolving
electronic video industry, as well as further risks encountered in the shift
from development to commercialization of new products based on innovative
technology. There can be no assurance that the Company will be able to
generate revenues or achieve profitable operations. See "Risk Factors,"
"Business" and "Financial Statements."
The Company was incorporated under the laws of Delaware on July 17, 1995.
The Company's corporate offices are located at One Passaic Avenue, Fairfield,
New Jersey 07004. The Company's telephone number is (201) 882-8810.
RECENT DEVELOPMENTS
From July 17, 1995 through August 30, 1995, the Company sold 600,000
shares of its Series A Preferred Stock (the "Preferred Shares") to certain
accredited investors for an aggregate consideration of $900,000 (the
"Preferred Shares Private Placement"). The Preferred Shares are convertible
into Common Stock on a one-to-one basis and will be automatically converted
into Common Stock upon the completion of this Offering. The shares of Common
Stock into which the Preferred Stock will be converted are called the
"Conversion Shares."
In December 1995, the Company sold unsecured 10% promissory notes in the
principal amount of $350,000 (the "Initial Bridge Notes") and 70,000 shares
of Common Stock (the "Initial Bridge Shares") to an accredited investor (the
"Initial Bridge Investor") for an aggregate consideration of $350,000.
In March 1996, the Company concluded a private placement (the "Private
Placement") of an aggregate of (i) $2,000,000 senior subordinated
non-negotiable promissory notes (individually a "Bridge Note" and
collectively, the "Bridge Notes") bearing interest at the rate of 10% per
annum due and payable on the closing of this Offering and (ii) 400,000 shares
of Common Stock (the "Bridge Shares") to certain accredited investors. In
that transaction, the Initial Bridge Investor exchanged the Initial Bridge
Notes for $350,000 principal amount of Bridge Notes and 70,000 Bridge Shares.
The Company received cash proceeds from the Private Placement of
approximately $1,315,000 after giving effect to expenses.
The Company agreed to include the Conversion Shares, the Initial Bridge
Shares and the Bridge Shares (collectively, the "Registrable Securities") in
this registration statement (the "Registration Statement") pursuant to
separate registration rights agreements (the "Registration Rights
Agreement(s)"). In that connection, the holders of the Bridge Shares agreed
not to sell any of such securities pursuant to the Registration Statement for
a period of 12 months after the effective date thereof without the prior
written consent of the Underwriter, and the holders of the Conversion Shares
and the Initial Bridge Shares agreed not to sell any of such securities for a
period of 18 months after such effective date without the prior written
consent of the Underwriter. In addition, each holder of Registrable
Securities agreed for a period of three years after the initial closing of
sale of the Bridge Shares to permit the Underwriter to sell such securities
in any public or private transaction (including, but not limited to, any
transaction pursuant to Rule 144 under the Securities Act) on terms at least
as favorable to the holder of such shares as such holder can secure
elsewhere.
6
<PAGE>
THE OFFERING
Securities Offered............. 2,000,000 shares of Common Stock and
Warrants to purchase 2,000,000 shares of
Common Stock. See "Description of
Securities" and "Underwriting."
Offering Price ................ $5.00 per share of Common Stock and $.10 per
Warrant.
Common Stock Outstanding:
Prior to the Offering....... 2,530,000 shares of Common Stock
After the Offering(1)....... 5,130,000 shares of Common Stock
Warrants Outstanding After the
Offering(2).................. 2,000,000 Warrants
Exercise Price of Warrants
Offered Hereby............... $5.50 per share, subject to adjustment in
certain circumstances. See "Description of
Securities -- Redeemable Warrants."
Exercise Period of Warrants
Offered Hereby............... The four-year period commencing one year
from the date hereof.
Redemption of Warrants......... Redeemable by the Company at any time
commencing 12 months after the date hereof
(or earlier with the prior written consent
of the Underwriter) on not less than 30 days
prior written notice to the holders of the
Warrants, provided the average closing bid
quotation of the Common Stock as reported on
the NASDAQ Stock Market, if traded thereon,
or if not traded thereon, the average
closing sale price of the Common Stock if
listed on a national securities exchange (or
other reporting system that provides last
sale prices), has been at least 150% of the
then current exercise price of the Warrants
(initially, $8.25 per share), for a period
of 20 consecutive trading days ending on the
third day prior to the date on which the
Company gives notice of redemption. The
Warrants will be exercisable until the close
of business on the day immediately preceding
the date fixed for redemption. See
"Description of Securities -- Redeemable
Warrants."
Use of Proceeds................ The net proceeds to the Company, aggregating
approximately $8,174,000, will be utilized
for research and development; to repay the
Bridge Notes in the principal amount of
$2,000,000; for working capital and general
corporate purposes; for marketing; and for
the purchase of equipment and inventory. See
"Use of Proceeds."
Risk Factors................... The securities offered hereby involve a high
degree of risk and substantial immediate
dilution to new investors. Only investors
who can bear the risk of their entire
investment should invest. See "Risk Factors"
and "Dilution."
Proposed NASDAQ Symbols........ Common Stock -- WAVE
Warrants -- WAVEW
7
<PAGE>
(1) Includes 2,000,000 shares of Common Stock offered hereby and 600,000
shares of Common Stock issuable upon conversion of the Company's
outstanding Preferred Shares. Excludes (i) 2,000,000 shares of Common
Stock reserved for issuance upon exercise of the Warrants; (ii) an
aggregate of 400,000 shares of Common Stock reserved for issuance upon
exercise of the Underwriter's Warrants and the warrants included therein;
and (iii) 300,000 shares of Common Stock issuable upon exercise of the
Underwriter's Over-allotment Option; See "Management -- Employment
Agreements," "Certain Transactions," "Description of Securities" and
"Underwriting."
(2) Includes (i) 2,000,000 Warrants offered hereby. Excludes (i) 200,000
Underwriter's Warrants to be issued to the Underwriter upon closing of
the Offering, (ii) 300,000 Warrants issuable upon exercise of the
Underwriter's Over-allotment Option, and (iii) 200,000 Warrants
underlying the Underwriter's Warrants.
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below is derived from and should be
read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995 Three July 17, 1995
(inception) Months (inception)
to Ended to
December 31, 1995 March 31, 1996 March 31, 1996
-------------------- ---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues ............................... $ 0 $ 0 $ 0
Net loss ............................... $ 910,591 $ 559,516 $ 1,470,107
Net loss per common share(1) ........... $ 0.27 $ 0.17
Weighted average number of shares(1) ... 3,383,500 3,383,500
Supplemental pro forma loss per share(2) $ 0.41
Supplemental pro forma weighted average
number of shares (2) .................. 3,883,500
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
----------------- ----------------------------------
Actual Actual As Adjusted(2)(3)(4)
------------ ------------ -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Working capital .............. $295,447 $ 833,405 $ 7,306,810
Total assets ................. $426,328 $ 1,392,167 $ 7,542,467
Total liabilities ............ $349,719 $ 1,488,594 $ 198,454
Deficit accumulated during the
development stage ........... $910,591 $ 1,470,107 $ 2,521,587
Stockholders' equity (deficit) $ 76,609 $ (96,427) $ 7,344,013
</TABLE>
- ------
(1) The net loss per common share has been computed in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 64
("SAB" 64). SAB 64 requires the net loss per common share to be computed
based on the weighted average number of shares of common stock
outstanding, increased for certain shares or stock options, including
shares of Series A Convertible Preferred Stock, issued within one year or
in contemplation of the Company's filing of its registration statement,
and that such shares be treated as if outstanding for all periods
presented.
(2) Assumes that: (i) of the net proceeds from the sale of the Common Stock
offered hereby, approximately $2,000,000 will be used to repay the Bridge
Notes, (ii) shares of Common Stock that would generate net proceeds of
approximately $2,000,000 at the net offering price of $4.00 per share
were outstanding during the three months ended March 31, 1996, and (iii)
such indebtedness had been repaid rather than outstanding during the
three months ended March 31, 1996.
(3) Gives effect to the sale of the Common Stock and Warrants offered hereby
and the application of a portion of the estimated net proceeds therefrom
to repay the Bridge Notes and the related interest. See "Use of
Proceeds."
(4) The change in the deficit accumulated during the development stage for
the three months ended March 31, 1996 (unaudited) from an actual basis to
an as adjusted basis is attributable to an extraordinary loss of
$1,051,480 incurred in connection with the repayment of the Bridge Notes
out of the net proceeds of this Offering, consisting of unamortized
deferred financing costs and unamortized debt discount at March 31, 1996
(unaudited) of $323,105 and $728,375, respectively.
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. This
Prospectus contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in the forward-looking
statements as a result of certain of the risk factors set forth below and
elsewhere in this Prospectus. Each prospective investor should carefully
consider the following risk factors before making an investment decision.
1. Development Stage Company; Absence of Operating History. The Company
was incorporated in July 1995, and is in the development stage. Accordingly,
the Company has no significant operating history upon which an evaluation of
the Company's prospects can be made. Since inception, the Company has been
engaged primarily in directing, supervising and coordinating Rave and the
Company's outside consultants in the continuing development of its Initial
Products and related technology, the recruitment of management and technical
personnel, including such outside consultants, the preparation of patent
applications with respect to certain of its Initial Products and technology
and raising capital to fund its operations. The Company has produced
prototypes of the AVP, the Magic Card and the NUWave Dual TBC, but not the
NUWave Ministudio. It has not licensed or sold any of its products or
technologies. The Company's viability, profitability and growth depend upon
successful completion of the development and commercialization of these
products. There can be no assurance that any of the Company's technologies or
products will be developed or commercialized. The prospects for the Company's
success must be considered in light of the risks, expenses and difficulties
often encountered in the establishment of a new business in a continually
evolving industry subject to rapid technological and price changes, and
characterized by an increasing number of market competitors. The risks,
expenses and difficulties often encountered in a shift from the research and
development of prototype products to the commercialization of new products
based on innovative technology must also be considered. See "Business."
2. Independent Accountants Qualified Report. The report of the Company's
independent accountants with respect to the financial statements of the
Company for the period from July 17, 1995 (inception) to December 31, 1995
contains a paragraph as to the Company's ability to continue as a going
concern. The factors cited by the accountants as raising substantial doubt as
to the Company's ability to continue as a going concern are that the
Company's products have not been proven commercially viable, and that the
Company has had no operating revenues, very limited capital resources and a
loss from operations. See "Management's Discussion and Analysis," the
Financial Statements and the notes thereto and the Report of Independent
Accountants included herein.
3. No Revenues; Accumulated Deficit; Anticipated Future Losses. To date,
the Company has had no operating revenue and does not anticipate any
operating revenue until such time, if ever, as its relevant technology and
one or more of its Initial Products are completely developed, manufactured in
commercial quantities and available for commercial delivery. There can be no
assurance that the Company's technology and products, if developed and
manufactured, will be able to compete successfully in the marketplace and/or
generate significant revenue. The Company anticipates incurring significant
costs in connection with the development of its technologies and proposed
Initial Products and there is no assurance that the Company will achieve
sufficient revenues to offset anticipated operating costs. As of March 31,
1996, the Company incurred a deficit of $1,470,107. Further, the Company
anticipates continuing significant losses in foreseeable future. Included in
such losses are research and development expenses, marketing costs,
manufacture and assembly, and general and administrative expenses. Inasmuch
as the Company will continue to have high levels of operating expenses and
will be required to make significant expenditures in connection with its
continued research and development activities, the Company anticipates that
such losses will continue until such time, if ever, as the Company is able to
generate sufficient revenues to support its operations. See "Summary
Financial Information."
4. Significant Capital Requirements; Dependence on Offering Proceeds; Need
for Additional Financing. The Company's capital requirements in connection
with its development activities have been and will continue to be
significant. The Company has been dependent upon the proceeds of sales of its
securities to private investors to fund its initial development activities.
Through August 1995, it raised capital of $900,000 through the sale of
600,000 shares of Series A Preferred Stock to six investors. In December
1995, it raised an additional $350,000 through the sale of units consisting
of Initial Bridge Notes in the principal amount of $350,000 and 70,000 shares
of Common Stock. In March 1995, the Company sold units consisting of an
aggregate of 400,000 Bridge Shares and $2,000,000 of Bridge Notes, for
approximately $1,315,000 in new capital (net of expenses) and the cancellation
9
<PAGE>
of the Initial Bridge Notes in the principal amount of $350,000. The Initial
Bridge Notes and the Bridge Notes have been discounted by the Company in the
aggregate amount of $105,000 in the case of the Initial Bridge Notes and
$660,000 in the case of the Bridge Notes (other than those exchanged with the
Initial Bridge Investor for the Initial Bridge Notes) to reflect a valuation of
$1.50 and $2.00 for the Common Stock included in the respective units. In
connection with the exchange of Bridge Notes for the Initial Bridge Notes the
Company recorded $140,000 of deferred financing costs which will be amortized
over the term of the Notes or recognized as an extraordinary loss if repaid
earlier. The Bridge Notes will be repaid from the proceeds of this Offering. The
Company anticipates that the proceeds of this Offering will be sufficient to
satisfy its contemplated cash requirements for at least 12 months following the
consummation of this Offering. After such time, the completion of the Company's
development activities relating to its Initial Products and the commencement of
manufacturing and marketing activities in connection with such products will
require continued funding in excess of the proceeds of this Offering or any
funds otherwise currently available to the Company. The Company has no current
arrangements with respect to sources of additional financing and there is no
assurance that other additional financing will be available to the Company in
the future on commercially reasonable terms, or at all. The inability to obtain
additional financing, when needed, would have a material adverse effect on the
Company, including possibly requiring the Company to curtail or cease
operations. To the extent that any future financing involves the sale of the
Company's equity securities, the Company's then existing stockholders, including
investors in this Offering, could be substantially diluted. See "Management's
Discussion and Analysis -- Liquidity and Capital Resources."
5. New Concept; Uncertainty of Market Acceptance; Lack of Marketing
Experience. The technology and products currently being developed by the
Company utilize new concepts and designs in video imagery and processing. The
Company's prospects for success will therefore depend on its ability to
successfully sell its products to key manufacturers and distributors who may
be inhibited from doing business with the Company because of their commitment
to their own technologies and products. As a result, demand and market
acceptance for the Company's technologies and proposed products is subject to
a high level of uncertainty. The Company currently has limited financial,
personnel and other resources to undertake the extensive marketing activities
that will be necessary to market its technology and products once their
development is completed. There is no assurance that any of the Company's
potential customers will enter into any arrangements with the Company. There
is no assurance that the Company will be able to formalize any marketing
arrangements or that its marketing efforts will be successful. See "Business
- -- Sales and Marketing" and "Business -- Research and Development."
6. Dependence on Third-Party Design Changes. Commercialization of the AVP
and Magic Card chips and their sale to manufacturers of the relevant video
equipment will require such manufacturers to adopt new circuit configurations
to accommodate the relevant chip in their products. Although the Company
expects that manufacturers wishing to utilize the AVP and Magic Card chips
will make such modifications to improve the performance of their products,
there is no assurance that the necessary modifications will be adopted
widely, or at all. Additionally, the cost of such modifications may inhibit
or prevent their adoption. The failure of designers and manufacturers to make
such modifications would have a material adverse effect on the Company's
ability to sell and/or license the relevant products. See "Business --
Manufacturing."
7. License Subject to Modification and Termination. Substantially all of
the technology on which the Company's products rely is licensed to the
Company pursuant to the License Agreement. The License Agreement provides
that Rave will receive minimum aggregate payments of royalties and
Development Fees, as defined in the development agreement between the Company
and Rave dated July 21, 1995 (the "Development Agreement"), of $65,000 per
month (the "Rave Minimum Payments"). If Rave does not receive the Rave
Minimum Payments, Rave has the option of electing to make the License
Agreement non-exclusive. If such payments are not made and Rave exercises its
option to make the License Agreement non-exclusive, it could have a material
adverse effect on the Company's operations. The License Agreement also
provides for the payment of royalties based on the net sales of the licensed
products and technology as well as any sublicensing fees paid to the Company
(the "Royalties"). If the Company fails to pay the Royalties, Rave has the
option to terminate the License Agreement. Because virtually all of the
Company's existing products and technology are licensed by the Company from
Rave, a termination of the License Agreement would render the Company unable
to continue its business. See "Certain Transactions."
10
<PAGE>
8. Uncertainty of Product and Technology Development; Need for Product
Testing; Technological Factors. Neither the Company nor Rave has completed
development of any of the Company's proposed products in commercially salable
form. Technologies and proposed products being developed by Rave for the
Company are in various stages of development. From July 17, 1995 through
March 31, 1996 the Company spent approximately $768,000 on research and
development relating to the Initial Products. During the 12 months following
the consummation of this Offering, the Company expects to spend approximately
$2,704,000 on research and development, substantially all of which the
Company anticipates will be spent to complete the commercial development of
the Initial Products. See "Business -- Research and Development." Product
development efforts are subject to all of the risks inherent in the
development of new technology and products (including unanticipated delays,
expenses, technical problems or difficulties, as well as the possible
insufficiency of funding to complete development). There can be no assurance
as to when, or whether, such developments will be successfully completed. No
assurance can be given that the Initial Products can be developed in
commercially saleable form within the projected development schedule. If Rave
is unable to complete its development activities with respect to certain of
the Company's Initial Products, the Company would have to complete
development itself or through third parties. Although the Company believes it
has sufficient information to allow the completion of development of these
products, there is no assurance that the Company will have sufficient
economic or human resources to complete such development in a timely manner,
or at all, or that it could enter into economically reasonable arrangements
for the completion of such products by third parties.
In connection with the development of commercially saleable prototypes,
the Company must successfully complete a testing program for the products
before they can be marketed. Unforeseen technical problems arising out of
such testing could significantly and adversely affect the Company's ability
to manufacture a commercially acceptable version. In addition, the Company's
success will depend upon its technologies and proposed products meeting
acceptable cost and performance criteria and upon their timely introduction
into the marketplace. There can be no assurance the technologies and proposed
products will satisfactorily perform the functions for which they are
designed, that they will meet applicable price or performance objectives or
that unanticipated technical or other problems will not occur which would
result in increased costs and/or material delays in their development. See
"Business -- The Company's Video Enhancement Products" and "Business -- The
Company's Video Production Products."
9. Unconditional Obligation to Share Sublicense Fees with Prime. The
Company has entered into an Agency Agreement with Prime which provides that
Prime will be the Company's exclusive agent for entering into sublicenses
with respect to the products and technology licensed to the Company pursuant
to the License Agreement and will assist the Company in the development and
implementation of a sublicensing program. Subject to certain minimum sales
requirements, the Agency Agreement provides for the payment to Prime of 35%
to 45% of net sublicense fees received by the Company along with certain
additional payments. See "Certain Transactions." To the extent payments to
Prime are based on sublicensing payments made to the Company, the Agency
Agreement provides that such payments must be made regardless of whether the
relevant sublicense is entered into through Prime's efforts or by the Company
itself. The unconditional obligation to pay Prime a portion of such
sublicensing fees may have an adverse effect on the Company's ability to
enter into profitable sublicensing arrangements or adversely affect its
ability to set competitive sublicense fees. See "Certain Transactions."
10. Dependence on Third-Party Development and Manufacturing. The Company
is dependent on Rave for the primary development of its technologies and
products. Although the Company and Rave have entered into a development plan
which provides for short and longer term schedules relating to development of
the Initial Products, there is no assurance that Rave will be able to follow
its plans, develop and produce working prototypes of all of the Initial
Products or other proposed products or otherwise meet production schedules
and timetables. The Company is dependent on Rave and other third parties as
yet unidentified to develop a sufficient number of working prototypes of
proposed products together with sufficient drawings, assembly materials,
documentation and specifications to enable their commercial production at
commercially reasonable costs. There is no assurance that Rave will be able
to perform such development services or that necessary third party
contractors can be identified to perform these functions at acceptable costs
or be able to perform them at all.
The Company will be dependent on third parties for the manufacture of the
ASIC based AVP, Magic Card and NUWave Dual TBC, and for the manufacture
and/or assembly of PCBs, frames and other subassemblies, as well as for the
11
<PAGE>
supply of the various components, that will be incorporated into its NUWave
Ministudio. Although the Company has identified certain potential manufacturers
with respect to its ASIC chips, it has not yet entered into any manufacturing or
supply arrangements with respect to those products or any others. Although
management believes it will be able to negotiate satisfactory manufacturing and
supply agreements, the failure to do so would have a material adverse effect on
the Company. Furthermore, there can be no assurance that such manufacturers will
dedicate sufficient production capacity to satisfy the Company's requirements
within scheduled delivery times or at all. Failure or delay by the Company's
suppliers in fulfilling its anticipated needs would adversely affect the
Company's ability to develop and market its products.
In addition, the Company will be dependent on third-party vendors for many
of the components necessary for the final assembly of its NUWave Ministudio.
However, the Company may have difficulty in obtaining contractual agreements
with the suppliers of such materials due to, among other things, possible
material shortages or possible lack of adequate purchasing power. While
management believes that these components are available from multiple
sources, it anticipates that the Company will obtain certain of them from a
single source, or limited number of sources, of supply. In the event that
certain of such suppliers are unable or unwilling to provide the Company with
components used in the NUWave Ministudio on commercially reasonable terms, or
at all, delays in securing alternative sources of supply would result and
could have a material adverse effect on the Company's operations. See
"Business -- Manufacturing."
11. Dependence on Randy Burnworth; Retention of Key Personnel; Potential
Conflicts of Interest. The success of the Company will be largely dependent
on the technology developed and being developed by Mr. Burnworth, a principal
shareholder of Rave and the principal inventor of its proprietary products
and technologies. Mr. Burnworth has no contractual agreement with the Company
and the Company will have to rely on Rave to cause him to render services. In
any event, the loss of Mr. Burnworth's services would have a material adverse
effect on the Company's ability to maximize its use of such technologies and
proposed products or to develop related technologies and products. The
Company intends to obtain key man insurance on Mr. Burnworth's life in the
amount of $1,000,000 prior to the consummation of this Offering. Although the
Company is not aware of any actual or potential conflicts of interest,
conflicts of interest may develop in the future between the Company and Mr.
Burnworth and there can be no assurance such conflicts will be resolved in
the Company's interest. The success of the Company also is dependent upon its
ability to hire and retain additional qualified executive, scientific and
marketing personnel. There is no assurance that the Company will be able to
hire or retain such necessary personnel.
12. Broad Discretion in Application of Proceeds by Management; Repayment
of Debt. Approximately $1,808,000 (22.1%) of the estimated net proceeds of
this Offering have been allocated to working capital and general corporate
purposes. Accordingly, the Company will have broad discretion as to the
application of such proceeds. In addition, approximately $2,050,000 (25.1%)
of the proceeds of this Offering will be used to repay the Bridge Notes and
Initial Bridge Notes and related interest, and, accordingly, such funds will
not be available to fund future growth. See "Use of Proceeds."
13. Competition. The markets that the Company intends to enter are
characterized by intense competition, and, particularly with respect to the
market for video, editing, production and processing products, significant
price erosion over the life of a product. The Company's products will
directly compete with those of numerous well-established companies, such as
Sony Electronics, Inc., Panasonic Division of Matsushita Electric Industrial
Co., Motorola, Inc., Mitsubishi International Corp. and Phillips Electronics,
NV, which design, manufacture and/or market video technology and other
products. All of these companies have substantially greater financial,
technical, personnel and other resources than the Company and have
established reputations for success in the development, licensing, sale and
service of their products and technology. Certain of these competitors
dominate their industries and have the necessary financial resources to
enable them to withstand substantial price competition or downturns in the
market for video products. See "Business -- Competition."
14. Rapid Changes to Industry Standards; Product Obsolesence. The markets
for the technology and products being developed by the Company are
characterized by rapid changes and evolving industry standards often
resulting in product obsolescence or short product life cycles. As a result,
certain companies may be developing technologies or products of which the
Company is unaware which may be functionally similar, or superior, to some or
all of those being developed by the Company. As a result of all of the above,
the ability of the Company to compete will depend on its ability to complete
12
<PAGE>
development and introduce to the marketplace in a timely and cost-competitive
manner its proposed products and technology, to continually enhance and improve
such products and technology, to adapt its proposed products to be compatible
with specific products manufactured by others, and to successfully develop and
market new products and technology. There is no assurance that the Company will
be able to compete successfully, that its competitors or future competitors will
not develop technologies or products that render the Company's products and
technology obsolete or less marketable or that the Company will be able to
successfully enhance its proposed products or technology or adapt them
satisfactorily. See "Business -- Competition."
15. Enforceability of Patents and Similar Rights; Possible Issuance of
Patents to Competitors; Trade Secrets. The Company has filed patent
applications relating to its AVP and the related technology and copyright
applications with respect to the software controlling the NUWave Dual TBC. To
the extent practicable, the Company intends to file other U.S. patents and/or
copyright applications relating to certain of its proposed products and
technologies either on its own behalf (or on behalf of Rave with respect to
products and technology licensed pursuant to the License Agreement). Although
the Company believes certain of its technology contains patentable claims,
there is no assurance that any patents will be obtained. If obtained, there
is no assurance that any patents will afford the Company commercially
significant protection of its technologies or that the Company will have
adequate resources to enforce its patents. Because the Company also intends
to license its technology and products in foreign markets, it intends to seek
foreign patent protection. With respect to foreign patents, the patent laws
of other countries may differ significantly from those of the United States
as to the patentability of the Company's products or technology. Moreover,
the degree of protection afforded by foreign patents may be different from
that in the United States. Patent applications in the United States are
maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, the Company cannot be certain that it will be
the first creator of inventions covered by any patent applications it makes
or the first to file patent applications on such inventions.
Based on Rave's experience in the video industry, that of the Company's
own officers and directors and patent searches made in connection with the
patent applications filed for the Company's AVP, the Company believes that
its products do not infringe the patents or other proprietary rights of third
parties. However, there can be no assurance that third parties will not
assert infringement claims against the Company or that such claims will not
be successful. Competitors in both the United States and foreign countries,
many of which have substantially greater resources and have made substantial
investments in competing technologies, may have applied for or obtained, or
may in the future apply for and obtain, patents that will prevent, limit or
otherwise interfere with the Company's ability to make and sell its products.
The Company has not conducted an independent review of patents issued to
third parties except with respect to its AVP in connection with its own
patent application. In addition, because of the developmental stage of the
Company, claims that the Company's products infringe on the proprietary
rights of others are more likely to be asserted after commencement of
commercial sales incorporating the Company's technology. There can also be no
assurance that competitors will not infringe the Company's patents. Defense
and prosecution of patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject
the Company to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require the Company to cease
selling its products.
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information,
the Company requires employees, consultants, advisors and collaborators to
enter into confidentiality agreements. There can be no assurance that these
agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. If the Company is unable to
maintain the proprietary nature of its technologies, the Company could be
adversely affected. See "Business -- Patents; Proprietary Information."
16. Control by Management and Prime. Upon consummation of the Offering,
the officers of the Company will beneficially own 789,524 shares of Common
Stock, or approximately 15% of the Company's then outstanding shares of
13
<PAGE>
Common Stock, and Prime Technology, Inc. (20% of the capital stock of which is
owned by Mr. David Kwong, a director of the Company, and 20% of which is owned
by Rave) will beneficially own 1,090,000 shares of Common Stock or approximately
21.3% of the Company's then outstanding shares of Common Stock. Such officers
and Prime would therefore be in a position to significantly influence the
election of the Company's directors and thereby select the management, and
direct the policies, of the Company. See "Management," "Principal Stockholders"
and "Description of Securities."
17. No Dividends. The Company has paid no cash dividends to date. Payment
of dividends on the Common Stock is within the discretion of the Board of
Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to declare any dividends on its Common Stock or
Preferred Stock in the foreseeable future. Currently, the Company plans to
retain any earnings it receives for development of its business operations.
See "Summary Financial Information."
18. Dilution. Investors purchasing shares of Common Stock in the Offering
will incur immediate and substantial dilution in the net tangible book value
per share of the Common Stock from the initial public offering price as
compared to the increase in net tangible book value per share that will
accrue to existing stockholders. Such dilution is estimated to be $3.57 per
share (or approximately 71.4% of the public offering price). See "Dilution."
19. Shares Eligible for Future Sale; Registration Rights. Upon the
consummation of this Offering, the Company will have 5,130,000 shares of
Common Stock outstanding, assuming no exercise of the Warrants or outstanding
options. Subject to the contractual restrictions described below, 3,070,000
of these shares, including all 2,000,000 of the shares being offered hereby
and the 1,070,000 currently outstanding shares of Common Stock included in
the Selling Stockholders' Shares being registered by the Company concurrently
with this Offering (pursuant to the Selling Stockholders' Prospectus included
in the Registration Statement of which this Prospectus forms a part), will be
freely tradeable without restriction or further registration under the
Securities Act. The remaining 2,060,000 shares are deemed to be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act ("Rule 144") and may, in certain circumstances, be sold
without registration pursuant to such rule. All of such "restricted" shares
will become eligible for sale under Rule 144 in July 1997 (subject to certain
recurring three-month volume limitations prescribed by Rule 144). However,
the Company's current stockholders (including the holders of the Selling
Stockholders Shares) owning all but 10,000 shares of Common Stock, have
agreed not to sell or otherwise dispose of any of their shares for a period
of 12 months (in the case of 400,000 such shares) and 18 months (in the case
of all other shares), from the date of this Prospectus without the prior
written consent of the Underwriter. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and the
Warrants and could impair the Company's ability in the future to raise
additional capital through the sale of its equity securities. See "Principal
Stockholders," "Description of Securities -- Registration Rights," "Shares
Eligible for Future Sale," "Underwriting" and "Concurrent Registration of
Common Stock."
20. Effect of Issuance of Common Stock Upon Exercise of
Warrants. Immediately after the Offering, assuming full exercise of the
Underwriter's Over-allotment Option, the Company will have outstanding
warrants to purchase an aggregate of up to 2,500,000 shares of Common Stock,
including the Warrants and the Underwriter's Warrants (but excluding the
Warrants issuable upon the exercise thereof). The exercise of such warrants
and the sale of the underlying shares of Common Stock (or even the potential
of such exercise or sale) may have a depressive effect on the market price of
the Company's securities. The exercise of the warrants also may have a
dilutive effect on the interests of investors in the Offering. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected because the holders of the outstanding warrants can
be expected to exercise them, to the extent they are able to, at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the warrants. See
"Description of Securities" and "Underwriting."
21. No Assurance of Public Market; Determination of Public Offering Price;
Possible Volatility of Market Price of Common Stock and Warrants. Prior to
this Offering, there has been no public trading market for the shares of
Common Stock or the Warrants. Consequently, the initial offering price of the
14
<PAGE>
Common Stock and the Warrants and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter and do not
necessarily reflect the Company's book value or other established criteria of
valuation. There can be no assurance that a regular trading market for either
the Common Stock or the Warrants will develop after this Offering or that, if
developed, it will be sustained. In addition, the market price of the securities
of development-stage companies in high-technology industries has been highly
volatile. Factors such as the Company's operating results, announcements by the
Company of licensing of distribution contracts, orders for its products and
announcements by the Company or its competitors concerning technological
innovations, new products or systems may have a significant impact on the market
price of the Company's securities. In addition, the market prices for securities
of many emerging companies have experienced wide fluctuations not necessarily
related to the operating performance of such companies. See "Underwriting."
22. Necessity of Future Registration of Warrants and State Blue Sky
Registration; Exercise of Warrants. The Warrants will trade separately upon
the closing of the Offering. Although the Warrants will not knowingly be sold
to purchasers in jurisdictions in which the Warrants are not registered or
otherwise knowingly be sold to purchasers in jurisdictions in which the
Warrants are not registered or otherwise qualified for sale or exempt,
purchasers may buy Warrants in the after-market or may move to jurisdictions
in which the Warrants and the Common Stock underlying the Warrants are not so
registered or qualified or exempt. In this event, the Company would be unable
lawfully to issue Common Stock to those persons desiring to exercise their
Warrants (and the Warrants will not be exercisable by those persons) unless
and until the Warrants and the underlying Common Stock are registered or
qualified for sale in jurisdictions in which such purchasers reside or an
exemption from such registration or qualification requirements exists in such
jurisdictions. There can be no assurance that the Company will be able to
effect any required registration or qualification.
The Warrants offered hereby will not be exercisable unless the Company
maintains a current registration statement on file with the Commission either
by filing post-effective amendments to the Registration Statement of which
this Prospectus is a part or by filing a new registration statement with
respect to the exercise of such Warrants. The Company has agreed to use its
best efforts to file and maintain, so long as the Warrants offered hereby are
exercisable, a current registration statement with the Commission relating to
such Warrants and the shares of Common Stock underlying such Warrants.
However, there can be no assurance that it will do so or that such Warrants
or such underlying Common Stock will be or continue to be so registered.
The value of the Warrants could be adversely affected if a then current
prospectus covering the Common Stock issuable upon exercise of the Warrants
is not available pursuant to an effective registration statement or if such
Common Stock is not registered or qualified for sale or exempt from
registration or qualification in the jurisdictions in which the holders of
Warrants reside. See "Description of Securities -- Redeemable Warrants."
23. Adverse Effect of Redemption of Warrants; Inability to Redeem Warrants
for 12 Months. The Warrants are generally subject to redemption by the
Company at a price of $.10 per Warrant at any time commencing 12 months after
the date hereof or earlier (with the prior written consent of the
Underwriter), on at least 30 days prior written notice, if the average
closing bid quotation of the Common Stock as reported on the NASDAQ Stock
Market, if traded thereon, or if not traded thereon, the average closing sale
price of the Common Stock if listed on a national securities exchange (or
other reporting system that provides last sale prices), has been at least
150% of the then current exercise price of the Warrants (initially, $8.25 per
share), for a period of 20 consecutive trading days ending on the third day
prior to the date on which the Company gives notice of redemption. If the
Company gives such notice of redemption, holders of the Warrants will lose
their rights to exercise the Warrants after the date fixed therein for their
redemption. Upon the receipt of a notice of redemption of the Warrants, the
holders thereof would be required to (i) exercise the Warrants and pay the
exercise price at a time when it may disadvantageous for them to do so, (ii)
sell the Warrants at the then market price, if any, when they might otherwise
wish to hold the Warrants or (iii) accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities -- Redeemable Warrants."
24. Inability to Exercise Warrants for 12 Months. The Warrants offered
hereby cannot be exercised until 12 months after the date of this Prospectus.
This may eliminate or reduce the ability of holders of the Warrants to
benefit from increases, if any, in the market price of the Company's Common
Stock during such period because the Warrants may not be immediately
exercisable into shares of Common Stock. See "Description of Securities --
Redeemable Warrants."
15
<PAGE>
25. Anti-Takeover Statutes. Delaware has enacted legislation which
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder," unless the business combination is approved in a prescribed
manner. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within the
prior three years did own) 15% or more of a corporation's voting stock. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." See
"Description of Securities -- Anti- Takeover Provisions of Delaware Law."
26. Limitation on Tax Loss Carryforwards. At March 31, 1996, the Company
had available unused net operating loss carryforwards ("NOLs") aggregating
approximately $718,848 to offset future taxable income. Under Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"), utilization of
prior NOLs is limited after an ownership change, as defined in such Section
382, to an amount equal to the value of the loss corporation's outstanding
stock immediately before the date of the ownership change, multiplied by the
federal long-term tax-exempt rate in effect during the month that the
ownership change occurred. Upon the consummation of this Offering, the
Company may be subject to limitations on the use of its NOLs as provided
under Section 382. Accordingly, there can be no assurance that a significant
amount of the Company's existing NOLs will be available to the Company
following the Offering. In the event that the Company achieves profitability,
as to which there can be no assurance, such limitation would have the effect
of increasing the Company's tax liability and reducing the net income and
available cash resources of the Company in the future. See Note 2 of Notes to
Financial Statements.
27. Possible Delisting and Risk of Low-Priced Securities. The Company has
applied for quotation of the Common Stock and the Warrants on NASDAQ. No
assurance can be given that the Common Stock and the Warrants will qualify
for initial quotation or listing or that the Company will continue to be able
to satisfy certain specified financial tests and market related criteria
required for continued quotation on NASDAQ following the Offering. If the
Company is unable to satisfy such maintenance criteria in the future, the
Common Stock and the Warrants may be delisted from trading on NASDAQ and,
consequently, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities and
the Warrants would no longer be redeemable.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection
with trades in any stock defined as a penny stock. Commission regulations
generally define a penny stock to be an equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
In addition, if the Company's securities are not quoted on NASDAQ or if
the Company does not meet the other exceptions to the penny stock regulations
cited above, trading in the Company's securities would be covered by Rule
15g-9 promulgated under the Exchange Act for non-NASDAQ and non-national
securities exchange listed securities. Under such rule, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a
transaction prior to sale. Securities also are exempt from this rule if the
market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable
to penny stocks, the market liquidity for the Company's securities could be
adversely affected. In such event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Company's securities and thus
the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
28. Limitation on Liability of Directors and Officers. The Certificate of
Incorporation of the Company provides that (i) the Company will indemnify any
director, officer, employee or agent of the Company with respect to actions,
suits or proceedings relating to the Company and (ii) subject to certain
limitations, a director shall not be personally liable for monetary damages
for breach of his fiduciary duty. In addition, the Company has entered into
an indemnification agreement with each of the directors of the Company, which
provides that the director is entitled to indemnification to the fullest
extent permitted by law. Such indemnification will cover all expenses,
16
<PAGE>
liabilities, judgments, penalties, fines and amounts paid in settlement which
are incurred or imposed upon the director if the director is a party, threatened
to be made a party to any action, suit or proceeding of any kind by reason of
the fact that such person served or serves as a director of the Company or
served as a director, officer, employee or agent with any other enterprise at
the request of the Company. See "Description of Securities -- Limited Liability
and Indemnification."
CONCURRENT REGISTRATION OF COMMON STOCK
Concurrently with this Offering, the Company has registered the offering
of 1,070,000 shares of Common Stock (including an aggregate of 600,000
Conversion Shares, 400,000 Bridge Shares and 70,000 Initial Bridge Shares),
under the Securities Act pursuant to a Selling Stockholders' Prospectus
included within the Registration Statement of which this Prospectus forms a
part. The holders of all such Selling Stockholders' Shares have agreed not to
publicly transfer, sell or otherwise dispose of these securities for 12
months or 18 months, as the case may be, following the date of this
Prospectus, without the prior written consent of the Underwriter. The Company
will not receive any of the proceeds from the sale of the Selling
Stockholders' Shares. It is anticipated that when such shares are eligible
for sale free of the contractual restriction described above, they will be
offered and sold from time to time in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions.
GLOSSARY
A/B Roll Editing. The ability to access two or more playback tape machines
simultaneously and combine the video signals in the process of Video
Production.
Analog Light Wave. A spectrum (band) of electro magnetic waves of
different frequencies in which each frequency represents a specific color.
Analog Video Waves. Electrical currents that represent corresponding light
waves in an electrical circuit.
ASIC. An Application Specific Integrated Circuit. ASICs are produced in
the form of a silicon wafer (a "chip") containing electrical circuits through
which information in the form of electric signals flows and is processed.
ASICs are generally produced in large quantities by highly automated
equipment.
Compression. The process of reducing actual data transmitted or stored
through the removal of data, with the objective that enough of the data
removed will be retrieved during expansion by interpolation or other
processing methods that attempt to recreate such data in order to create an
acceptable image.
Digital Process. The process by which information is broken down into
binary bits and thereafter manipulated and transmitted.
FPS. Frames Per Second. The rate at which video frames are presented. In
standard broadcast television, frames are presented at 30 fps.
Frame Extrapolation Process. The process by which one or more Virtual
Frames are produced by comparing two real frames and inferring location and
other information in the Virtual Frame by manipulating the compared data. The
Virtual Frame is then inserted into the video to create a smooth motion.
Frame Synchronization. The presentation of two or more video frames of the
same duration at the same time, from different sources, usually for purposes
of mixing or otherwise manipulating them in the course of a video production.
Initial Products. The principal products currently being developed by the
Company, i.e., the AVP, the Magic Card, the NUWave Dual TBC and the NUWave
Ministudio.
17
<PAGE>
Interlaced Scanning. The presentation of video information in the form of
alternate horizontal lines in two separate fields representing one composite
frame. The NTSC and PAL standards are based on Interlaced Scanning.
Morphing. The application of a Frame Extrapolation Process to different
images in which several Virtual Frames provide a smooth transition from one
image to the other.
Multimedia Computer. A computer that combines computing ability with the
ability to produce sound and process video from traditional sources attached
to the computer.
Noise. Salt and pepper patterns appearing at random in video presentations
usually caused by deterioration of the signal in data transmission, data
compression or decompression.
Non-Linear Editing. Editing by means of random instantaneous access to
video source material that is stored as discrete segments.
NTSC or PAL. National Television Standard Codes or Phase Alternate Lines,
used in virtually all broadcast television in North America and Europe,
respectively, based on interlaced scanning of alternating horizontal lines
(525 in the case of NTSC and 625 in the case of PAL). In these systems, two
separate fields are presented on an alternating basis, each at the rate of 30
fps.
OEM. Original Equipment Manufacturer. A manufacturer who includes
components such as the AVP or the Magic Card in a final product that such
manufacturer markets under its own label.
PCB. A printed circuit board. Generally a multi-layered board comprised of
several layers of insulating material (usually fiberglass) on which copper
traces (copper lines capable of carrying electric current) have been
imprinted.
Real Time. Transmission of data as an event occurs.
Satellite Distribution System. A system based on the transmission of
information from a point of origination to an orbiting satellite relay
station, from which such information may be retransmitted directly over a
large area to discrete receivers.
Settop Box. A device providing for the conversion and/or distribution of
video signals interposed between individual items of video equipment, such as
between a television and an arcade game, a personal computer and/or a
satellite broadcast receiver.
TBC. Time Base Corrector. A device attached to a video source that
corrects to a known timing source distortions in the rate each frame
containing video information is presented and presents a consistent timed
signal and frame synchronization. TBCs are an essential component in
sophisticated video production processes in which multivideo sources are
manipulated, combined and otherwise processed.
VGA. Video Graphics Array. The typical form in which video is encoded in a
computer for processing or display on a computer monitor. A VGA display is
based on individual "pixels" making up a computer screen. VGA must be
converted into broadcast signals that are displayed in compliance with NTSC
or PAL standards.
Video Production. The process by which individual video source material is
collected, created, combined, edited and recorded.
Virtual Frame. An artificial frame produced by a Frame Extrapolation
Process.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Warrants offered hereby are estimated to be $8,174,000 ($9,505,100 if the
Underwriter's Over-allotment Option is exercised in full). The Company
expects to use the net proceeds (assuming no exercise of the Underwriter's
Over-allotment Option) during the next 12 months as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
- ------------------------- --------------- ---------------
<S> <C> <C>
Research and development (1) ..................... $2,704,000 33.1%
Repayment of Bridge Notes (2) .................... 2,050,000 25.1%
Working capital and general corporate purposes (3) . 1,808,000 22.1%
Marketing (4) .................................... 816,000 10.0%
Purchase of equipment and inventory (5) .......... 796,000 9.7%
---------- -------
TOTAL .......................................... $8,174,000 100.0%
========== =======
</TABLE>
- ------
(1) Includes estimated payments to Rave pursuant to the Development Agreement
($1,081,000) and costs to complete the ASIC chip development for the AVP
($117,000), Magic Card ($200,000), and the NUWave Dual TBC ($100,000).
Also includes anticipated costs of outside consultants ($594,000) and
development of an in-house technical staff ($612,000). See "Management's
Discussion and Analysis."
(2) Represents the repayment of outstanding Bridge Notes in the aggregate
principal amount of $2,000,000 plus estimated accrued interest thereon at
the rate of 10% per annum to the date of consummation of this Offering.
The Company used the net proceeds from the sale of such notes to pay for
research and product development, operating expenses, and various
expenses related to this Offering. See Notes 2 and 6 of Notes to
Financial Statements.
(3) Includes anticipated payment of the salaries of the Company's current
personnel plus an additional seven staff members. The remainder will be
used for working capital and general corporate purposes.
(4) Includes estimated expenses associated with participation in trade shows,
business travel, advertising in trade magazines, the preparation of sales
documents and brochures and market research ($426,000) and related
payroll expenses of marketing personnel ($390,000). See "Business --
Marketing and Distribution."
(5) Includes the estimated costs associated with the purchase of equipment
($357,000), and the purchase of inventories ($439,000) of the AVP, Magic
Card, NUWave Dual TBC, and their related components. The Company has no
commitments to date for the purchase of any inventory. See "Management's
Discussion and Analysis."
------
If the Underwriter exercises its Over-allotment Option in full, the
Company will realize additional net proceeds of approximately $1,331,100,
which amount will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this Offering will be
sufficient to satisfy the Company's contemplated cash requirements for at
least 12 months following the consummation of this Offering. In the event the
Company's plans change or its assumptions change or prove to be inaccurate or
the proceeds of this Offering prove to be insufficient to fund operations
(due to unanticipated expenses, delays, problems or otherwise), the Company
may find it necessary or advisable to reallocate some of the proceeds within
the above-described categories or to use portions thereof for other purposes
and could be required to seek additional financing sooner than currently
anticipated. Depending on the Company's progress in the development of its
products and technology, their acceptance by third parties, and the state of
the capital markets, the Company may also determine that it is advisable to
raise additional equity capital, possibly within the next 12 months. The
Company has no current arrangements with respect to, or sources of,
additional financing and there can be no assurance that additional financing
19
<PAGE>
will be available to the Company when needed on commercially reasonable terms or
at all. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company, including possibly requiring the Company
to significantly curtail or cease its operations. See "Management's Discussion
and Analysis."
Proceeds not immediately required for the purposes described above will be
invested principally in government securities and/or short-term certificates
of deposit.
DILUTION
As of March 31, 1996, the Company had a negative net tangible book value
of $96,427 or approximately $(.04) per share of Common Stock. After also
giving effect to the sale of the 2,000,000 shares of Common Stock and
2,000,000 Warrants being offered hereby (less underwriting discounts and
commissions and estimated expenses of this Offering), the adjusted net
tangible book value of the Company as of March 31, 1996, would have been
approximately $7,344,013, or $1.43 per share, representing an immediate
increase in net tangible book value of $1.47 per share of Common Stock to
existing stockholders and an immediate dilution of $3.57 (or 71.4% of the
public offering price) per share to new investors. The pro forma net tangible
book value before the Offering has been calculated by dividing the
stockholders' equity at March 31, 1996 by the common shares outstanding as at
that date. Adjusted net tangible book value has been calculated by adding the
net proceeds of the Offering and costs of the Offering, incurred by the
Company through March 31, 1996 ($317,920) to negative tangible net worth as
of March 31, 1996 and subtracting from the result the related debt discount
and deferred financing costs. The following table illustrates this dilution
to new investors on a per share basis:
Public offering price .......................... $5.00
Net tangible book value before pro forma
adjustments .............................. $(.04)
Increase attributable to new investors ..... 1.47
--------
Adjusted net tangible book value after Offering . 1.43
-----
Dilution to new investors ....................... $3.57
=====
The above table assumes no exercise of stock options outstanding as of
March 31, 1996. As of such date, there were options outstanding to purchase
370,000 shares of Common Stock at exercise prices ranging from $1.50 to $2.00
per share. If all of such options were exercised, the pro forma, as adjusted,
net tangible book value per share after the offering would be $1.44 per share
and therefore not result in immediate dilution to new investors. See "Risk
Factors," "Management's Discussion and Analysis," "Certain Transactions,"
"Description of Securities" and "Underwriting."
The following table sets forth with respect to existing stockholders and
new investors in this Offering, a comparison of the number of shares of
Common Stock acquired from the Company, the percentage of ownership of such
shares, the total cash consideration paid, the percentage of total cash
consideration paid and the average price per share. It assumes that the
600,000 shares of Preferred Stock have been converted into Common Stock on a
one-to-one basis.
<TABLE>
<CAPTION>
Shares Purchased Total Cash Consideration Paid Average
----------------------- ------------------------------ Price Per
Number Percent Amount Percent Share
----------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders . 3,130,000 61.1% $ 1,665,000 14.3% $ .53
New Investors ....... 2,000,000 38.9% 10,000,000 85.7% $5.00
--------- ------ ----------- ------
Total .............. 5,130,000 100.0% $11,665,000 100.0%
========= ====== =========== ======
</TABLE>
The above tables assume no exercise of the Underwriter's Over-allotment
Option. If such option is exercised in full, the new investors will have paid
$11,500,000 for 2,300,000 shares of Common Stock, representing approximately
87.4% of the total consideration for 42.4% of the total number of shares of
Common Stock outstanding.
20
<PAGE>
CAPITALIZATION
The following table sets forth (i) the current liabilities and
capitalization of the Company as of March 31, 1996 and (ii) as adjusted to
give effect to the sale of the Common Stock and Warrants offered hereby and
the anticipated application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------
Actual As Adjusted
---------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Liabilities ................................................... $ 1,488,594 $ 198,454
=========== ===========
Long-term debt (net of unamortized debt discount of $728,375,
and $0 as adjusted) .......................................... $ 1,271,625 --
-----------
Stockholders' equity
Preferred Stock par value $.01 per share, 1,000,000
authorized: none issued .................................. -- --
Convertible "Series A Preferred" stock par value $.01,
1,000,000 shares authorized; 600,000 issued and
outstanding; none issued and outstanding (as adjusted)..... 6,000 --
Common Stock, par value $.01, 8,000,000 shares
authorized; 2,530,000 issued and outstanding;
5,130,000 issued and outstanding (as adjusted)(1).......... 25,300 51,300
Additional paid-in capital .................................. 1,660,300 9,814,300
Deferred equity costs ....................................... (317,920) --
Deficit accumulated during the development stage(2) ......... (1,470,107) (2,521,587)
----------- -----------
Total stockholders' equity (deficit) ........................ (96,427) 7,344,013
----------- -----------
Total capitalization ........................................ $ 1,392,167 $ 7,542,467
=========== ===========
</TABLE>
- ------
(1) Does not include (i) 2,000,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants; (ii) an aggregate of 400,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants and the warrants included therein; (iii) an
aggregate of 370,000 shares of Common Stock reserved for issuance upon
exercise of outstanding stock options; and (iv) 260,000 shares of Common
Stock reserved for issuance upon exercise of options available for future
grant under the 1996 Performance Incentive Plan. See "Management --
Employment Agreements," "-- 1996 Performance Incentive Plan," "Certain
Transactions," "Descriptions of Securities" and "Underwriting."
(2) The change in the deficit accumulated during the development stage for
the three months ended March 31, 1996 (unaudited) from an actual basis to
an as adjusted basis is attributable to an extraordinary loss of
$1,051,480 incurred in connection with the repayment of the Bridge Notes
out of the net proceeds of this Offering, consisting of unamortized
deferred financing costs and unamortized debt discount at March 31, 1996
(unaudited) of $323,105 and $728,375, respectively.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Since its inception in July 1995, the Company, a development stage
company, has been engaged primarily in directing, supervising and
coordinating Rave and the Company's outside consultants in the continuing
development of its Initial Products and related technology, the recruitment
of key management and technical personnel, including such outside
consultants, the preparation of patent applications with respect to certain
of its Initial Products and technology and raising capital to fund its
operations. The Company has produced and tested fully operational working
prototypes of the AVP, the Magic Card and the NUWave Dual TBC. It has
produced and tested initial prototypes of the NUWave Ministudio and expects
to produce and test fully operational prototypes of that product in the
second half of 1996. See "Management's Discussion and Analysis -- Research
and Development" and "Business -- Research and Development." It has not
licensed or sold any of its products or technologies. The Company requires
the proceeds of this Offering to continue to develop its Initial Products and
(in the event the Company is able to successfully complete certain additional
research and development, prototypes and product testing relating thereto) to
commence the commercialization of the Initial Products.
As of March 31, 1996, the Company had a deficit accumulated during the
development stage of $1,470,107, which includes the net loss for the three
months ended March 31, 1996 of $559,516. Significant additional losses have
been incurred since such date. The Company will continue to have a high level
of operating expenses and will be required to make significant expenditures
in connection with its research and development activities and the production
and marketing of its proposed products and technologies following the
consummation of this Offering. Although the Company anticipates deriving some
revenue from the sale of its AVP and Magic Card within the next 12 months, no
assurance can be given that these products will be successfully brought to
market or even completely developed and tested during such period, and the
Company has projected its expenses based on the assumption that it will
receive no revenues from the sale of its products during the 12 months after
the conclusion of this Offering. Even if revenues are produced from the sale
of such Initial Products, the Company expects to continue to incur
substantial losses for at least the next 12 months, and thereafter until the
Company is able, if ever, to attain revenues from sales, licensing or other
arrangements sufficient to support its operations.
RESEARCH AND DEVELOPMENT
From July 17, 1995 through March 31, 1996, the Company spent approximately
$768,000 on research and development, of which approximately 85% was paid to
Rave pursuant to the Development Agreement. During the 12 months following
this Offering, the Company intends to spend approximately $2,704,000 of the
proceeds of such Offering on research and development. Of that amount the
Company estimates that at least 40% will be paid to Rave pursuant to the
Development Agreement, 38% will be spent on software development, ASIC chip
development, and production engineering undertaken by third parties, and the
balance will be spent on internal research and development. In the event the
Company is able to generate revenues from sales of its Initial Products
during such 12-month period, it anticipates it will increase its expenditures
on research and development.
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which
the Company and Rave entered into the License Agreement and the Development
Agreement. Pursuant to the Development Agreement, the Company has retained
Rave to continue the development of the Initial Products by utilizing Rave's
proprietary Analog Video Wave mapping techniques and processes through which
Analog Video Waves may, among other things, be digitized, compressed,
transmitted, manipulated and processed. Rave, pursuant to the Development
Agreement, has provided to the Company development plans outlining costs,
schedules and timetables for development of working prototypes of products
described in such development plans.
In addition to utilizing the services of Rave pursuant to the terms of the
Development Agreement, the Company has utilized the services of third party
contractors in connection with its research and development activities. The
Company intends to continue to use outside consultants to assure exposure to
new ideas and technology and its own in house personnel to direct, supervise
and coordinate the efforts of Rave and its outside consultants. See "Business
- -- Research and Development."
22
<PAGE>
MARKETING AND DISTRIBUTION
Achieving significant market acceptance and commercialization of the
Company's Initial Products will require substantial marketing efforts and the
expenditure of significant funds to establish market awareness of the Company
and the Initial Products. The Company anticipates spending $426,000 over the
12 months following the Offering to develop and implement a formal
advertising program. The Company initially intends to market the Initial
Products to manufacturers of televisions, multimedia computers and
teleconferencing equipment as well as broadcasting and video production
professionals. It also may license to third parties the rights to manufacture
the products, either through direct licensing, OEM arrangements or otherwise.
See "Business -- Manufacturing."
The Company does not currently have a sales force to implement the sale
and/or licensing of its products or related technology. The Company intends
to rely principally on national sales representative organizations to
represent its products. However, the Company has determined that it will need
to employ an internal sales staff of at least four people by December 31,
1996. See "Business -- Marketing and Distribution."
MANUFACTURING
The Company does not contemplate that it will directly manufacture any of
its products. It intends to contract with third parties to manufacture its
proposed AVP and Magic Card, and related retail products, and its NUWave Dual
TBC, and NUWave Ministudio.
EMPLOYEES
The Company currently has three employees and, depending on its level of
business activity, expects to hire additional employees in the next 12
months, including marketing and sales, manufacturing and technical personnel,
and has allocated $1,116,000 of the proceeds of this offering for the
recruitment and related payroll expenses for approximately 30 additional
employees over the next 12-month period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has relied for all of its funding ($2,900,000
in cash plus the cancellation of the Initial Bridge Notes in the principal
amount of $350,000) on private sales of its debt and equity securities. The
Company intends to use $2,050,000 of the proceeds of this offering to repay
the principal and interest on the outstanding Bridge Notes issued to
investors in connection with such financings.
Pursuant to the terms of the License Agreement and the Development
Agreement, the Company must pay Rave minimum aggregate royalties and
development fees of $65,000 per month for the term of the License Agreement
commencing in March 1996. The License Agreement also provides for additional
payments of $60,000 per year to be made to Rave on a quarterly basis on
account of consulting services to be rendered to the Company. The Development
Agreement also provides for Rave to receive additional payments aggregating
$850,000 to purchase or lease equipment for use in developing the Licensed
Products and Technology. The payments are to be made in monthly installments
of $23,611 commencing upon the submission of appropriate development
schedules to the Company, but not before March 1996, with a lump sum payment
of $283,336 due at the end of the 24-month period. The Company expects such
payments to commence during the second quarter of 1996.
Pursuant to the terms of an agency agreement with Prime Technology, Inc.
("Prime") dated July 21, 1995 (the "Agency Agreement"), Prime will receive
35% of net sublicensing fees received by the Company with respect to the
first $50,000,000 of aggregate net sales made by the Company's sublicensees,
after subtracting the payments to Rave and licensing expenses, and thereafter
45%. Prime will also receive up to an additional $1,500,000 of which (i)
$400,000 is payable regardless of the receipt of sublicense fees in
installments of $15,000 per month which began January 1, 1996 and
installments of $40,000 per month after the completion of this Offering, (ii)
$400,000 is payable out of the Company's first sublicensing royalties, if
any, and (iii) $700,000 is payable out of the Company's portion of
sublicensing royalties when net sublicensing sales exceed $200,000,000.
23
<PAGE>
The Company intends to use proceeds of this Offering of approximately
$1,081,000 and $325,000, respectively, to pay its obligations to Rave under
the License Agreement and Development Agreement and to Prime under the Agency
Agreement during the 12 month period following the completion of this
Offering.
The Company's plan of operation over the 12 months following the
consummation of this Offering focuses primarily on the continued design,
development and patent protection of its proposed products and in particular,
the production of prototypes, testing and the marketing and/or licensing of
the AVP and Magic Card. The Company anticipates, based on its current
proposed plans and assumptions relating to its operations, that the proceeds
of this offering will be sufficient to satisfy the contemplated cash
requirements of the Company for at least 12 months following the consummation
of this Offering. In the event that the Company's plans change or its
assumptions prove to be inaccurate or the proceeds of this Offering prove to
be insufficient to fund operations (due to unanticipated expenses, delays,
problems, or otherwise), the Company would be required to seek additional
funding sooner than anticipated. Depending upon the Company's progress in the
development of its products and technology, their acceptance by third
parties, and the state of the capital markets, the Company may also determine
that it is advisable to raise additional equity capital, possibly within the
next 12 months. In addition, in the event that the Company receives a larger
than anticipated number of initial purchase orders upon introduction of its
AVP and Magic Card, it may require resources substantially greater than the
proceeds of this Offering or than are otherwise available to the Company. In
such event the Company may be required to raise additional capital. The
Company has no current arrangements with respect to, or sources of, any such
capital, and there can be no assurance that such additional capital will be
available to the Company when needed, on commercially reasonable terms or at
all. The inability of the Company to obtain additional capital would have a
material adverse effect on the Company and could cause the Company to be
unable to implement its business strategy, to postpone or cancel the
development of certain of its proposed products, or to otherwise
significantly curtail or cease its operations. Additional equity financing
may involve substantial dilution to the interests of the Company's then
existing stockholders.
The Company's future performance will be subject to a number of business
factors, including those beyond the Company's control, such as economic
downturns and evolving industry needs and preferences, as well as the level
of competition and the ability of the Company to successfully market its
products and technology and to effectively monitor and control its costs.
There can be no assurance that the Company will be able to successfully
implement a marketing strategy, generate significant revenues or ever achieve
profitable operations. In addition, because the Company has had only limited
operations to date, there can be no assurance that its estimates will prove
to be accurate or that unforeseen events will not occur.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") in October 1995, which is effective in Fiscal 1996. SFAS 123
requires companies to estimate the fair value of common stock, stock options,
or other equity instruments ("Equity Instruments") issued to employees, using
pricing models which take into account various factors, such as the current
price of the common stock, volatility, and the expected life of the Equity
Instrument. SFAS 123 permits companies to elect either to provide pro forma
note disclosure or adjust operating results for the amortization of the
estimated value of the Equity Instrument as compensation expense over the
vesting period of the Equity Instrument. The Company has elected to provide
pro forma note disclosure, which will appear in its financial statements for
the year ending December 31, 1996, and therefore, the adoption of SFAS 123
will have no effect on the Company's financial position or results of
operations.
24
<PAGE>
BUSINESS
The Company, a development stage company organized in July 1995, was
formed to develop, manufacture and market products to improve picture quality
in televisions, computer monitors and other display devices by enhancing and
manipulating video signals, including signals that have been compressed for
storage or for transmission over satellite and cable systems and the Internet
("Video Enhancement Products"), and products to facilitate the production of
sophisticated videos by both amateurs and professionals ("Video Production
Products"). The Company's Video Enhancement Products are based on technology
resulting from proprietary multi- zone mapping of Analog Video Waves into
which Analog Light Waves have been converted. This mapping technology permits
the alteration, augmentation and correction of the wave to improve color,
contrast, brightness and clarity (the primary characteristics of an image
perceived by the human eye). Each of the Company's Video Enhancement Products
has the ability to improve one or more of these characteristics. The
Company's Video Production Products integrate new and existing components,
including the Company's own Video Enhancement Products, into a system that
the Company believes will provide competitively priced, sophisticated video
production capabilities.
The Company believes that the telecommunication, personal computer and
home video markets are converging because of new technology that enables
services and products identified with each market to be used in conjunction
with each other, resulting in an increasing need for products that enhance
video presentation. Although the Company believes its products enhance video
images when used with individual products in each of the converging markets,
it also believes that its Video Enhancement Products will facilitate the
interaction of products in each of the converging markets by increasing the
acceptability of images displayed as a result of such interaction. The
Company believes its Video Production Products will allow the combination and
manipulation of video images available in each of these markets to create
sophisticated video productions. The Company believes that the design and
engineering features of the Company's products result in simplified circuits
and utilize fewer parts allowing it to produce its products at costs low
enough to make them generally accessible to consumers unwilling or unable to
purchase higher priced products performing some of the same functions as the
Company's products. See "Business -- Marketing and Distribution."
The Initial Products being developed by the Company are:
VIDEO ENHANCEMENT PRODUCTS
o Analog Video Processor. The AVP significantly increases, in real time,
the dynamic range and clarity of visual displays.
o Magic Card. The Magic Card consists of a frame extrapolation process
and a video noise reduction system that together significantly reduce
an image's erratic motion and improve its appearance. The Company
believes that no other single product is available that offers both
frame extrapolation and noise reduction.
VIDEO PRODUCTION PRODUCTS
o Time Base Corrector/Frame Synchronizer. The NUWave Dual TBC is a
stand-alone system that provides a consistent timed signal and frame
synchronization for up to three video sources. The Company believes
that the NUWave Dual TBC is unique in that it contains an internal
programmable ASIC that self-adjusts its operations on a real time
basis.
o Ministudio. The NUWave Ministudio will combine several of the Company's
technologies in a package that the Company believes will provide all of
the functions necessary to produce professional quality videos with
special effects. The Company anticipates its NUWave Ministudio will
provide both Non-Linear Editing and A/B Roll editing capacity.
BACKGROUND -- VIDEO ENHANCEMENT
The human eye perceives all images as a result of its ability to recognize
light. Light travels as continuous electromagnetic waves ("Analog Light
Waves") that are either emitted by the object being observed or reflected
from it. Analog Light Waves vary in frequency and amplitude, and can be
directly captured as images. For example, in photography, light waves strike
film treated with certain chemicals and the energy from the light wave causes
25
<PAGE>
chemical reactions that change the translucency of the film. As a result, the
image can be recreated by again passing light through the film. In computers,
visual images can be stored and manipulated after analog light waves have been
broken down into smaller constituent parts expressed as digital signals. These
digital signals are transmitted in bits and then reconstituted into Analog Light
Waves visible to the human eye.
Broadcast television technology is based on analog light wave
transmissions. Analog Light Waves are captured by an electronic television
camera and turned into usable electrical energy in the form of a lower
frequency Analog Video Wave. That wave is transmitted to a receiver, where it
is projected at the standard broadcast rate of 30 fps against a
phosphorescent screen. The screen then emits Analog Light Waves, making the
image visible to the human eye.
Modern video telecommunications, such as satellite broadcasting and cable
television, generally combine both analog and digital processes in order to
capture and transmit images. For example, in digital satellite video
telecommunication the image is digitized by a computer processor and then
broadcast to a satellite. The digital information is received and rebroadcast
by the satellite directly to a receiver, and then reconstituted into energy
in the form of an analog wave and displayed at 30 fps to create a visible
image.
Band widths available for satellite video transmission are limited by the
Federal Communications Commission ("FCC"). These limitations significantly
restrict the amount of information that can be transmitted in any time
interval and cause most information to be transmitted in a compressed
digitized format.
Internet telecommunication is subject to greater limitations. All sites on
the Internet are computers that process data on a digital basis linked by
telephone lines. Information is typically transmitted over these lines from
computers through modems. Currently, the fastest modems available for general
use can transmit only a fraction of the digital information necessary to
create real time images at 30 fps. Even if the speed of a modem was
increased, the limitations of currently available personal computers for
general use make it unlikely that a user would be able to retrieve and
display data at a rate greater than 15 fps. One result is that real time
teleconferences are generally accomplished by using special high speed modems
and dedicated telephone lines rather than using the Internet. These telephone
lines are usually provided by a national carrier having the equivalent band
width of approximately 24 standard telephone lines, which is then able to
transmit the video images at 30 fps. Charges for these dedicated lines are
substantially the same as for standard line equivalents, making real time
teleconferences expensive. The ability to use the Internet or otherwise use
standard telephone lines for teleconferencing would substantially reduce
costs, of teleconferencing.
Given the physical limitations of satellite, cable and telephone systems,
and their increasing interactivity, ever more emphasis is being placed on
compression technology as a means to allow more data to be transmitted in any
time interval. Using a variety of techniques, portions of a digital
description of an image are omitted in the transmission of information, and,
by mathematical formula or inference, most of the omitted data is then
replaced after reception. The result of this compression technology has been
to increase the number of channels available for digital satellite
broadcasting from 50 to 150, and to significantly improve the quality of
images transmitted over the Internet. The Company believes that improvements
in the amount of compression possible will continue. However, as the amount
of compression increases, more data will likely be lost, and the quality of
the image will deteriorate.
Image information may be lost in the process of compression or distorted
during recording, transmission or playback because of various factors,
including signal interference or deterioration of original film quality and
camera focus. Some of the problems from this loss or distortion of image
information include lack of clarity, a "washed out" look and excessive or
inadequate blackness.
One of the methods used to compress digitized video information for
storage and transmission (other than television transmission) is to eliminate
frames. A phenomenon causing analogous results occurs when the hard drive of
a computer, or some other component, cannot retrieve or present data at
sufficiently high fps. In either case, image movement is erratic and
unrealistic. Regardless of whether the signal is compressed, the image may be
subject to Noise.
THE COMPANY'S VIDEO ENHANCEMENT PRODUCTS
Using what it believes to be proprietary technology, the Company has
developed the Analog Video Processor and the Magic Card. The Company believes
that these products will substantially enhance the video quality presented in
both analog devices and digital devices recognizing and/or transmitting
standard broadcast video signals such as televisions, VCRs, multimedia
personal computers and teleconferencing systems.
26
<PAGE>
NUWAVE ANALOG VIDEO PROCESSOR
The NUWave Analog Video Processor (the "AVP") enhances fine details of an
image and reduces distortions incurred in the course of transmitting the
image, corrects the pure black content of images and adjusts perceived light
on projected images. Fine detail enhancement is achieved by a proprietary
circuit that analyzes the form of the analog waves at the point of origin or
display, and processes the wave to significantly increase the clarity of the
image.
The AVP achieves "blackness" correction by establishing reference to true
black and adjusting the rest of the color spectrum to that reference, making
a "washed out" image appear more vivid. Similar referencing currently is
available only in expensive video display units, TV monitors, and projection
systems; the AVP proprietary circuits enable the process to be performed
inexpensively on a PCB or a small portion of a integrated circuit chip.
The AVP also contains circuits that provide for the adjustment of light in
images and brightness and hue of the colors presented, similar to circuits
traditionally included in televisions.
The AVP processes the Analog Video Wave. The AVP can be used prior to
further processing of the Analog Video Wave at the source of the video signal
and/or at the other end of the process prior to the display of the video
image. In the form of a chip, it can be included in a television set, video
projector or in a video conference display or in the decoder or routing box
that connects a typical television to a cable broadcasting company or a
multichannel satellite provider. The AVP also can be included in any personal
computer that has a capture board, a device enabling the computer to convert
standard broadcast video signals into a digitized form. This enables the
image to be enhanced prior to digitization.
The Company has produced and tested fully operational prototypes of the
AVP mounted on PCBs. In its initial commercial form, the Company intends to
transfer the AVP circuits onto an ASIC. The Company intends to market the AVP
in its ASIC configuration to OEMs of video equipment such as video cameras,
and to manufacturers of playback devices such as televisions. The AVP also
can be included in multimedia computers and teleconferencing equipment.
MAGIC CARD
The Magic Card includes both the Company's frame extrapolation system and
the Company's noise reduction system.
The Company has proprietary software and circuits which it has combined
with readily available components on a PCB to replace missing frames (the
"NUWave Frame Extrapolation System"). The NUWave Frame Extrapolation System
can be used in any component in which digitized video information is
processed in compliance with NTSC, PAL or similar systems. It automatically
becomes operative when less than 30 fps are output. This system uses the
digitized frames previously presented, which are stored in memory on the PCB
and, on the basis of the differences, extrapolates information that is used
to create a Virtual Frame. The Virtual Frame is then inserted in as the next
frame presented. All functions necessary for the extrapolation occur on the
PCB, leaving the host computer's memory and operating systems free.
The company has combined proprietary software and low cost, readily
available components to significantly reduce Noise (the "NUWave Noise
Reduction System") in devices using NTSC or PAL standards. These standards
provide for interlaced scanning based on alternating horizontal lines. The
NUWave Noise Reduction System takes advantage of this to replace the
erroneous data prior to its presentation. The device uses the frames
presented by the signal source for its references. All functions necessary
for the process occur on the PCB.
The Company has produced and tested fully operational prototypes of the
Magic Card printed on a PCB. In its initial commercial form, the Company
intends to market the Magic Card as an ASIC. The Company intends to market
the Magic Card to manufacturers of playback devices making use of digitized
video signaling, such as televisions, multimedia computers and
teleconferencing equipment.
27
<PAGE>
BACKGROUND -- VIDEO PRODUCTION
The development of faster, more affordable computers and more
sophisticated methods of capturing and manipulating still and moving images
have made available a wealth of video material, creating a demand for
affordable ways to produce high content, high quality video programs for
personal use and business applications. In order to meet this demand, it will
be necessary to make available easy to use, affordable TBCs. All recordings
play back at slightly varying speeds unless they contain a TBC. TBCs are
devices which provide a consistent timed signal for each frame. This
corrected signal allows the synchronous playback of video sources permitting
images on each frame to be composited.
For example, a videographer will capture an entire event by camcorder or
video recorder. The videographer may want to show individuals using
photographs; add background scenery; incorporate titles or art work into
images; and present multiscreen images. In order to accomplish these tasks,
it is necessary to make use of a morphing program to evolve faces from
photograph to photograph, a "keyer" to effectively cut a hole in the video of
the background and insert the images into it and bring titles and art work
into the video, and finally a method of producing synchronous multiscreen
images. The production process must combine multiple recordings.
THE COMPANY'S PROPOSED VIDEO PRODUCTION PRODUCTS
The Company's proposed video production products will provide
videographers with an easy, affordable system to create sophisticated video
productions. While these products will have the features and capabilities
needed for professional quality productions, they will be marketed at price
points affordable by a wide range of amateurs. These products include a TBC
that may be sold on a stand-alone basis. These components will be integrated
with other components and software in a Ministudio being developed by the
Company that will provide sophisticated video production capabilities
including the ability to:
o Composite still and moving images from up to four sources
simultaneously;
o Add special effects and artwork;
o Incorporate titles and captions;
o Present synchronous multiscreen images;
o Morph between successive images;
THE NUWAVE DUAL TBC
The Company has developed a TBC (the "NUWave Dual TBC") which is based on
a single PCB, includes proprietary circuitry and software and utilizes
readily available parts to provide analog-to-digital conversion and memory
functions. It provides for the synchronization of up to three video sources.
Currently, one TBC must be dedicated to a video source connected to the
editing site in order to achieve synchronization. The Company believes that
these features will enable it to compete successfully with other
manufacturers of TBCs on the basis of price and capability. The Company has
produced and tested fully operational prototypes of the NUWave Dual TBC. In
its initial commercial form, the Company intends to market the NUWave Dual
TBS as ASICs mounted on a PBC. It also intends to integrate the NUWave Dual
TBC into the NUWave Ministudio.
NUWAVE MINISTUDIO
In order to complete a final, edited video, a videographer may wish to:
select desired footage; choose background music; create or select titles;
confirm names; "morph" images; add animation; key primary images into a
background; and composite multiple images. Based on the NUWave Dual TBC, the
Company is developing the NUWave Ministudio which it believes will be capable
providing all of the indicated functions necessary to produce professional
quality videos with special effects.
The Company anticipates that the NUWave Ministudio will include software,
which is currently in the development stage, through which a host computer
can identify selected video clips and store them in its hard drive.
Thereafter, such clips will be available instantly for Nonlinear Editing. By
using the NUWave Dual TBC the NUWave, Ministudio can access video from up to
three non-synchronous external sources and from the host computer for A/B
28
<PAGE>
Roll Editing and will provide operating commands for the external sources. The
Company also intends to include in its Ministudio third-party morphing software,
editing software (which provides among other things edit decision lists), title
generating software, animation software, other special effects software and
machine control software. The Company intends that the PCBs making up the NUWave
Ministudio will contain proprietary circuits with switching controlled by the
Company's proprietary software allowing the videographer to perform discrete
functions on all four inputs simultaneously. The AVP, the Magic Card and the
NUWave Dual TBC are all included in the NUWave Ministudio. The Company has
produced and tested initial prototypes of the NUWave Ministudio mounted on PCBs.
The initial prototypes are fully operational except for the ability to store and
access video in the hard drive of the host computer. The Company is currently
developing the software necessary to allow the integration of such storage and
retrieval functions into the NUWave Ministudio and expects to test the fully
operational prototypes sometime in the second half of 1996.
THE COMPANY'S OTHER POTENTIAL PRODUCTS
Through its Development Agreement with Rave and other potential
opportunities with other third parties, the Company is conducting
investigation, research and development activities with respect to several
other products relating to video telecommunications although none are
material to the Company's present plan of operations. These activities may
give rise to additional products which may be commercialized by the Company.
However, there can be no assurance that its efforts will result in marketable
products or products which can be produced at commercially acceptable costs.
RESEARCH AND DEVELOPMENT
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995 when the Company and
Rave entered into the License Agreement and the Development Agreement.
Pursuant to the Development Agreement, the Company has retained Rave to
continue the development of the Initial Products. Although the Company's
Initial Products are the result of the research and development efforts of
Rave, the Company believes that it could, if necessary, complete the
development of the Initial Products using independent third party consultants
and the Company's internal technical staff (currently two persons).
In addition, although the Company's strategy with respect to new products
and technologies is to rely upon Rave to a significant extent, the Company
believes there are also other independent third party sources for potential
new products and technologies which the Company will attempt to seek and
evaluate on a regular basis.
In addition to utilizing the services of Rave pursuant to the terms of the
Development Agreement, the Company has utilized the services of third party
contractors, and its own personnel, in connection with its research and
development activities. From July 17, 1995 through December 31, 1995, the
Company spent approximately $491,000 on research and development, of which
approximately 85% was paid to Rave pursuant to the Development Agreement.
From January 1, 1996 to March 31, 1996 the Company spent approximately
$277,000 on research and development, of which approximately 85% was paid to
Rave pursuant to the Development Agreement and the remainder to outside
consultants. The Company has used outside consultants to develop software for
each of its Initial Products and to reconfigure the circuitry in its AVP,
Magic Board and NUWave Dual TBC to allow them to be produced as ASICs. It has
utilized its own personnel to direct, supervise and coordinate the efforts of
Rave and its third party consultants. Over the next 12 months, the Company
intends to spend approximately $2,704,000 of the proceeds from the Bridge
Financing and the Offering on research and development. Of that amount the
Company estimates that at least 40% will be paid to Rave pursuant to the
Development Agreement, 38% will be spent on software development, ASIC chip
development, and production engineering undertaken by third parties. The
balance will be spent on internal research and development. Because the video
imaging field is rapidly developing, in addition to Rave, the Company intends
to continue to make significant use of outside experts to assure exposure to
new ideas and technology. The Company and Rave maintain strict
confidentiality with both inside and outside staff to protect development
secrets.
Rave currently employs 12 persons and retains the services of 6
consultants on a regular basis. It also has informed the Company that it
intends to hire or retain additional persons to assist it in fulfilling its
obligations pursuant to the Development Agreement.
29
<PAGE>
MARKETING AND DISTRIBUTION
The Company initially intends to market the AVP to manufacturers of
televisions, multimedia computers and teleconferencing equipment. Eventually
it will attempt to expand its market for the AVP to manufacturers of other
video products such as settop boxes, satellite distribution systems and home
arcade stations. The Company also intends to introduce the AVP to companies
that manufacture such products and semiconductors used in the manufacture of
such products. The Company believes that the inclusion of its AVP chip in
such video products will allow them to produce significantly better images,
and that the low cost to the user will make it an attractive product.
Once the AVP chip in its ASIC form is completed, the Company will create
retail products using the AVP chip as an enhancement for use with existing
video, computer and teleconferencing products, including broadcasting and
video production professionals. For example, the Company believes that the
AVP will improve the image quality of existing video teleconferencing
systems. The Company will attempt to market these consumer retail products
through third party representatives who place the product with national
retailers such as Radio Shack or Sears and its professional products
directly. The Company has had preliminary discussions with such
representative organizations, however, no assurance can be given that any of
them will enter into commercially acceptable arrangement with the Company.
The Company is in the process of developing a formal advertising program.
Once the AVP product is accepted by one or more manufacturing customers, the
Company intends to advertise its availability both to the retail markets and
at the trade level both in order to increase demand and to increase awareness
of the Company's products and technology.
The Company intends to market the Magic Card to the same customers and in
the manner as the AVP, at a similar cost, possibly in conjunction with the
AVP.
The Company expects its AVP to be configured in ASIC form by the last half
of 1996 and sales to commence in the first half of 1997, and similarly its
Magic Card to be configured in ASIC form in the first half of 1997 and sales
to commence in the second half of 1997. However, the Company has not entered
into any agreement with respect to the inclusion of either the AVP or the
Magic Card in any manufacturers product, and there can be no assurance that
such sales will occur as projected or at all.
Because the TBC and NUWave Ministudio are not expected to be ready for
market until 1997, the Company is still developing its marketing strategy
with respect to all of such products. However, the Company is considering the
feasibility of marketing these products through representatives to national
distributors in the same way it intends to market the retail version of its
proposed AVP and Magic Card products.
In addition to direct sales, the Company intends to license the
manufacture of its product and use of its technology in situations in which
such arrangements are to its economic advantage. However, because its
products are not yet fully developed, it has not yet developed a licensing
program, established proposed royalties or otherwise determined the terms of
conditions of the arrangements it may want to make with proposed licensees or
others. These programs will be developed in conjunction with product research
and development and with Prime pursuant to the Agency Agreement.
The Company does not currently have a sales force to implement the sale
and/or licensing of its products or related technology. In addition to the
use of national sales representative organizations, the Company has
determined that it will need to employ an internal sales staff of at least
four people by December 31, 1996.
MANUFACTURING
The Company does not contemplate that it will directly manufacture any of
its products. It intends to contract with third parties to manufacture its
proposed AVP and Magic Card chips, and related retail products and its NUWave
Dual TBC, and NUWave Ministudio. It also may license to third parties the
rights to manufacture the products, either through direct licensing, OEM
arrangements or otherwise.
30
<PAGE>
The Company will be dependent on third parties for the manufacture of the
ASIC based AVP and Magic Card and the NUWave Dual TBC and for the manufacture
and/or assembly of the PCBs, frame and other subassemblies, as well as for
the supply of the various components, that will be incorporated into its
NUWave Ministudio. Although the Company has identified certain potential
manufactures of its AVP and Magic Board chips, it has not entered into any
manufacturing or supply arrangements with respect to those products or any
others. Although management believes it will be able to negotiate
satisfactory manufacturing and supply agreements, the failure to do so would
have a material adverse effect on the Company. Furthermore, there can be no
assurance that such manufacturers will dedicate sufficient production
capacity to satisfy the Company's requirements within scheduled delivery
times or at all. Failure or delay by the Company's suppliers in fulfilling
its anticipated needs would adversely affect the Company's ability to develop
and market its products. In addition, the Company will be dependent on
third-party vendors for many of the components necessary for the final
assembly of its NUWave Ministudio. However, the Company may have difficulty
in obtaining contractual agreements with the suppliers of such materials due
to, among other things, possible material shortages or possible lack of
adequate purchasing power. While management believes that these components
are available from multiple sources, it anticipates that the Company will
obtain certain of them from a single source, or limited number of sources, of
supply. In the event that certain of such suppliers are unable or unwilling
to provide the Company with components used in the NUWave Ministudio on
commercially reasonable terms, or at all, delays in securing alternative
sources of supply would result and could have a material adverse effect on
the Company's operations.
PATENTS; PROPRIETARY INFORMATION
The Company has filed patent applications relating to its AVP and the
related technology and copyright applications with respect to the software
controlling the NUWave Dual TBC. To the extent practicable, the Company
intends to file U.S. patent and/or copyright applications on certain aspects
of its technology (or on behalf of Rave to the extent licensed by the Company
pursuant to the License Agreement) and to file corresponding applications in
key industrial countries worldwide.
To the extent the Company determines to keep certain aspects of its
technology as trade secrets the Company intends to protect these developments
by manufacturing techniques (principally by reducing its circuits to ASIC
form which prevents visual inspection of the relevant circuits) that make it
more difficult to reverse- engineer or understand the mechanisms by which
either designs or process technology operate.
COMPETITION
The markets that the Company intends to enter are characterized by intense
competition, and, particularly with respect to the market for video, editing,
production and processing products, significant price erosion over the life
of a product. The Company's products will compete with those of numerous
well-established companies, such as Sony Electronics, Inc., Panasonic
Division of Matsushita Electric Industrial Co., Motorola, Inc., Mitsubishi
International Corp., and Phillips Electronics, NV, which already design,
manufacture and/or market video technology and other products. These
companies have substantially greater financial, technical, personnel and
other resources than the Company and have established reputations for success
in the development, licensing, sale and service of their products and
technology. Certain of these competitors dominate their industries and have
the financial resources necessary to enable them to withstand substantial
price competition or downturns in the market for video products.
The markets for the technology and products being developed by the Company
are characterized by rapid changes and evolving industry standards often
resulting in product obsolescence or short product life cycles. As a result,
certain companies may be developing technologies or products the Company is
unaware of which may be functionally similar, or superior, to some or all of
those being developed by the Company. Consequently, the ability of the
Company to compete successfully will depend on its ability to complete
development and introduce to the marketplace in a timely and cost-competitive
manner the Initial Products and technology, to continually enhance and
improve such products and technology, to adapt its proposed products to be
compatible with specific products manufactured by others, and to successfully
develop and market new products and technology. There can be no assurance
31
<PAGE>
that the Company will be able to compete successfully, that its competitors or
future competitors will not develop technologies or products that render the
Company's products and technology obsolete or less marketable or that the
Company will be able to successfully enhance its proposed products or technology
or adapt them satisfactorily.
EMPLOYEES
The Company currently has three full-time employees and, depending on its
level of business activity, expects to hire additional employees in the next
12 months, including marketing and sales, manufacturing and technical
personnel, and has allocated approximately $1,116,000 of the proceeds of this
offering for the recruitment and related payroll expenses for approximately
30 additional employees over the next 12-month period.
FACILITIES
The Company has established its headquarters in Fairfield, New Jersey.
Pursuant to the sublease relating to such facility, the Company is obligated
to make monthly rental payments of $1,600. The lease is on a month- to-month
basis. The Company's subleased portion of the facility is approximately 400
square feet and the sublease entitles the Company to share certain common
areas.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their respective
ages and positions with the Company are set forth below:
Name Age Position
---- --- -------------------------------------------
Gerald Zarin ....... 55 Chairman of the Board, Chief Executive
Officer, President and Director
Jeremiah F. O'Brien . 49 Vice President, Chief Financial Officer and
Secretary
Robert Webb ........ 60 Vice President, Marketing
David Kwong ........ 36 Director
Edward Bohn ........ 50 Director
Lyle Gramley ....... 69 Director
Joseph A. Sarubbi .. 67 Director
All Directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors receive no
cash compensation for serving on the Board of Directors other than
reimbursement of reasonable expenses incurred in attending meetings. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board, subject to the provisions of certain employment and consulting
agreements. See "Employment Agreements." The Company has agreed that for a
three-year period, at the request of the Underwriter, it will use its best
efforts to cause the election of a designee of the Underwriter as a director
of the Company. The Underwriter has not designated any such person.
Gerald Zarin has been a Director and President and Chief Executive Officer
of the Company since July 1995. He has been Chairman of the Board of
Directors since January 28, 1996. From June 1991 until January 1993, Mr.
Zarin was the Chairman, President and Chief Executive Officer of Emerson
Radio Corporation, which designs and sells consumer electronics products.
Emerson Radio filed in the United States Bankruptcy Court, District of New
Jersey, for protection under Chapter 11 of the Federal Bankruptcy Act on
September 29, 1993 and was discharged on March 31, 1994. From June 1991 to
July 1995, he was President and Chief Executive Officer of AMD Consulting, a
business consulting firm. From November 1990 to June 1991, he was President
and Chief Executive Officer of JEM, Inc., an importer of home furnishings.
From August 1987 to October 1990, he was Senior Vice President and Chief
Financial Officer of Horn & Hardart, Inc., a holding company for various
catalog, hotel and restaurant businesses. From 1976 to 1986, he was President
and Chief Executive Officer of Morse Electro, Inc., which designed and sold
consumer electronics products.
Jeremiah F. O'Brien has been Vice President, Chief Financial Officer and
Secretary of the Company since July 1995. From 1983 to 1989, he served as CFO
and Executive Vice President for Cardiac Resuscitator Corporation, a medical
electronics manufacturer. From September 1989 to June 1991, he served as
Senior Vice President of Finance for Emerson Computer Corporation and Emerson
Technologies, Inc., both of which manufacture and sell electronic components
and products. From June 1993 to March 1994, Mr. O'Brien was Corporate
Controller of Andin International Corporation, a jewelry manufacturing
company. During the period of July 1991 to July 1995, he also acted as an
independent financial consultant to various private corporations.
Robert Webb has been the Vice President, Marketing of the Company since
September 1995. From June 1995 to September 1995, Mr. Webb acted as an
independent consultant to various private corporations. From July 1994 to
March 1995, he was Vice President of New Product Development for Studio
Magic, Inc., a company involved in the design and manufacture of computer
video equipment, and served as a consultant for such company from October
1993 to July 1994 and in April 1995. Studio Magic, Inc. was liquidated in May
1995 under the Federal bankruptcy laws. From October 1973 to October 1993, he
was employed by Grass Valley Tektronix, which produces broadcast television
equipment. From February 1993 to September 1993, he served as a special
advisor to the President of Grass Valley Tektronix. From November 1990 to
February 1993, he was Division General Manager -- Graphics Systems and held
various executive positions prior to that time.
33
<PAGE>
David Kwong has been a Director of the Company since July 1995. From
August 1993 to the present, he has been President of Premier Source
International, an importer/exporter of computer memory chips and from August
1993 to the present, he has been Executive Vice President of Prime Technology
Inc., which performs business development for technology companies. From
August 1989 to June 1993, he was Vice-President of Advanced Computer Link,
Inc., a computer integration company.
Edward Bohn has been a Director of the Company since June 1995. From March
1995 to the present, he has been engaged as a Consultant for Borlas Sales
Corp. of New Jersey, an importer/exporter of consumer electronics goods.
Borlas also handles the sale and installation of software. From February 1995
to the present, he has been a Director and Consultant of Jennifer
Convertibles, a furniture manufacturer. From September 1994 to the present,
he has operated as an independent consultant in financial and operational
matters. From January 1983 to March 1994, Mr. Bohn was employed in various
capacities by Emerson Radio Corporation, which designs and sells consumer
electronics products. From March 1993 to March 1994 he was Senior Vice
President- Special Projects; from March 1991 to March 1993, he was Chief
Financial Officer and Treasurer/Vice President of Finance. Emerson Radio
filed in the United States Bankruptcy Court, District of New Jersey, for
protection under Chapter 11 of the Federal Bankruptcy Act on September 29,
1993 and was discharged on March 31, 1994.
Lyle Gramley has been a Director of the Company since December 1995. He
has been employed by the Mortgage Bankers Association in Washington, D.C.
since 1985, as Senior Staff Vice President and Chief Economist from 1985 to
1992, and as a Consulting Economist from 1992 to the present. From 1980 to
1985, Mr. Gramley was a member of the Board of Governors of the Federal
Reserve Board.
Joseph A. Sarubbi has been a director of the Company since March 1996.
Since October 1993, he has been a director of The Panda Project, Inc., a
manufacturer of computers and semiconductor packages. Since April 1988, Mr.
Sarubbi has been a self-employed management and technical consultant to
various technology companies. From February 1986 to April 1988, he was Senior
Vice President of Manufacturing Operations for Tandon Corporation, a computer
manufacturer. From December 1952 until January 1986, Mr. Sarubbi was employed
by IBM in various senior engineering positions.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
services performed on the Company's behalf from July 17, 1995 (inception)
through December 31, 1995, with respect to the Company's Chief Executive
Officer and the Company's other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------ -------------------
Securities
Other Annual Underlying Options All Other
Name and Principal Position Year Salary Bonus Compensation (Number of Shares) Compensation
- --------------------------- ------ --------- ------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Zarin, President and Chief
Executive Officer ................... 1995 $39,800 $0 $42,000(1) 200,000 $0
Ernest Chu, Acting Chief Financial
Officer and Chairman of the Board(2) 1995 $ 0 $0 $87,000(3) -- $0
Jeremiah O'Brien, Chief Financial
Officer, Vice President and
Secretary ............................ 1995 $22,000 $0 $ 50(4) 25,000(5) $0
Robert Webb, Vice President-Marketing... 1995 $19,600 $0 $ 0 70,000 $0
</TABLE>
- ------
(1) Payments made on account of services rendered in connection with the
organization of the Company prior to July 17, 1995. In consideration for
such services, Mr. Zarin received $37,500 and 450,000 shares of Common
Stock with a fair market value of $.01 per share (an aggregate of
$4,500). Mr. Zarin was elected Chairman of the Board on January 28, 1996.
(2) Mr. Chu resigned as Acting Chief Financial Officer and Chairman of the
Board on January 28, 1996.
(3) Includes payments made to Corporate Builders, L.P. in connection with a
Consulting Agreement ($37,500). See "Certain Transactions." Also includes
payments made on account of services rendered in connection with the
organization of the Company prior to July 17, 1995. In consideration of
such services Mr. Chu received $45,000 and three affiliates of Mr. Chu
received an aggregate of 450,000 shares of Common Stock at $.01 per share
(an aggregate of $4,500).
(4) In consideration of services rendered in connection with the organization
of the Company prior to July 17, 1995, Mr. O'Brien received 5,000 shares
of Common Stock with a fair market value of $.01 per share (an aggregate
of $50.00).
(5) Mr. O'Brien was granted options to purchase an additional 5,000 shares of
Common Stock at $2.00 per share on March 1, 1996 which expire March 1,
2001.
The following table sets forth all grants of options for the Company's
Common Stock to the named executive officers of the Company for the year
ended December 31, 1995.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of % of Total Options
Securities Underlying Granted to Employees Exercise or Base
Name Options Granted in Fiscal Year Price ($/Share) Expiration Date
-------- --------------------- -------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Gerald Zarin .... 200,000 67.8% $1.50 December 31, 2000
Robert Webb ..... 70,000 23.7% $1.50 September 11, 2002
Jeremiah O'Brien . 25,000(1) 8.5% $1.50 July 17, 2002
------- -----
TOTAL ......... 295,000 100.0%
======= ======
</TABLE>
- ------
(1) Mr. O'Brien was granted options to purchase an additional 5,000 shares of
Common Stock at $2.00 per share on March 1, 1996 which expire March 1,
2001.
35
<PAGE>
The following table sets forth, as of December 31, 1995, the number of
stock options and the value of unexercised stock options held by the named
executive officers.
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1995
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised in-the-Money Options
Options at December 31, 1995 at December 31, 1995(1)
-------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Gerald Zarin .... 200,000 -0- $300,000 $ -0-
Robert Webb ..... 30,000 40,000 45,000 60,000
Jeremiah O'Brien . 10,714 14,286 16,071 21,429
------- ------ -------- -------
TOTAL ......... 240,714 54,286 $361,071 $81,429
======= ====== ======== =======
</TABLE>
- ------
(1) Computed based on an assumed valuation of $1.50 per share, the value
attributed to shares of the Company's common stock sold in December, 1995
in connection with the sale of the Initial Bridge Notes. See Note 6 to
Notes to Financial Statements.
DIRECTORS' COMPENSATION
In connection with the organization of the Company, on July 17, 1995, Mr.
Edward Bohn received 5,000 shares of the Company's Common Stock valued at
$.01 per share. In connection with his agreement to continue serving as a
director of the Company, on March 1, 1996, Mr. Bohn was granted options to
purchase 15,000 shares of Common Stock at $2.00 per share which expire March
1, 2001.
In connection with his agreement to serve as a director, on November 9,
1995, Mr. Lyle Gramley was granted options to purchase 20,000 shares of the
Company's Common Stock at $1.50 per share which expire June 30, 1996.
In connection with his agreement to serve as a director, on March 1, 1996,
Mr. Joseph A. Sarubbi was granted options to purchase 35,000 shares of Common
Stock at $2.00 per share, 11,667 of which vested immediately and 11,667 of
which will vest on March 1, 1997 and 11,666 of which will vest on March 1,
1998. All of these options expire on the fifth anniversary of their vesting.
For a description of the consulting agreement between Corporate Builders
L.P. (of which Mr. Ernest Chu, the former acting Chief Financial Officer and
Chairman of the Board of the Company, is a principal) and the Company see
"Certain Transactions." See also "Summary Compensation Table."
EMPLOYMENT AGREEMENTS
Mr. Zarin has entered into an employment agreement with the Company dated
as of July 20, 1995, pursuant to which he has agreed to serve as the
Company's President and Chief Executive Officer through December 31, 2000.
The agreement provided for an initial salary of $90,000 per year and
increased to $120,000 on March 15, 1996. Mr. Zarin is also entitled to an
annual bonus equal to (i) 30% of his base compensation if the Company's net
income before taxes are equal to projections to be approved by the Company's
Board of Directors (ii) 60% of his base compensation if the Company's net
profits before taxes are equal to 110% of such projections, and (iii) 100% of
his base compensation if the Company's net profits before taxes are equal to
120% of projections. Mr. Zarin can terminate the agreement upon 180 days
notice. If the Company terminates the agreement other than for good cause, or
otherwise materially breaches the agreement during the first 30 months of its
term, Mr. Zarin is entitled to receive monthly payments equal to his base
compensation at the time of his termination for the remainder of such
30-month period, plus an amount equal to a good faith estimate of the bonus
payments he would be entitled to receive during such period. At the end of
such 30-month period, or immediately if such termination occurs after such
30-month period, Mr. Zarin will receive a single payment equal to the
remaining payments he would have been entitled to receive during the
unexpired portion of the agreement. In addition, the employment agreement
provides Mr. Zarin with an option to purchase 200,000 shares of Common Stock
at $1.50 per share. The option expires December 31, 2000 and terminates if
Mr. Zarin voluntarily leaves the Company or the employment agreement is
terminated by the Company for good cause. In connection with services
rendered in establishing the Company and creating its business plan and
projections, Mr. Zarin received 450,000 shares of the Company's common stock
valued at $.01 per share.
36
<PAGE>
Mr. Webb has entered into an employment agreement with the Company dated
as of September 11, 1995 pursuant to which Mr. Webb was appointed Vice
President, Marketing. The employment agreement continues until March 31, 1996
and thereafter for successive three-month periods or upon termination. Mr.
Webb's initial salary is $5,000 per month subject to discretionary increases
to be determined by the Company's President. In connection with his
employment agreement, Mr. Webb received options to purchase 70,000 shares of
the Company's common stock.
In connection with services performed by Mr. O'Brien, on July 17, 1995, he
received 5,000 shares of the Company's Common Stock valued at $.01 per share
and has been granted options to purchase 25,000 shares of the Company's
Common Stock at $1.50 per share pursuant to an Option Agreement for the
Purchase of Common Stock dated July 17, 1995 and 5,000 shares of the
Company's Common Stock at $2.00 per share pursuant to an Option Agreement
dated March 1, 1996.
The Company entered into a consulting agreement with a third party
consultant, Mr. Christopher J. Daly, effective August 1, 1995, pursuant to
which Mr. Daly provides to the Company on a non-exclusive basis various
services, including, (i) evaluation of the Company's technologies and
products for licensing, marketing and distribution, and (ii) assistance in
development of a plan for developing a marketing strategy, and the
recommendation of candidates for marketing and sales positions. Mr. Daly
received $15,000 monthly in consideration of his services pursuant to this
agreement through October 1995. Mr. Daly is currently acting as a consultant
to the Company on a month-to-month basis for a fee of $10,000 per month.
1996 PERFORMANCE INCENTIVE PLAN
As of January 31, 1996, the Company adopted its 1996 Performance Incentive
Plan (the "Plan"), pursuant to which stock options (both Nonqualified Options
and Incentive Options, as defined in the Plan), stock appreciation rights and
restricted stock may be granted to key employees and consultants (the
"Participants").
The Plan will be administered by a committee (the "Committee") comprised
of disinterested directors. The Committee will determine persons to be
granted stock options, stock appreciation rights and restricted stock, the
amount of stock or rights to be optioned or granted to each such person, and
the terms and conditions of any stock options, stock appreciation rights and
restricted stock.
The members of the Committee have not yet been appointed.
Both Incentive Options and Nonqualified Options may be granted under the
Plan. An Incentive Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Any Incentive Option granted
under the Plan will have an exercise price of not less than 100% of the fair
market value of the shares on the date on which such option is granted. With
respect to an Incentive Option granted to a Participant who owns more than
10% of the total combined voting stock of the Company or of any parent or
Subsidiary of the Company, the exercise price for such option must be at
least 110% of the fair market value of the shares subject to the option on
the date the option is granted. A Nonqualified Option granted under the Plan
(i.e., an option to purchase the Common Stock that does not meet the Code's
requirements for Incentive Options) must have an exercise price of at least
the par value of the stock.
Stock appreciation rights may be granted in conjunction with the grant of
an Incentive or Nonqualified Option under the Plan or independently of any
such stock option. A stock appreciation right granted in conjunction with a
stock option may be an alternative right. In which event, the exercise of the
stock option terminates the stock appreciation right to the extent of the
shares purchased upon exercise of the stock option and, correspondingly, the
exercise of the stock appreciation right terminates the stock option to the
extent of the shares with respect to which such right is exercised.
Alternatively, a stock appreciation right granted in conjunction with a stock
option may be an additional right, in which case both the stock appreciation
right and the stock option may be exercised. A stock appreciation right may
not, however, be granted in conjunction with an Incentive Option under
circumstances in which the exercise of the stock appreciation right affects
the right to exercise the Incentive Option or vice versa, unless certain
terms and conditions are met.
Subject to the terms of the Plan, the Committee may award shares of
restricted stock to the Participants. Generally, a restricted stock award
will not require the payment of any option price by the Participant but will
call for the transfer of shares to the Participant subject to forfeiture,
without payment of any consideration by the Company, if the Participant's
employment terminates during a "restricted" period (which must be at least
six months) specified in the award of the restricted stock.
37
<PAGE>
There are 260,000 shares available in the Plan. No options or other rights
have been granted pursuant to the Plan. The Company and the Underwriter have
agreed that for a period of 18 months after the Offering the Company will not
grant options to purchase more than 205,000 shares pursuant to the Plan or
grant any options pursuant to the Plan at less than $5.00 per share and not
below the market price as of the date of grant without the Underwriter's
prior written consent.
38
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information as of the date of this Prospectus
and, as adjusted, assumes the sale of all of the Common Stock offered
pursuant to this Prospectus. The table also assumes, with respect to each
individual shareholder, the exercise of all warrants, options or conversion
of all convertible securities held by such shareholder. It does not assume
the exercise or conversion of securities held by any other shareholder. The
table is based on information obtained from the persons named below with
respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the aggregate
outstanding shares of Common Stock, (ii) each director, (iii) each executive
officer, and (iv) all executive officers and directors as a group.
Percentage
of Outstanding
Common Stock
Number of Beneficially Owned
Shares of ----------------------
Common Stock
Names and Addresses of Beneficially Prior to After
Beneficial Owner(1) Owned(2) Offering Offering
- ------------------.................. -------------- ---------- --------
Helene Burgess (3) ................. 577,854 19% 11%
Ernest Chu (4) ..................... 415,000 16% 8%
Prime Technology, Inc. ............. 1,090,000 43% 21%
Gerald Zarin (5) ................... 650,000 24% 12%
Jeremiah F. O'Brien (6) ............ 27,857 1% *%
David Kwong ........................ 30,000 1% *%
Ed Bohn (7) ........................ 20,000 *% *%
Lyle Gramley (8) ................... 20,000 *% *%
Robert Webb (9) .................... 30,000 1% *%
Joseph A. Sarubbi (10) ............. 11,667 *% *%
All Officers and Directors as a
Group (8 persons)(5)(6)(7)(8)(9)(10) 789,524 28% 15%
- ------
* Less than 1%
(1) Unless otherwise indicated the address of each beneficial owner
identified is One Passaic Avenue, Fairfield, New Jersey 07004.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the beneficial owner of securities that can be acquired by such
person within 60 days from the date of this Prospectus upon the exercise
of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that convertible
securities, options or warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60 days
of the date of this Prospectus have been exercised.
(3) Includes 437,854 shares of Series A Preferred Stock.
(4) Includes 215,000 shares of Common Stock issued to First Earth Investors
("First Earth"), 125,000 shares of Common Stock issued to Corporate
Builders, Inc. ("Builders"), and 75,000 shares of Common Stock issued to
W2 Technologies, Inc. ("W2"). Ernest Chu is a shareholder in Builders
and W2 and the sole proprietor of First Earth.
(5) Includes options to purchase up to 200,000 shares of Common Stock at an
exercise price of $1.50 per share. The options expire December 31, 2000.
(6) Includes options to purchase 17,857 and 5,000 shares of Common Stock at
an exercise price of $1.50 and $2.00 per share, respectively, which
vested July 17, 1995 and March 1, 1996; does not include options to
purchase 7,143 shares of Common Stock at $1.50 per share which vest on
July 17, 1997. The options expire on the fifth anniversary of their
vesting.
(7) Includes options to purchase 15,000 shares of Common Stock at an
exercise price of $2.00 per share which vested March 1, 1996. The
options expire March 1, 2001.
(8) Includes options to purchase 20,000 shares of Common Stock at an
exercise price of $1.50 per share. The options expire June 30, 1996.
39
<PAGE>
(9) Includes options to purchase 30,000 shares of Common Stock at an
exercise price of $1.50 per share which vested September 11, 1995; does
not include options to purchase 20,000 shares of Common Stock at 1.50
per share which vest on September 11, 1996 and options to purchase
20,000 shares of Common Stock at $1.50 per share which vest on September
11, 1997. The options expire on the fifth anniversary of their vesting.
(10) Includes options to purchase 11,667 shares of Common Stock at a price of
$2.00 per share. Does not include options to purchase 11,667 shares of
Common Stock at $2.00 per share which vest on March 1, 1997 and options
to purchase 11,666 shares of Common Stock at $2.00 per share which vest
on March 1, 1998. The options expire on the fifth anniversary of their
vesting.
CERTAIN TRANSACTIONS
Pursuant to the terms of the License Agreement, the Company is obligated
to pay Rave royalties ("Royalties") of (i) 2 1/2 % of net sales of products
utilizing Rave's technology ("Sales Royalties"), and (ii) 25% of any
sublicensing fees received by the Company from sublicenses of the products
and technology covered by the License Agreement ("Licensed Products and
Technology"). Payments of Sales Royalties will commence upon the earlier of
(i) accumulated net sales of Licensed Products and Technology sold by the
Company or its future sublicensees reaching an aggregate of $50,000,000, or
(ii) the Company's aggregate net profits from sales of Licensed Products and
Technology equaling $5,000,000. In addition, the License Agreement obligates
Rave to render consulting services to the Company for additional
consideration of $60,000 per year (the "Rave Consulting Fee"), payable in
$15,000 installments quarterly, in advance, plus reasonable expenses. Upon
completion of the Private Placement, in addition to the Rave Consulting Fee,
Rave became entitled to receive minimum aggregate payments of Royalties and
Development Fees pursuant to the Development Agreement described below of at
least $65,000 per month (the "Rave Minimum Payments"). If Rave does not
receive the Rave Minimum Payments, it may elect to make the License Agreement
non-exclusive. If the Company fails to pay the Royalties, Rave may terminate
the License Agreement and become the licensor with respect to licenses
granted by the Company pursuant to the License Agreement (the "Termination
Option").
The Company has also entered into the Development Agreement with Rave,
pursuant to which the Company has formulated a development plan (the
"Development Plan") extending through October 1998. The Development Plan
focuses principally on the development of the Initial Products, and will be
revised from time to time to provide for the development of additional
related products. Upon completion of the Private Placement, Rave became
entitled to receive a monthly fee (the "Development Fee") which, when
aggregated with the Royalties provided for in the License Agreement, must
equal at least $65,000 per month. Prior to the completion of the Private
Placement, the Company paid Rave approximately $582,000 with respect to the
Development Agreement. The Development Plan is to be revised by October 2,
1998 and on each anniversary thereafter for each year the Development
Agreement remains in effect. The Development Agreement terminates on October
2, 1998, provided that it continues for successive 12-month periods if the
parties agree to additional services to be performed by Rave and related
compensation at least 12 months prior to its expiration. In addition, the
Development Agreement provides for Rave to receive payments aggregating
$850,000 to purchase or lease equipment for use in developing the Licensed
Products and Technology. The payments are to be made in monthly installments
of $23,611 commencing upon the completion of the Private Placement, with a
lump sum payment of $283,336 due at the end of 24 months. The Development
Agreement provides that all results of development, including unrelated
developments, shall belong to the Company, and Rave will not undertake any
development activities for any third parties without the consent of the
Company.
The Company has paid Rave an aggregate of $350,000 pursuant to the License
Agreement and the Development Agreement from January 1, 1996 through the date
of this Prospectus.
The Company has entered into an Agency Agreement with Prime which provides
that Prime will be the Company's exclusive agent for entering into
sublicenses with respect to the Licensed Products and Technology and provides
that Prime assist the Company in the development and implementation of a
sublicensing program. Because its products are not yet fully developed (in
the case of the NUWave Ministudio) or have not yet been produced in the form
of ASICs (in the case of the AVP, Magic Card and NUWave Dual TBC), the
Company, with the assistance of Prime pursuant to the terms of the Agency
Agreement, is in the preliminary stages of developing a licensing program,
establishing proposed royalties and determining the terms and conditions of
40
<PAGE>
the arrangements it may make with proposed sublicensees. In that connection
Prime has consulted, and will continue to consult, with the Company with respect
to the Company's marketing plans and product configuration, established a list
of potential sublicensees and arranged and attended preliminary meetings with a
limited number of such potential sublicensees at which the Company has
demonstrated prototypes of its AVP and Magic Card.
In consideration of the services provided to the Company by Prime pursuant
to the Agency Agreement, Prime will receive 35% of net sublicensing fees
received by the Company with respect to the first $50,000,000 of aggregate
net sales made by the Company's sublicensees, after subtracting the payments
to Rave and licensing expenses, and thereafter 45%. Prime will also receive
up to an additional $1,500,000 of which (i) $400,000 is payable regardless of
the receipt of sublicense fees in $15,000 per month which began January 1,
1996 and $40,000 per month installments after the completion of this
Offering, (ii) $400,000 is payable out of the Company's first sublicensing
royalties, if any, and (iii) $700,000 is payable out of the Company's portion
of sublicensing royalties when net sublicensing sales exceed $200,000,000.
The Agency Agreement provides that Prime will contribute its royalty
participation to pay Rave in any month in which the Company, after making
reasonable commercial effort, is unable to make the $65,000 Rave Minimum
Payment necessary to maintain the License Agreement on an exclusive basis
with such amounts to be repaid by the Company to Prime out of the Company's
next available royalty payment or 12 months from the date of such advance.
The Company has paid Prime $75,000 pursuant to the Agency Agreement from
January 1, 1996 through the date of this Prospectus.
Harvest Technologies, Inc. ("Harvest") a company in which Mr. Daly, a
consultant to the Company, is a principal, has agreed with the Company and
Prime to act as a finder for appropriate sublicenses pursuant to the License
Agreement. Under the terms of a finder's agreement dated September 1, 1995,
Harvest will be paid a fee equal to 10% of the amount of any sublicense fees
during the life of such sublicense if such sublicense is entered into by the
Company with candidates identified to it by Harvest. The finder's agreement
will expire on September 1, 1996, although it will continue to apply to
sublicenses entered into as a result of a Harvest introduction, if such
introduction was initiated within 180 days after the termination of the
agreement. Harvest may apply the first $450,000 in finders fees to the
purchase of the shares of the Company's common stock at fair market value at
the time of such purchase.
Jay Vahl ("Vahl") has agreed with the Company and Prime to act as a finder
for appropriate sublicenses pursuant to the License Agreement. Under the
terms of a finder's agreement dated January 16, 1996, Vahl will be paid a fee
equal to 5% of the amount of the first $1,000,000 of licensing fees payable
to the Company, net of payments to Rave, prior to January 16, 2004 with
respect to a Vahl originated license and/or sublicense, and thereafter in
diminishing percentages. The agreement will expire on April 15, 1996,
although it will continue to apply to sublicenses entered into as a result of
a Vahl introduction if such introduction was initiated within 360 days after
its termination.
In connection with the organization of the Company and the termination of
Prime's then existing licensing arrangements with Rave, on July 17, 1995,
Prime received 1,090,000 shares of the Company's Common Stock valued at $.01
per share. Rave and Mr. David Kwong, a director of the Company, each own 20%
of the capital stock of Prime; Mr. Ted L. Wong, a former director of the
Company, owns 15% of the capital stock of Prime.
In connection with the organization of the Company, on July 17, 1995, Mr.
Gerald Zarin, the Company's President and Chairman of its Board of Directors
received 450,000 shares of the Company's Common Stock valued at $.01 per
share. Mr. Zarin entered into an employment agreement with the Company as of
July 20, 1995 and in that connection was granted options to purchase 200,000
shares of the Company's Common Stock at $1.50 per share. The options expire
December 31, 2000.
The Company has entered into a Consulting Agreement effective as of August
1, 1995 (the "Corporate Builders Agreement") with Corporate Builders, L.P.
(the "Consultant") of which Mr. Ernest D. Chu (who served as the Chairman of
the Company's Board of Directors and its acting Chief Financial Officer from
its inception until January 28, 1996) is a principal. The Corporate Builders
Agreement provides, among other things, that the Consultant will serve as an
advisor to the Company with regard to its relationship with the investment
community, assist the Company in developing a corporate strategy and business
and management goals, assist in the preparation of media presentations,
oversee the production of video production relating to the Company's
41
<PAGE>
products and services, and, at the Company's request have a representative of
the Consultant serve as a member of the Company's board of directors up to the
time the Company offers its securities to the public pursuant to a registration
statement filed pursuant to the Securities Act. The term of the agreement is for
two years unless terminated by either party for any reason. The Consultant is to
receive fees of $7,500 per month until August 1997, or the completion of an
initial public offering (an "IPO"). If an IPO is completed prior to that time,
the fee is reduced to $5,000 per month until the agreement terminates. In
connection with services rendered in establishing the Company and creating its
business plan and projections performed by Mr. Chu, the Company issued 450,000
shares of the Company's common stock valued at $.01 per share to First Earth,
Builders, and W2, all entities affiliated with Mr. Chu, in the amounts of
250,000 shares, 125,000 shares and 75,000 shares, respectively. As of July 31,
1995, Mr. Chu was owed $45,000 on account of services rendered from February
1995 to that date, which amount the Company paid from its initial funding. As of
December 31, 1995, Corporate Builders had been paid an additional $37,500
pursuant to the Corporate Builders Agreement. Mr. Chu served as a director of
the Company from inception through January 28, 1996.
In connection with the organization of the Company Mr. Jeremiah O'Brien,
the Company's Vice President, Finance and Chief Financial Officer, received
5,000 shares of the Company's Common Stock valued at $.01 per share. In
connection with his employment by the Company, as of July 17, 1995 Mr.
O'Brien was granted options to purchase 25,000 shares of Common Stock at
$1.50 per share, 10,714 of which vested immediately, the remainder of which
vest equally on July 17, 1996 and July 17, 1997. All of such options expire
on the fifth anniversary of their vesting. On March 1, 1996 Mr. O'Brien was
granted options to purchase an additional 5,000 shares of Common Stock at an
exercise price of $2.00 per share expiring March 1, 2001.
In connection with his employment, on September 11, 1995 Mr. Robert Webb
was granted options to purchase 70,000 shares of Common Stock at an exercise
price of $1.50 per share, 30,000 of which vested immediately and the
remainder of which vest equally on September 11, 1996 and September 11, 1997.
All of these options expire after the fifth anniversary of their vesting.
In connection with the organization of the Company, on July 17, 1995 Mr.
Edward Bohn received 5,000 shares of the Company's Common Stock valued at
$.01 per share. In connection with his agreement to continue serving as a
director of the Company, on March 1, 1996, Mr. Bohn was granted options to
purchase 15,000 shares of Common Stock at $2.00 per share. The options expire
March 1, 2001.
In connection with his agreement to serve as a director, on November 9,
1995 Mr. Lyle Gramley was granted options to purchase 20,000 shares of the
Company's Common Stock at $1.50 per share. The options expire June 30, 1996.
In connection with his agreement to serve as a director, on March 1, 1996
Mr. Joseph A. Sarubbi was granted options to purchase 35,000 shares of Common
Stock at $2.00 per share, 11,667 of which vested immediately and 11,667 of
which vest March 1, 1997 and 11,666 of which March 1, 1998. All of these
options expire on the fifth anniversary of their vesting.
The Company has entered into employment agreements with Mr. Zarin and Mr.
Webb. See "Employment Agreements."
In July and August 1995 Helene Burgess purchased 437,854 shares of the
Company's Series A Preferred stock for $1,50 per share in the Preferred
Shares Private Placement. In December 1995 Ms. Burgess purchased the Initial
Bridge Notes and the Initial Bridge Shares. In March 1996 Ms. Burgess
exchanged the Initial Bridge Note for Bridge Notes in the principal amount of
$350,000 and 70,000 Bridge Shares. Ms. Burgess is also a limited partner in
Builders.
On March 27, 1996 Mr. Kwong, a director of the Company, purchased $150,000
principal amount of Bridge Notes and 30,000 Bridge Shares offered in the
Private Placement.
With respect to each transaction between the Company and an affiliate of
the Company, a majority of the disinterested members of the Board of
Directors determined that such transactions were on terms at least as Fair as
had they been consummated with unrelated third parties. The Board of
Directors intends to adopt a policy that, in the future, prior to entering
into any transaction with a related party, a similar determination must be
made with respect to such transaction by a majority of the Company's
disinterested directors.
42
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
Upon completion of the Offering, the Company will be authorized to issue
20,000,000 shares of Common Stock, par value $.01 per share, and 2,000,000
shares of Preferred Stock, par value $.01 per share of which 1,000,000 shares
have been designated Series A Convertible Preferred Shares. As of the date of
this Prospectus, there are 2,530,000 shares of Common Stock outstanding, and
600,000 shares of Series A Convertible Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
Common Stock are entitled to receive ratably such dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
In the event of liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
which are available for distribution to them after payment of liabilities and
after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are (and the shares of Common Stock offered hereby,
when issued in exchange for the consideration set forth in this Prospectus,
will be) fully paid and nonassessable.
PREFERRED STOCK
Upon completion of the Offering, all of the Company's outstanding Series A
Preferred Stock will be automatically converted into 600,000 shares of Common
Stock and the Company will be authorized to issue 1,000,000 additional shares
of Preferred Stock, which may have such preferences and rights as the Board
of Directors may designate.
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $5.50,
subject to adjustment in certain circumstances. At any time during the period
commencing one year from the date of this Prospectus and expiring on the
fifth anniversary of the date hereof. Unless exercised the Warrants will
automatically expire on , 2001 (five years following the date of this
Prospectus). The Warrants will be separately transferable immediately upon
issuance.
The Warrants are redeemable by the Company at any time commencing 12
months from the date hereof (or earlier with the prior written consent of the
Underwriter) upon notice of not less than 30 days, at a price of $.10 per
Warrant, provided that the closing bid quotation of the Common Stock on all
20 trading days ending on the third day prior to the day on which the Company
gives notice has been at least 150% (currently $8.25, subject to adjustment)
of the then effective exercise price of the Warrants. The Warrant Holders
shall have the right to exercise their Warrants until the close of business
on the date fixed for redemption. The Warrants will be issued in registered
form under a warrant agreement by and among the Company, American Stock
Transfer & Trust Company, as warrant agent, and the Underwriter (the "Warrant
Agreement"). The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at prices below the exercise price of the Warrants. Reference is made
to the Warrant Agreement (which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part) for a complete
description of the terms and conditions therein (the description herein
contained being qualified in its entirety by reference thereto).
43
<PAGE>
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent
for the number of Warrants being exercised. The Warrant Holders do not have
the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the
holder of such Warrant. The Company will use its best efforts to have all
such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to do so, there can be no assurance that it will be able
to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay to such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
DIVIDENDS
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment by the Company of dividends, if any, is within the
discretion of the Board of Directors and will depend on the Company's
earnings, if any, its capital requirements and financial condition, as well
as other relevant factors. The Board of Directors does not intend to declare
any dividends in the foreseeable future, but instead intends to retain
earnings for use in the Company's business operations.
REGISTRATION RIGHTS
The Company has registered all 470,000 Bridge Shares and Initial Bridge
Shares and all 600,000 shares of Common Stock issuable upon conversion of
Preferred Stock pursuant to the Registration Statement of which this
Prospectus is a part.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company.
REPORTS TO STOCKHOLDERS
The Company intends to file an application with the Securities and
Exchange Commission to register its Common Stock under the provisions of
Section 12(g) of the Exchange Act prior to the date of this Prospectus and
has agreed with the Underwriter that it will use its best efforts to continue
to maintain such registration. Such registration will require the Company to
comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless the business
combination is approved in a prescribed manner. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the prior three years did own) 15%
or more of a corporation's voting stock. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit
to the "interested stockholder."
44
<PAGE>
LIMITED LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation of the Company provides that, to the
fullest extent permitted by applicable law, as amended from time to time, the
Company will indemnify any person who was or is a party or is threatened to
be made a party to an action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that such person is or
was a director, officer, employee or agent of the Company or serves or served
in such capacity with any other enterprise at the request of the Company.
This indemnification includes the right to advancement of expenses when
allowed pursuant to applicable law.
In addition, the Certificate of Incorporation provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of the director's fiduciary duty. However,
the Certificate of Incorporation does not eliminate or limit the liability of
a director for any of the following reasons: (i) a breach of the director's
duty of loyalty to the Company or its stockholders; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) a transaction from which the director derived an
improper personal benefit; or (iv) an act or omission occurring before the
effective date of the Certificate of Incorporation.
The Company has entered into indemnification agreements with its directors
(collectively, the "Indemnification Agreements") which provide that the
director is entitled to indemnification to the fullest extent permitted by
applicable law. Such indemnification will cover all expenses, liabilities,
judgments (including punitive and exemplary damages), penalties, fines
(including excise taxes relating to employee benefit plans and civil
penalties) and amounts paid in settlement which are incurred or imposed upon
the director if the director is a party or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding of any kind,
whether civil, criminal, administrative or investigative (including actions
by or in the right of the Company and any preliminary inquiry or claim by any
person or authority), by reason of the fact that the director is or was a
director, officer, employee or agent of the Company or is or was serving at
the Company's request as a director, officer, employee or agent of another
corporation (including a subsidiary), partnership, joint venture, trust or
other enterprise against liability incurred in connection with such
proceeding, including any appeal thereof (collectively, the "Covered
Matters").The Company's obligations under the Indemnification Agreements will
continue as long as a director is subject to any actual or possible Covered
Matter, notwithstanding termination of the director.
Pursuant to the Indemnification Agreements, the directors are presumed to
be entitled to indemnification and will receive such indemnification
irrespective of whether the Covered Matter involves allegations of
intentional misconduct, alleged violations of Section 16(b) of the Exchange
Act alleged violations of Section 10(b) of the Exchange Act (including Rule
10b-5 thereunder), breach of the director's fiduciary duties (including
duties of loyalty or care) or any other claim.
In addition, upon the director's request, the Company will promptly either
advance expenses directly or reimburse the director for all expenses
(including attorneys' fees, expert fees, other professional fees and court
costs) incurred by the director in connection with a Covered Matter other
than judgments, penalties, fines and settlement amounts.
The Company will purchase and maintain directors and officers insurance as
soon as the Board of Directors determines practicable, in amounts which they
consider appropriate, insuring the directors against any liability arising
out of the director's status as a director of the Company regardless of
whether the Company has the power to indemnify the director against such
liability under applicable law.
In addition, the Indemnification Agreements provide that no action may be
brought by or on behalf of the Company against the director or the director's
heirs or personal representatives relating to the director's service as a
director, after the expiration of one year from the date the director ceases
(for any reason) to serve as a director of the Company, and any claim or
cause of action of the Company will be extinguished and deemed released
unless asserted by the filing of a legal action before the expiration of such
period.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 5,130,000
shares of Common Stock outstanding, assuming no exercise of the Warrants or
other outstanding options and warrants. Subject to the contractual
restrictions described below, 3,070,000 of these shares, including all
2,000,000 of the shares being offered hereby and the 600,000 shares of Common
Stock issuable upon conversion of the currently outstanding shares of Series
A Preferred Stock (the "Conversion Stock"), the 400,000 shares of Common
Stock constituting the Bridge Shares and the 70,000 shares of Common Stock
constituting the Initial Bridge Shares included in the Selling Stockholders'
Shares being registered by the Company concurrently with this offering
(pursuant to the Selling Stockholder Prospectus included in the Registration
Statement of which this Prospectus forms a part), will be freely tradeable
without restriction or further registration under the Securities Act, except
for any shares purchased by an "affiliate" of the Company (in general, a
person who has a control relationship with the Company), which shares will be
subject to the resale limitations, described below, of Rule 144 promulgated
under the Securities Act. The remaining 2,060,000 shares (the "Founders'
Shares") are deemed to be "restricted securities," as that term is defined
under Rule 144, in that such shares were issued and sold by the Company in
private transactions not involving a public offering and, as such, may only
be sold pursuant to an effective registration under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. All of such "restricted" shares will
become eligible for sale under Rule 144 in July 1997. See "Concurrent
Registration of Common Stock."
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who
has owned restricted shares of Common Stock beneficially for at least two
years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding
shares of the same class or, if the common stock is quoted on NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the
sale. A person who has not been an affiliate of the Company for at least
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described
above.
The Company's stockholders (62 as of the date of this Prospectus),
beneficially owning all but 10,000 of the "restricted" shares of Common Stock
referred to above, including all of the Selling Stockholders, have agreed not
to sell or otherwise dispose of any of their shares for a period of 18 months
from the date of this Prospectus, in the case of the holders of Founders
Shares, Conversion Shares and the Initial Bridge Shares, and 12 months from
the date of this Prospectus in the case of the holders of the Bridge Shares
without the prior written consent of the Underwriter. All of such shares,
other than the Founders' Shares, are also being registered concurrently with
this offering pursuant to the Selling Stockholder Prospectus included in the
Registration Statement of which this Prospectus forms a part. See
"Underwriting" and "Concurrent Registration of Common Stock."
Prior to this Offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Common Stock and the Warrants prevailing from
time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and the Warrants and could impair the
Company's ability in the future to raise additional capital through the sale
of its equity securities.
46
<PAGE>
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed to purchase
from the Company, 2,000,000 shares of Common Stock and 2,000,000 Warrants.
The underwriting agreement between the Company and the Underwriter (the
"Underwriting Agreement") provides that the obligations of the Underwriter
are subject to certain conditions precedent. The Underwriter is committed to
purchase all of the securities offered hereby if any are purchased.
The Underwriter has advised that it proposes initially to offer the
2,000,000 shares of Common Stock and 2,000,000 Warrants to the public at the
initial public offering prices set forth on the cover page of this Prospectus
and that it may allow to selected dealers who are members of the NASD
concessions not in excess of $ per share of Common Stock and $ per
Warrant, of which not more than $ per share of Common Stock and $ per
Warrant may be re-allowed to certain other dealers.
The Underwriting Agreement provides further that the Underwriter will
receive a non-accountable expense allowance of 3% of the gross proceeds of
the Offering, of which $50,000 has been paid by the Company to date. The
Company has also agreed to pay all expenses in connection with qualifying the
shares of Common Stock and the Warrants offered hereby for sale under the
laws of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
Pursuant to the Underwriter's Over-allotment Option, which is exercisable
for a period of 45 days after the closing of the Offering, the Underwriter
may purchase up to 15% of the total number of shares of Common Stock and
Warrants offered hereby, solely to cover over-allotments.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants to purchase 200,000 shares of
Common Stock and 200,000 Warrants. The Underwriter's Warrants will be non-
exercisable for one year after the date of this Prospectus. Thereafter, for a
period of four years, the Underwriter's Warrants will be exercisable at an
amount 165% above the offering price of the Common Stock and Warrants sold in
this offering. The Underwriter's Warrants are not transferable for a period
of one year after the date of this Prospectus, except to officers of the
Underwriter, members of the selling group and their officers and partners.
The Company has also granted certain demand and "piggyback" registration
rights to the holders of the Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock with a resulting dilution in the interest of other
stockholders. Further, such holders may be expected to exercise the
Underwriter's Warrants at a time when the Company would in all likelihood be
able to obtain equity capital on terms more favorable than those provided in
the Underwriter's Warrants.
The Company has agreed, for a period of 18 months after the date of this
Prospectus, not to issue any shares of Common Stock or preferred stock, or
any warrants, options or other rights to purchase Common Stock or preferred
stock, without the prior written consent of the Underwriter. Notwithstanding
the foregoing, the Company may issue shares of Common Stock upon exercise of
any warrants or convertible securities outstanding on the date hereof or to
be outstanding upon closing of the Offering as described herein. Subject to
certain exceptions, substantially all of the Company's existing stockholders,
have agreed not to sell or otherwise dispose of any shares of Common Stock
for a period of up to 18 months (or 12 months in the case of the holders of
the 400,000 Bridge Shares) following the date of this Prospectus, without the
prior written consent of the Underwriter. See "Shares Eligible for Future
Sale."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with the
Offering, including liabilities under the Securities Act.
The Company has agreed that upon closing of the Offering it will, for a
period of not less than three years, engage a designee of the Underwriter as
advisor to the Board. In addition and in lieu of the Underwriter's right to
designate an advisor, the Company has agreed, if requested by the Underwriter
during such three-year period, to nominate and use its best efforts to cause
the election of a designee of the Underwriter as a director of the Company.
The Underwriter has not yet designated any such person.
47
<PAGE>
The Underwriter intends to act as a market maker for the Common Stock and
the Warrants after the closing of the Offering.
Commencing one year after the date of this Prospectus, until the
expiration of the exercise period of the Warrants, the Company will pay the
Underwriter a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date, (ii) the
exercise price of the Warrant was solicited by a member of the NASD, (iii)
the Warrant was not held in a discretionary account, (iv) the disclosure of
compensation arrangements was made both at the time of the Offering and at
the time of exercise of the Warrant, (v) the solicitation of the exercise of
the Warrant was not a violation of Rule 10b-6 under the Exchange Act and (vi)
the Underwriter is designated in writing as the soliciting NASD member.
Unless granted an exemption from Rule 10b-6 under the Exchange Act by the
Commission, the Underwriter and any other soliciting broker/dealers will be
prohibited from engaging in any market making activities or solicited
brokerage activities with regard to the Company's securities during the
periods prescribed by exemption (xi) to Rule 10b-6 before the solicitation of
the exercise of any Warrant until the later of the termination of such
solicitation activity or the termination of any right the Underwriter and any
other soliciting broker/dealer may have to receive a fee for the solicitation
of the exercise of the Warrants.
The Company has agreed to retain the Underwriter as a consultant at an
annual fee of $29,000 for a two- year period commencing on the closing of the
Offering. The entire fee ($58,000) is payable at the closing of the Offering.
Pursuant to this agreement, the Underwriter will be obligated to provide
general financial advisory services to the Company on an as-needed basis with
respect to possible future financing or acquisitions by the Company and
related matters. The agreement does not require the Underwriter to provide
any minimum number of hours of consulting services to the Company.
The Underwriter acted as placement agent for the Company pursuant to the
Private Placement and received a commission of $200,000 for its services and
a non-refundable, non-accountable expense allowance of $60,000.
The initial public offering price of the shares of Common Stock and the
Warrants offered hereby and the initial exercise price and the other terms of
the Warrants have been determined by negotiation between the Company and the
Underwriter and do not necessarily bear any direct relationship to the
Company's assets, earnings, book value per share or other generally accepted
criteria of value. Factors considered in determining the offering price of
the shares of Common Stock and Warrants and the exercise price of the
Warrants included the business in which the Company is engaged, the Company's
financial condition, an assessment of the Company's management, the general
condition of the securities markets and the demand for similar securities of
comparable companies.
The Underwriter or members of the selling group may, at their option,
charge a customary ticket charge to purchasers in the Offering.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Honigman Miller Schwartz and Cohn, 222 Lakeview Avenue, Suite 800,
West Palm Beach, Florida 33401-6112. Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, has acted as counsel
for the Underwriter in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for
the period from July 17, 1995 (inception) to December 31, 1995, included in
this Prospectus have been so included in reliance on the report, which
includes an explantory paragraph related to the Company's ability to continue
as a going concern, of Coopers & Lybrand L.L.P. independent accountants,
given on the authority of said firm as experts in auditing and accounting.
48
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Southeast Regional Office of the Securities
and Exchange Commission (the "Commission") a registration statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to
the securities offered by this Prospectus. This Prospectus, filed as a part
of such Registration Statement, does not contain all of the information set
forth in, or annexed as exhibits to, the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulation of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the Office
of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549; 1400
Citicorp Center, 500 West Madison, Chicago, Illinois 60661; and 7 World Trade
Center, New York, New York 10048. Copies of the Registration Statement may be
obtained from the Commission at its principal office upon payment of
prescribed fees. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and where the
contract or other document has been filed as an exhibit to the Registration
Statement, each statement is qualified in all respects by reference to the
applicable document filed with the Commission.
49
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------------
<S> <C>
Report of Independent Accountants .......................................................... F-2
Balance Sheets as of December 31, 1995 and as of March 31, 1996 (unaudited) ................ F-3
Statement of Operations for the period from July 17, 1995
(inception) to December 31, 1995 and for the three months ended March 31, 1996
(unaudited) and for the cumulative period from July 17, 1995 (inception) to March 31, 1996
(unaudited) ............................................................................... F-4
Statement of Stockholders' Equity (Deficit) for the period from July 17, 1995
(inception) to December 31, 1995 and for the three months ended March 31, 1996
(unaudited) ............................................................................... F-5
Statement of Cash Flows for the period from July 17, 1995
(inception) to December 31, 1995 and for the three months ended March 31, 1996
(unaudited) and for the cumulative period from July 17, 1995 (inception) to March 31, 1996
(unaudited) ............................................................................... F-6
Notes to Financial Statements .............................................................. F-7 - F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Nuwave Technologies, Inc.:
We have audited the accompanying balance sheet of NUWAVE TECHNOLOGIES, INC.
(a development stage enterprise) as of December 31, 1995, and the related
statements of operations, stockholders' equity and cash flows for the period
from July 17, 1995 (inception) to December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nuwave Technologies, Inc.,
as of December 31, 1995, and the results of its operations and its cash flows
for the period from July 17, 1995 (inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared on the assumption
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company's products have not been proven to be
commercially viable, and the Company has had no operating revenue since its
inception. In addition, the Company has very limited capital resources and
has a loss from operations. All of the aforementioned matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 2. The
financial statements do not include any adjustments that might result from
the outcome of these securities.
COOPERS & LYBRAND L.L.P.
New York, New York
February 20, 1996 except for Note 10,
as to which the date is March 27, 1996.
F-2
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
--------------- --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 372,800 $ 999,422
Prepaid expenses and other current assets .............................. 21,691 50,952
--------- -----------
Total current assets ........................................... 394,491 1,050,374
Computers and equipment .................................................. 7,737 14,688
Other assets, including deferred financing costs of $20,100 and $323,105
as of December 31, 1995 and March 31, 1996, respectively ............... 24,100 327,105
--------- -----------
Total assets ................................................... $ 426,328 $ 1,392,167
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable and accrued liabilities ............................... $ 99,044 $ 216,969
--------- -----------
Total current liabilities ...................................... 99,044 216,969
Long-term debt ........................................................... 250,675 1,271,625
--------- -----------
Total liabilities .............................................. 349,719 1,488,594
--------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity (deficit):
Preferred stock, $.01 par value; authorized 2,000,000 shares:
Series A Convertible Preferred Stock, noncumulative, $.01
par value; authorized 1,000,000 shares; issued and outstanding
600,000 shares as of December 31, 1995 and March 31, 1996,
respectively ($900,000 liquidation preference as of December
31, 1995 and March 31, 1996, respectively) ........................ 6,000 6,000
Common stock, $.01 par value; authorized 8,000,000 shares;
issued and outstanding 2,130,000 shares and 2,530,000 shares
as of December 31, 1995 and March 31, 1996, respectively ............ 21,300 25,300
Additional paid-in capital ............................................. 998,300 1,660,300
Deferred equity costs .................................................. (38,400) (317,920)
Deficit accumulated during the development stage ....................... (910,591) (1,470,107)
--------- -----------
Total stockholders' equity (deficit) ........................... 76,609 (96,427)
--------- -----------
Total liabilities and stockholders' equity (deficit) ............ $ 426,328 $ 1,392,167
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995 Three July 17, 1995
(inception) Months (inception)
to Ended to
December 31, March 31, March 31,
1995 1996 1996
------------------ -------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating expenses: .
Research and development expenses ........... $ (491,122) $ (277,033) $ (768,155)
General and administrative expenses ......... (417,664) (218,345) (636,009)
---------- ----------- -----------
(908,786) (495,378) (1,404,164)
---------- ----------- -----------
Loss from operations ................ (908,786) (495,378) (1,404,164)
Other income (expense):
Interest income ............................. 3,870 3,223 7,093
Interest (expense) .......................... (5,675) (67,361) (73,036)
---------- ----------- -----------
Total other (expense) ......................... (1,805) (64,138) (65,943)
---------- ----------- -----------
Net loss ............................ $ (910,591) $ (559,516) $(1,470,107)
========== =========== ===========
Loss per share: ...............................
Weighted average number of common shares
outstanding .............................. 3,383,500 3,383,500
========== ===========
Net loss per share .................. $ (.27) $ (.17)
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional Deferred During the
----------------- ----------------- Paid-in Equity Development
Shares Amount Shares Amount Capital Costs Stage Total
------ ------ ------ ------ --------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common shares issued in connection with
the formation of the Company .......... 2,060,000 $20,600 $ 20,600
Sale of Series A Convertible Preferred
Stock for cash of $1.50 per share...... 600,000 $6,000 $ 894,000 900,000
Common shares issued with initial bridge
notes payable for cash of $1.50 per
share ................................. 70,000 700 104,300 105,000
Costs incurred in connection with equity
financing ............................. $(38,400) (38,400)
Net loss for the period from July 17,
1995 (inception) to December 31, 1995.. $ (910,591) (910,591)
------- ------ --------- ------- ---------- -------- ----------- ---------
Balance at December 31, 1995 ........... 600,000 $6,000 2,130,000 $21,300 $ 998,300 $(38,400) $ (910,591) $ 76,609
Common shares issued in connection with
the exchange of the initial bridge
notes for 14 bridge units ............. 70,000 700 139,300 140,000
Common shares issued with bridge notes
payable for cash of $2.00 per share.... 330,000 3,300 656,700 660,000
Costs incurred in connection with the
private placement offering relating
to the equity financing ............... (134,000) 13,400 (120,600)
Costs incurred in connection with the
initial public offering (unaudited).... (292,920) (292,920)
Net loss for the three months ended March
31, 1996 (unaudited) .................. (559,516) (559,516)
------- ------ --------- ------- ---------- -------- ----------- ---------
Balance at March 31, 1996 (unaudited).... 600,000 $6,000 2,530,000 $25,300 $1,660,300 $(317,920) $(1,470,107) $ (96,427)
======= ====== ========= ======= ========== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995 Three July 17, 1995
(inception) Months (inception)
to Ended to
December 31, March 31, March 31,
1995 1996 1996
-------------- ---------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $ (910,591) $ (559,516) $(1,470,107)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation expense ................................... 860 1,090 1,950
Amortization of unamortized debt discount .............. 5,675 30,950 36,625
Amortization of deferred financing costs ............... 17,895 17,895
Issuance of common stock for services rendered ......... 20,600 20,600
Increase in prepaid expenses and other current assets.... (21,691) (29,261) (50,952)
Increase in accounts payable and accrued liabilities .... 99,044 117,925 216,969
Increase in other assets ............................... (4,000) -- (4,000)
---------- ---------- -----------
Net cash used in operating activities ............. (810,103) (420,917) (1,231,020)
---------- ---------- -----------
Cash flows from investing activities:
Purchases of computers and equipment ...................... (8,597) (8,041) (16,638)
---------- ---------- -----------
Net cash used in investing activities ............. (8,597) (8,041) (16,638)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from sale of Series A Convertible Preferred Stock 900,000 900,000
Proceeds from issuance of initial bridge units ............ 350,000 350,000
Proceeds from issuance of bridge units, net of exchange
of initial bridge notes and costs of the PPO .......... (33,500) 1,348,500 1,315,000
Increase in deferred equity costs of the IPO .............. (25,000) (292,920) (317,920)
---------- ---------- -----------
Net cash provided by financing activities ......... 1,191,500 1,055,580 2,247,080
---------- ---------- -----------
Net increase in cash and cash equivalents ......... 372,800 626,622 999,422
Cash and cash equivalents at beginning of the period ........ -- 372,800 --
---------- ---------- -----------
Cash and cash equivalents at end of the period ..... $ 372,800 $ 999,422 $ 999,422
========== ========== ============
Supplemental disclosure of non cash investing and financing
activities:
Deferred financing costs incurred in connection with the
exchange of the initial bridge notes for 14 bridge units .. $ -- $ 140,000 $ 140,000
========== ========= ===========
Deferred equity costs charged to additional paid in capital
in connection with the PPO ................................ $ -- $ 13,400 $ 13,400
========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1996 IS UNAUDITED)
1. ORGANIZATION AND BUSINESS:
Nuwave Technologies, Inc. (the "Company") was incorporated in Delaware on
July 17, 1995. The Company is engaged in the development of products to improve
picture quality in televisions, computer monitors, and other display devices by
enhancing and manipulating video signals. Substantially all of the Company's
technology is licensed to the Company from Rave Engineering, Inc. ("Rave"),
pursuant to an exclusive worldwide license agreement (the "License Agreement").
As a development stage enterprise, substantially all of the Company's efforts to
date have been devoted to entering into the aforementioned License Agreement,
funding Rave's expenditures for research and development, raising capital,
developing its products and technology and formulating its marketing and
business plans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements of the Company have been prepared on a
going-concern basis, which contemplates realization of assets and liquidation
of liabilities in the ordinary course of business. Continuance of the Company
as a going concern is dependent upon the Company's ability to obtain adequate
long-term financing, continuance of the License Agreement, successful
completion of research and development of commercially viable products and
attainment of profitable operations, the outcome of which cannot presently be
determined.
The financial data as of March 31, 1996, for the three months ended March
31, 1996, and for the cumulative period from July 17, 1996 (inception) to
March 31, 1996 are unaudited and, in the opinion of management include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. Financial data for the three months ended
March 31, 1996, are not necessarily indicative of the results of operations
to be expected for the entire year.
The Company has entered into a letter of intent with an underwriter to act
as the placement agent in connection with the issuance of debt and equity
securities of the Company, sold as a unit, in a private placement offering
(the "PPO") (see Notes 6 and 10). In addition, the underwriter agreed to sell
2,000,000 shares of the Company's common stock at $5.00 per share and
2,000,000 Redeemable Common Stock Purchase Warrants at $.10 per warrant for
an aggregate initial public offering ("IPO") price of $10,200,000 (see Note
11). Although the Company has entered into a letter of intent with the
Underwriter, there can be no assurance that the IPO will take place.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less to be cash equivalents.
The carrying amount approximates fair value because of the short-term
maturity of these instruments.
COMPUTERS AND EQUIPMENT
Computers and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred.
Depreciation is charged against results of operations by an accelerated
method over the estimated useful lives of the related assets.
Sales and retirements of depreciable property are recorded by removing the
related cost and accumulated depreciation from the accounts. Gains or losses
on sales and retirements of computers and equipment are reflected in results
of operations.
F-7
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
2. Summary of Significant Accounting Policies: - (Continued)
DEFERRED FINANCING COSTS
Costs associated with obtaining debt financing and debt discounts are
being amortized over the term of the related debt instruments by the interest
method.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research and development are expensed as incurred.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist of cash and cash equivalents. The Company places its cash
and cash equivalents in two financial institutions, one a commercial bank
where the cash balance is in excess of the FDIC insurance limit and the other
a money market fund which invests only in U.S. Government securities.
PER SHARE DATA
The per share data included in the statement of operations has been
computed in accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 64 ("SAB 64"). SAB 64 requires that the historic
weighted average number of shares of common stock outstanding during the year
be increased for certain shares or stock options, including shares of Series
A Convertible Preferred Stock, issued within one year or in contemplation of
the Company's filing of its registration statement, and that such shares be
treated as if outstanding for all periods presented. Accordingly, the
historic weighted average number of shares outstanding from July 17, 1995
(inception) to December 31, 1995 has been increased by 1,316,794 shares for
the application of SAB 64. Such shares include 63,294 shares of common stock
issued in December 1995 and 400,000 in March 1996; 253,500 stock options
issued in July, September and November 1995, and March, 1996, and 600,000
shares of Series A Convertible Preferred Stock issued in July and August,
1995. Furthermore, the historic weighted average number of shares outstanding
for the three months ended March 31, 1996 (unaudited) has been increased by
1,161,765 shares for the application of SAB 64. Such shares include 308,265
in March 1996; 253,500 stock options issued in July, September and November
1995 and March, 1996 and 600,000 shares of Series A Convertible Preferred
Stock issued in July and August, 1995.
The historic per share data, shown below, has been computed on the basis
of the loss for the period divided by the historic weighted average number of
shares of common stock outstanding. The historic weighted average number of
shares outstanding excludes the number of common shares issuable upon the
exercise of outstanding stock options and Series A Convertible Preferred
Stock, since such inclusion would be anti-dilutive.
<TABLE>
<CAPTION>
July 17, 1995
(inception) Three Months
to Ended
December 31, 1995 March 31, 1996
----------------- --------------
(unaudited)
<S> <C> <C>
Historic per share data:
Historic weighted average number of common shares outstanding 2,066,706 2,221,735
=========== =========
Net loss per share .................................... ($.44) ($.25)
=========== =========
</TABLE>
The following pro forma supplemental loss per share data have been
computed as if the historic weighted average number of common shares
outstanding had been increased to reflect the conversion of all Series A Con
F-8
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
2. Summary of Significant Accounting Policies: - (Continued)
vertible Preferred Stock into common stock as if such conversion had occurred
on the respective dates on which the Series A Convertible Preferred Stock was
originally issued:
<TABLE>
<CAPTION>
July 17, 1995
(inception) Three Months
to Ended
December 31, 1995 March 31, 1996
------------------ --------------
(unaudited)
<S> <C> <C>
Supplemental loss per share data: Pro forma weighted average
-- number of common shares outstanding ............... 2,595,309 2,821,735
========= =========
Pro forma net loss per share ............................ ($.35) ($.20)
========= =========
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires that the Company recognize deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined on the basis
of the differences between the tax bases of assets and liabilities and their
respective financial reporting amounts ("temporary differences") at enacted
tax rates in effect for the years in which the differences are expected to
reverse.
RISKS AND UNCERTAINTIES
The Company has had no product sales and there is no assurance that the
Company's research and development efforts will be successful, that the
Company will ever have commercially accepted products, or that the Company
will achieve significant sales of any such products. The Company has incurred
net losses and negative cash flows from operations since its inception. In
addition, the Company operates in an environment of rapid change in
technology and is dependent upon the services of its employees, its
consultants and the employees of Rave.
Substantially all of its technology is licensed to the Company. If the
Company were unable to comply with the terms of its License Agreement and if
the License Agreement were terminated, or if the licensor or other third
parties were unable to complete the Company's development plans (see Note 9),
the Company would not be able to continue its business.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to the 1995 financial statements to
conform to the current presentation.
IMPACT OF THE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") in October 1995, which is effective in fiscal 1996. SFAS 123
requires companies to estimate the fair value of common stock, stock options,
or other equity instruments ("Equity Instruments") issued to employees, using
pricing models which take into account various factors, such as the current
price of the common stock, volatility, and the expected life of the Equity
Instrument.
F-9
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
2. Summary of Significant Accounting Policies: - (Continued)
SFAS 123 permits companies to elect either to provide pro forma note
disclosure or adjust operating results for the amortization of the estimated
value of the Equity Instrument as compensation expense over the vesting
period of the Equity Instrument. The Company has elected to provide pro forma
note disclosure, which will appear in its financial statements for the year
ending December 31, 1996, and therefore, the adoption of SFAS 123 will have
no effect on the Company's financial position or results of operations.
3. COMPUTERS AND EQUIPMENT:
Computers and equipment consist of the following:
<TABLE>
<CAPTION>
Useful Lives December 31, March 31,
in Years 1995 1996
-------- ---- ----
(unaudited)
<S> <C> <C> <C>
Computers ............................................................ 5 $ 3,658 $ 3,658
Equipment ............................................................ 5 4,939 12,980
--------- ----------
8,597 16,638
Less, Accumulated
depreciation ....................................................... 860 1,950
--------- ----------
$ 7,737 $ 14,688
========= ==========
</TABLE>
4. DEFERRED EQUITY COSTS:
Deferred equity costs consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Deferred costs in connection with the private placement offering..................... $ 13,400 $ --
Deferred costs in connection with the public offering .............................. 25,000 317,920
--------- ---------
$ 38,400 $ 317,920
========= =========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Accounts payable ................................................................... $ 22,803 $ 55,004
Legal and accounting fees ........................................................... 62,296 138,171
Accrued interest ................................................................... 18,515
Accrued payroll .................................................................... 11,654 --
Payroll taxes payable ............................................................... 2,291 5,279
---------- ---------
$ 99,044 $ 216,969
========== =========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
10% initial bridge notes payable ("initial bridge notes"), less unamortized debt
discount of $99,325((1)) ............................................................... $ 250,675 $ --
10% bridge notes payable ("bridge notes"), less unamortized debt discount of
$728,375((2)) .......................................................................... 1,271,625
----------- ----------
$ 250,675 $1,271,625
=========== ==========
</TABLE>
F-10
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
6. Long-Term Debt: - (Continued)
- ------
(1) On December 15, 1995, the Company entered into a loan and stock
purchase agreement with a Series A Convertible Preferred
stockholder, whereby the Company issued 14 initial bridge units,
each unit consisting of the Company's unsecured initial bridge notes
in the principal amount of $25,000 and 5,000 shares of the Company's
common stock with a fair market value of $1.50 per share for
proceeds of $350,000. The initial bridge notes bear interest at the
rate of 10% per annum and mature the earlier of June 30, 1997 or the
completion of the PPO. (see Note 10)
After giving effect to the amortization of the initial bridge notes
debt discount described in Note 2, the effective interest rate of
the initial bridge notes is 33% per annum.
On February 1, 1996, the Company offered to the initial bridge
noteholder an option to exchange the initial bridge notes for the
equivalent number of units offered in the PPO (see Note 10).
(2) After giving effect to the amortization of the bridge notes debt
discount described in Note 2, the effective interest rate of the
bridge notes is 50% per annum (see Note 10).
7. CAPITAL TRANSACTIONS (SEE NOTE 6):
COMMON STOCK
On July 17, 1995, the Company issued 2,060,000 shares of common stock for a
fair market value of $.01 per share as consideration for services rendered
in connection with the formation of the Company, as follows:
o 1,090,000 shares to Prime Technologies, Inc. ("Prime"). Rave and two
members of the Company's Board of Directors have ownership interests in
Prime of 20%, 20% and 15%, respectively;
o 450,000 shares to the Company's President;
o 450,000 shares to three entities affiliated with an individual who was
then a member of the Company's Board of Directors; and
o 70,000 shares to individuals who were either employees of, or
consultants to, the Company.
On April 30, 1996, the board of directors and the Company's stockholders
authorized the increase in the shares of common stock to 20,000,000 common
shares, par value $.01 per share.
PREFERRED STOCK
During July and August 1995, the Company sold 600,000 shares of Series A
Convertible Preferred Stock for $900,000 to several investors, one of whom is
the purchaser of the initial bridge notes. The preferred shares are
convertible into common shares on a one-for-one basis, either at the option
of each holder or automatically upon the effective date of an IPO. The Series
A Convertible Preferred Stock has a liquidation preference of $1.50 per
share.
STOCK OPTIONS
Options outstanding are as follows:
Number of
Number of Option price shares
shares per share exercisable
---------- ------------ -----------
Granted ....................... 315,000 $1.50
----------
Outstanding at December 31, 1995 315,000 260,714
=======
Granted (see Note 10) ......... 55,000 $2.00
---------
Outstanding at March 31, 1996... 370,000 $1.50--$2.00 292,381
========= =======
F-11
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
7. Capital Transactions (see Note 6): - (Continued)
Effective July 17, 1995, the Company granted to its Vice President of
Finance options to purchase 25,000 shares of common stock, exercisable at
$1.50 per share. The first 10,714 options vested immediately, the remainder
vest equally on July 17, 1996 and July 17, 1997. The options expire on the
fifth anniversary of their vesting.
On July 20, 1995, the Company granted to its President, as part of his
employment agreement, options to purchase 200,000 shares of common stock,
exercisable at $1.50 per share. The options were 100% vested at the date of
grant and expire on December 31, 2000. The options may be cancelled if the
President resigns or is terminated for cause.
On September 11, 1995, the Company granted to its Vice President of
Marketing, as part of his employment agreement, options to purchase 70,000
shares of common stock, exercisable at $1.50 per share. 30,000 options vested
immediately; the remainder vest equally on September 11, 1996 and 1997. The
options expire on the fifth anniversary of their vesting.
On November 9, 1995, the Company granted to a director options to purchase
20,000 shares of common stock, exercisable at $1.50 per share. The options
vested at the date of grant and expire on June 30, 1996.
On January 31, 1996, the Company adopted its 1996 Performance Incentive
Stock Option Plan (the "Plan"). Under the Plan, incentive and nonqualified
stock options, stock appreciation rights and restricted stock may be granted
to key employees and consultants (the "Participants") by certain
disinterested directors of the Board of Directors. Any incentive option
granted under the Plan will have an exercise price of not less than 100% of
the fair market value of the shares on the date on which such option is
granted. With respect to an incentive option granted to a Participant who
owns more than 10% of the total combined voting stock of the Company or of
any parent or subsidiary of the Company, the exercise price for such option
must be at least 110% of the fair market value of the shares subject to the
option on the date on which the option is granted. A nonqualified option
granted under the Plan (i.e., an option to purchase the common stock that
does not meet the Internal Revenue Code's requirements for incentive options)
must have an exercise price of at least the par value of the stock.
Stock appreciation rights may be granted in conjunction with the grant of
an incentive or nonqualified option under the Plan or independently of any
such stock option.
A maximum of 260,000 options can be awarded under the Plan. As of December
31, 1995 and March 31, 1996, respectively, no options have been issued.
In connection with the underwriter's agreement, for a period of eighteen
months from the effective date of the IPO, the Company cannot issue any
shares of common or preferred stock, or any warrants, options or other rights
to purchase common or preferred stock except for 205,000 options to be issued
under the Plan for not less than $5.00 per share and not below the market
price as of the date of grant without the underwriter's prior written
consent.
8. INCOME TAXES:
There is no provision for federal, state or local income taxes for the period
from July 17, 1995 (inception) to December 31, 1995, since the Company has
incurred an operating loss. In addition, the Company has fully reserved the net
potential future tax benefits resulting from its organization costs and a net
operating loss carryforward.
F-12
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
8. Income Taxes: - (Continued)
The tax effect of temporary differences as of December 31, 1995 are as
follows:
Amount
---------
Deferred tax assets:
Organization costs .................................... $188,342
Net operating loss carryforward ....................... 168,921
--------
357,263
Valuation allowance ................................... 357,263
--------
$ --
--------
The net operating loss for tax purposes is composed of Internal Revenue
Code Section 174 research and development expenses plus interest expense. The
balance of the charges in the statement of operations have been capitalized
under Internal Revenue Code Section 195 and will be amortized over five years
commencing with the date the Company begins its trade or business, as defined
by Internal Revenue Service regulations. The valuation allowance offsets all
of the deferred tax assets as of December 31, 1995.
As of December 31, 1995, the Company has an unused net operating loss
carryforward of $422,303 available for income tax purposes. The unused net
operating loss carryforward expires by the year 2010.
As of March 31, 1996 (unaudited), the Company has unused net operating
loss carryforwards of $718,848 available for income tax purposes. The unused
net operating loss carryforwards expire in various years from 2010 to 2011.
9. COMMITMENTS AND CONTINGENCIES:
LICENSE AND DEVELOPMENT AGREEMENTS
Pursuant to the terms of the License Agreement dated July 21, 1995, the
Company is obligated to pay to Rave royalties ("Royalties") of (i) 2 1/2 % of
net sales ("Sales Royalties"), as defined, of products sold by the Company
utilizing Rave's technology and (ii) 25% of any sublicensing fees received by
the Company from sublicenses of the products and technology covered by the
License Agreement. Payments of Sales Royalties will commence upon the earlier
of (i) accumulated net sales of licensed products and technology sold by the
Company or its future sublicensees reaching an aggregate of $50,000,000, or
(ii) the Company's aggregate net profits from sales of licensed products and
technology equaling $5,000,000, whichever comes first. In addition, the
License Agreement obligates the Company to pay $60,000 per annum to Rave for
consulting services, for a period of three years commencing fifteen days
after the PPO (see Note 10), payable in $15,000 quarterly installments, in
advance, plus reasonable expenses. The License Agreement also provides that,
commencing upon the Company's receipt of the proceeds from the PPO, Rave will
receive minimum aggregate payments of Royalties and Development Fees of at
least $65,000 per month (the "Rave Minimum Payments") pursuant to the
Development Agreement described below. If Rave does not receive the Rave
Minimum Payments, it may elect to make the License Agreement non-exclusive.
If the Company fails to pay the Royalties, Rave may terminate the License
Agreement and become the licensor with respect to licenses granted by the
Company.
The License Agreement becomes effective on July 21, 1995 and continues in
force until either (1) the expiration of the last patent rights, or (2) July
21, 2012, whichever is later.
The Company has entered into a development agreement (the "Development
Agreement") with Rave, pursuant to which the Company has formulated a
development plan (the "Development Plan") extending through October 1998,
with annual renewals, subject to one year's written notice. The Development
F-13
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
9. Commitments and Contingencies: - (Continued)
Plan focuses principally on the development of the products, as defined, and
will be revised from time to time to provide for the development of additional
related products. The Development Agreement provides for the payment to Rave of
a monthly fee commencing upon the Company's receipt of the PPO financing which,
when aggregated with the Royalties provided for in the License Agreement, must
equal at least $65,000 per month. The Development Plan is to be revised by
October 2, 1998 and on each anniversary thereafter for each year the Development
Agreement remains in effect. In addition, the Development Agreement provides for
Rave to be paid an aggregate of $850,000 to purchase or lease equipment (the
"Equipment") for use in developing the licensed products and technology. The
payments are to be made by the Company in monthly installments of $23,611,
commencing with the completion of the PPO, with a lump-sum payment of $283,336
due at the end of 24 months. The aforementioned equipment financing to Rave is
collateralized by the Equipment. The Development Agreement provides that all
results of development, including unrelated developments, shall belong to the
Company, and Rave will not undertake any development activities for any third
parties without the consent of the Company.
The Rave research and development expenses charged to the statement of
operations for the cumulative period from July 17, 1995 (inception) to March
31, 1996 (unaudited) amounted to $651,959; from July 17, 1995 (inception) to
December 31, 1995 amounted to $416,628 and for the three months ended March
31, 1996 (unaudited), amounted to $235,331.
AGENCY AGREEMENT
In order to assist it in obtaining sublicensing revenue, the Company has
entered into an Agency Agreement (the "Agency Agreement") with Prime. The
Agency Agreement provides that Prime will be the Company's exclusive agent
for entering into sublicenses with respect to the licensed products and
technology. Because its products are not fully developed, the Company has not
developed a licensing program, established proposed royalties, or otherwise
determined the terms or conditions of the arrangements it may want to make
with proposed licensees or others. These programs will be developed in
conjunction with product research and development, and with Prime pursuant to
the Agency Agreement. For its services, with respect to the first $50,000,000
of aggregate net sales of the Company's licensees and sublicensees, after
subtracting the payments to Rave and licensing expenses, Prime will receive
35% of net sublicense fees received by the Company, and thereafter 45%.
Because the Company has retained the right to enter into licenses and
sublicenses independently, payments to Prime are to be made regardless of
whether the relevant sublicenses are entered into through Prime's efforts or
by the Company itself. Prime will receive an additional agency fee of up to
$1,500,000, of which (i) $400,000 is payable in equal monthly installments of
$15,000 commencing on January 1, 1996 provided that such fee shall increase
to $40,000 per month after the IPO, (ii) $400,000 is payable out of the
Company's first sublicensing royalties and (iii) $700,000 is payable out of
the Company's portion of sublicensing royalties when net sublicensing sales
exceed $200,000,000. The Agency Agreement provides that Prime will contribute
its royalty participation to pay Rave in any month in which the Company,
after making reasonable commercial effort, is unable to make the $65,000
minimum payment necessary to maintain the License Agreement on an exclusive
basis with such amounts to be repaid by the Company to Prime out of the
Company's next available royalty payment or 12 months from the date of such
advance.
The agency fee charged to operations for the cumulative period from July
17, 1995 (inception) to March 31, 1996 (unaudited) and for the three months
ended March 31, 1996 (unaudited) amounted to $45,000 and $45,000,
respectively.
F-14
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
9. Commitments and Contingencies: - (Continued)
The minimum annual commitments, assuming receipt of financing as defined,
under the Rave License and Development Agreements, and the Agency Agreement,
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
For the Years Royalty and
Ended Development Consulting Equipment Agency
December 31, Fees Fees Financing Fees Total
--------------- ------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1996 $585,000 $45,000 $212,499 $330,000 $1,172,499
1997 780,000 60,000 283,332 70,000 1,193,332
1998 585,000 60,000 354,169 999,169
1999 15,000 15,000
---------- -------- -------- -------- ----------
$1,950,000 $180,000 $850,000 $400,000 $3,380,000
========== ======== ======== ======== ==========
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with its President
expiring December 31, 2000. The employment agreement provides for a minimum
annual salary, and bonus incentives, based upon the Company meeting profit
levels to be set by the Board of Directors. The agreement also provides for
termination payments to the President under certain circumstances. The
minimum annual salary commitment as of December 31, 1995, excluding bonus
arrangements, amounted to $113,750 for 1996 and $120,000 per annum
thereafter. In addition, the President, was paid a consulting fee of $37,500
plus out-of-pocket costs in connection with the formation of the Company. The
Company charged these costs to operations.
The Company has entered into an employment agreement dated September 11,
1995 with its Vice President of Marketing. The employment agreement continues
until March 31, 1996 and thereafter for successive three- month periods. The
employment agreement also provides that he may receive additional options to
purchase shares of common stock of the Company as determined by the Board of
Directors. The additional options shall be exercisable at the equivalent
price per share provided for in the PPO for a five-year period from the date
of the grant. The additional options would vest on the first, second and
third anniversaries of the date of the grant. No additional options have been
granted as of December 31, 1995.
CONSULTING AGREEMENTS
The Company has a consulting agreement with a Limited Partnership (the
"Consultant") rendering business advice. One of the general partners of the
Consultant is a former member of the Company's Board of Directors. In
addition, this general partner is a partner in two other affiliated entities.
Together the Consultant and the two other affiliated entities (which also
provided services to the Company) received 450,000 shares of the Company's
common stock for an aggregate consideration of $4,500 (see Note 7). The term
of the agreement is for two years. The Consultant is to receive fees of
$7,500 per month until the earlier of August 1997 or the completion of an
IPO. Once the IPO is completed, the fee is reduced to $5,000 per month until
the agreement terminates. In addition, the Company incurred $45,000 for
consulting services rendered by the principal of the Consultant in connection
with the formation of the Company. The total consulting fee per the
consulting agreement charged to the statement of operations for the
cumulative period from July 17, 1995 (inception) to March 31, 1996
(unaudited) amounted to $60,000 plus out-of-pocket expenses; from July 17,
1995 to December 31, 1995 amounted to $37,500 plus out of pocket expenses and
for the three months ended March 31, 1996 (unaudited) amounted to $22,500
plus out of pocket expenses. The total aggregate consideration charged to
operations in connection with the services rendered by the principal of the
Consultant and his affiliated entities for the cumulative period from July
17, 1995 (inception) to March 31, 1996 (unaudited) amounted to $113,757; from
July 17, 1995 (inception) to December 31, 1995 amounted to $88,302 and for
the three months ended March 31, 1996 (unaudited) amounted to $25,455.
F-15
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
9. Commitments and Contingencies: - (Continued)
The initial bridgeholder is a limited partner in the Consultant.
The Company entered into a consulting agreement with a consultant who is
the president of Harvest Technologies, Inc. ("Harvest"). Effective August 1,
1995, the consultant provided, on a non-exclusive basis, certain services,
among others: evaluation of the Company's technologies and products,
assistance in the development of a marketing strategy and plan, and the
recommendation of candidates for marketing and sales positions. The
consultant received $15,000 monthly in consideration of his services pursuant
to this agreement through October, 1995. Subsequently the consultant has been
paid on a month-to-month basis a fee of $10,000 per month. Since inception to
March 31, 1996 (unaudited) the Company has incurred $66,497; from July 17,
1995 (inception) to December 31, 1995 amounted to $36,497 and for the three
months ended March 31, 1996 (unaudited) $30,000 of consulting fees for
product development, which have been charged to research and development
expenses.
In addition, Harvest has agreed with the Company and Prime to act as a
finder for appropriate sublicenses pursuant to the License Agreement. Under
the terms of Harvest's agreement, Harvest will be paid a fee equal to 10% of
the amount of any sublicense fees during the life of such sublicense if such
sublicense is entered into by the Company with candidates identified by
Harvest. Harvest's agreement will expire September 1, 1996, although it will
continue to apply to sublicenses entered into as a result of a Harvest
introduction, if such introduction was initiated within 180 days after such
date. Harvest may apply the first $450,000 in finders fees to purchase shares
of the Company's common stock at its fair market value at the time of such
purchase.
Jay Vahl ("Vahl") has agreed with the Company and Prime to act as a finder
for appropriate sublicenses pursuant to the License Agreement. Under the
terms of a finder's agreement dated January 16, 1996, Vahl will be paid a fee
equal to 5% of the amount of the first $1,000,000 of licensing fees payable
to the Company, net of payments to Rave, prior to January 16, 2004 with
respect to a Vahl-originated license and/or sublicense and thereafter in
diminishing percentages. The agreement will expire on April 15, 1996,
although it will continue to apply to sublicenses entered into as a result of
a Vahl introduction if such introduction was initiated within 360 days after
its termination.
GUARANTEES
The Rave operating lease, commencing on October 1995, for laboratory and
office space provides for minimum monthly rentals of $4,069. The lease
expired in April 1996 and continues on a month to month basis. The lease is
no longer guaranteed by the Company.
LEASES
The Company leases shared office space on a month-to-month basis for a
monthly rental of $1,600. Rent expense incurred for the cumulative period
from July 17, 1995 (inception) to March 31, 1996 (unaudited) amounted to
$11,503; from July 17, 1995 (inception) to December 31, 1995 amounted to
$6,400 and for the three months ended March 31, 1996 (unaudited) amounted to
$5,103.
10. CAPITAL/DEBT TRANSACTIONS SUBSEQUENT TO DECEMBER 31, 1995 (SEE NOTE 7):
(a) On March 1 and March 27, 1996, the Company sold and exchanged (see Note
10b) to accredited investors 66 units and 14 units (the "bridge units")
respectively, in a private placement offering. Each bridge unit
consisted of (i) a senior subordinated non-negotiable promissory note in
the principal amount of $25,000, bearing interest at the rate of 10% per
annum, due and payable on the earlier of (a) the closing of the IPO of
the Company's common stock, (b) June 30, 1997, or (c) the closing of any
F-16
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements - (Continued)
(Information pertaining to the three months ended March 31, 1996 is unaudited)
10. Capital/debt transactions subsequent to December 31, 1995
(see Note 7): - (Continued)
transaction in which any class of the Company's securities is exchanged
for securities of an issuer that is required to file reports pursuant to
Section 13 or 15(d) of the Securities and Exchange Act of 1934 and (ii)
5,000 shares of common stock with a fair market value of $2.00 per share
(see Note 6). The aggregate principal amount of the notes issued in the
PPO of $2,000,000 and accrued interest, will be repaid upon the
consummation, and out of the proceeds, of the IPO. The total costs of
the PPO amounted to $335,000.
(b) On March 1, 1996, the initial bridge noteholder elected to exchange the
initial bridge notes of $350,000 (see Notes 6 and 10(a)). The exchange
resulted in the rollover of the initial bridge notes for 14 bridge
units, which included the issuance of 70,000 shares of common stock to
the initial bridge noteholder at $2.00 per share, as consideration for
the exchange. The common shares have been valued at $140,000 and are
being treated as deferred financing costs which are included in other
assets and are being charged to the statement of operations through the
earlier of the IPO date or June 30, 1997.
(c) On March 1, 1996, the Company granted to its Vice President of Finance,
options to purchase 5,000 shares of common stock, exercisable at $2.00
per share. The options vest immediately and expire on March 1, 2001.
On March 1, 1996, the Company granted to a director, options to purchase
15,000 shares of common stock, exercisable at $2.00 per share. The
options vest immediately and expire on March 1, 2001.
On March 1, 1996, the Company granted to a director, options to purchase
35,000 shares of common stock, exercisable at $2.00 per share. The first
11,667 options vested immediately, 11,667 vest March 1, 1997, and 11,666
vest March 1, 1998. The options expire on the fifth anniversary of their
vesting.
11. PRO FORMA (UNAUDITED):
(a) If the IPO (see Note 2) and the repayment of the bridge notes, amounting
to $2,000,000 and related accrued interest had occurred as of March 31,
1996 and for the three months then ended, certain balance sheet and
statement of operations captions and their corresponding amounts noted
below would appear as follows:
Balance Sheet Amount
- -------------- --------------
Total assets ..................................... $ 7,542,467
Total liabilities ................................ $ 198,454
Stockholders' equity ............................. $ 7,344,013
Deficit accumulated during the development stage... $(2,521,587)
Statement of Operations
-----------------------
Net loss before extraordinary item ................ $ (559,516)
Extraordinary loss on extinguishment of debt ...... $(1,051,480)
Net loss ......................................... $(1,610,996)
If the bridge notes are repaid prior to June 30, 1997, the Company will
have to recognize an extraordinary loss due to the early extinguishment
of the bridge notes equal to the sum of the unamortized debt discount
and the deferred financing costs amounting to $1,051,480.
F-17
<PAGE>
===============================================================================
No underwriter, dealer, salesman or other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus, in connection with this Offering, and, if given
or made, such information or representations must not be relied upon as
having been authorized by the Company. The delivery of this Prospectus at any
time does not imply that there has not been any change in the information set
forth herein or in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any security other than the securities offered hereby, or an offer to
sell or solicitation of an offer to buy such securities in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person
to whom such offer or solicitation would be unlawful.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ........................ 5
Summary Financial Information ............. 8
Risk Factors .............................. 9
Concurrent Registration of Common Stock ... 17
Glossary .................................. 17
Use of Proceeds ........................... 19
Dilution .................................. 20
Capitalization ............................ 21
Management's Discussion and Analysis ...... 22
Business .................................. 25
Management ................................ 33
Principal Stockholders .................... 39
Certain Transactions ...................... 40
Description of Securities ................. 43
Shares Eligible for Future Sale ........... 46
Underwriting .............................. 47
Legal Matters ............................. 48
Experts ................................... 48
Additional Information .................... 49
Financial Statements ...................... F-1
------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their solicitations to purchase the securities offered hereby.
===============================================================================
<PAGE>
===============================================================================
NUWAVE
TECHNOLOGIES,
INC.
2,000,000 SHARES OF
COMMON STOCK
AND 2,000,000 WARRANTS
-------------------
P R O S P E C T U S
-------------------
RICKEL & ASSOCIATES, INC.
, 1996
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
[Alternate Page for Selling Stockholders' Prospectus]
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED MAY 22, 1996
NUWAVE TECHNOLOGIES, INC.
1,070,000 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale by certain persons (the
"Selling Stockholders") of up to 1,070,000 shares of Common Stock (the
"Selling Stockholders' Shares") of NUWave Technologies, Inc. (the "Company").
The Company will not receive any of the proceeds from the sale of such
shares. It is anticipated that the Common Stock will be offered and sold from
time to time in the over-the-counter market, or otherwise, at prices and
terms then prevailing or at prices related to the then-current market price,
or in negotiated transactions. See "Selling Stockholders and Plan of
Distribution."
Prior to this Offering, there has been no public market for the Common
Stock of the Company and there can be no assurance that any such market will
develop. It is anticipated that the Common Stock will be quoted on the NASDAQ
SmallCap Market under the trading symbols "WAVE" and "WAVEW," respectively.
It is also anticipated that an application will be submitted to list the
Common Stock on the Boston Stock Exchange under the trading symbols "WAV" and
"WAW," respectively.
Concurrently with this Offering, the Company is offering by separate
prospectus 2,000,000 shares of Common Stock (the "Company Offered Shares")
and warrants (the "Company Offered Warrants") to purchase 2,000,000 shares of
Common Stock (the "Company Offering"). See "Concurrent Registration of Common
Stock and Warrants."
The Company has agreed to pay all of the expenses in connection with the
registration and sale of the shares being offered by the Selling Stockholders
(other than brokerage commissions and fees and expenses of counsel). The
Company has also agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. THE COMPANY IS A DEVELOPMENT STAGE COMPANY AND HAS HAD NO OPERATING
REVENUES. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE
INVESTMENT SHOULD INVEST. SEE "RISK FACTORS" (PAGE 9).
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
[INSERT PICTURE]
Actual photograph of the Company's Application Specific Integrated Circuit
("ASIC") chip which provides the controlling software for the NUWave Dual
TBC, with the Company's logo superimposed, and magnified approximately 5x.
The NUWave Dual TBC synchronizes up to three video signals from any source
including a satellite downlink, the Internet, a personal computer ("PC"), a
VCR or a video camera. Synchronized videos can be displayed simultaneously
as dissolves, split screens or overlays such as titles or animated logos.
The chip is soldered onto an etched printed circuit board that inserts into
a PC board slot.
2
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy
and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information can be inspected and copied at the Pubic
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices:
New York Regional Office, Suite 1300, 7 World Trade Center, New York, New
York 10048, and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and copies of such material may also be
obtained from the Public Reference Section of the Commission at prescribed
rates. The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
3
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
PROSPECTUS SUMMARY
Certain terms used in this Prospectus are defined in the Glossary appearing
on page 17.
The following summary is qualified in its entirety by reference to the
more detailed information and the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
information in this Prospectus, including share and per share data, assumes
no exercise of (i) the over-allotment option granted to Rickel & Associates
(the "Underwriter") pursuant to the Company Offering (the "Over-allotment
Option") in connection with such Offering and (ii) the Company Offered
Warrants.
THE COMPANY
The Company, a development stage company organized in July 1995, was
founded to develop, manufacture and market products to improve picture
quality in televisions, computer monitors and other display devices by
enhancing and manipulating video signals, including signals that have been
compressed for storage or for transmission over satellite and cable systems
and the Internet ("Video Enhancement Products"), and products to facilitate
the production of sophisticated videos by both amateurs and professionals
("Video Production Products"). The Company's Video Enhancement Products are
based on technology resulting from proprietary multi-zone mapping of Analog
Video Waves into which Analog Light Waves have been converted. This mapping
technology permits the alteration, augmentation and correction of the wave to
improve color, contrast, brightness and clarity (the primary characteristics
of an image perceived by the human eye). Each of the Company's Video
Enhancement Products has the ability to improve one or more of these
characteristics. The Company's Video Production Products integrate new and
existing components, including the Company's own Video Enhancement Products,
into a system that the Company believes will provide competitively priced,
sophisticated video production capabilities.
The Company believes that the telecommunication, personal computer and
home video markets are converging because of new technology that enables
services and products identified with each market to be used in conjunction
with each other, resulting in an increasing need for products that enhance
video presentation. Although the Company believes its products enhance video
images when used with individual products in each of the converging markets,
it also believes that its Video Enhancement Products will facilitate the
interaction of products in each of the converging markets by increasing the
acceptability of images displayed as a result of such interaction. See
"Business -- The Company's Video Enhancement Products." The Company believes
its Video Production Products will allow the combination and manipulation of
video images available in each of these markets to create sophisticated video
productions. See "Business -- The Company's Proposed Video Production
Products." The Company believes that the design and engineering features of
the Company's products result in simplified circuits and utilize fewer parts
allowing it to produce its products at costs low enough to make them
generally accessible to consumers unwilling or unable to purchase higher
priced products performing some of the same functions as the Company's
products. See "Business -- Marketing and Distribution."
Substantially all of the Company's technology was originated by Rave
Engineering Corporation ("Rave") prior to the Company's organization. The
technology is licensed to the Company by Rave pursuant to a licensing
agreement between the Company and Rave dated July 21, 1995 (the "License
Agreement"). The Company also has entered into a Development Agreement dated
July 21, 1995 with Rave (the "Development Agreement") and has relied
significantly on Rave in the continuing development of its products. In
addition, the Company has used outside consultants to develop software for
all of its products and to reconfigure certain circuitry to allow certain of
the products to be produced as ASICs. It has utilized its own personnel to
direct, supervise and coordinate the efforts of Rave and such outside
consultants.
The Company has produced and tested fully operational working prototypes
of the NUWave Analog Video Processor ("AVP"), the Magic Card and the NUWave
Dual TBC. It has produced and tested initial prototypes of the NUWave
Ministudio and expects to produce and test fully operational prototypes of
that product in the second half of 1996. See "Management's Discussion and
Analysis -- Research and
5
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
Development" and "Business -- Research and Development." The AVP and the
Magic Card (the Company's Video Enhancement Products) and the NUWave Dual TBC
and the NUWave Ministudio (the Company's Video Production Products) are
collectively called the Initial Products. The Company has not licensed or
sold any of its technology.
The Company is a development stage company and has had only a limited
operating history. Since its inception in July 1995, the Company has been
engaged primarily in directing, supervising and coordinating Rave and the
Company's outside consultants in the continuing development of its Initial
Products and related technology, the recruitment of management and technical
personnel, including such outside consultants, the preparation of patent
applications with respect to certain of its Initial Products and technology
and raising capital to fund its operations.
The Company's prospects must be considered in light of the risks
associated with the establishment of a new business in the evolving
electronic video industry, as well as further risks encountered in the shift
from development to commercialization of new products based on innovative
technology. There can be no assurance that the Company will be able to
generate revenues or achieve profitable operations. See "Risk Factors,"
"Business" and "Financial Statements."
The Company was incorporated under the laws of Delaware on July 17, 1995.
The Company's corporate offices are located at One Passaic Avenue, Fairfield,
New Jersey 07004. The Company's telephone number is (201) 882-8810.
6
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
THE OFFERING
Securities offered............. 1,070,000 Shares of Common Stock. See
"Description of Securities."
Common Stock outstanding after
the Offering(1).............. 5,130,000 shares of Common Stock
Risk Factors................... The securities offered hereby are
speculative and involve a high degree of
risk and should not be purchased by
investors who cannot afford the loss of
their entire investment. See "Risk Factors."
Proposed NASDAQ symbols........ Common Stock -- WAVE.
- ------
(1) Includes 2,000,000 Shares of Company Offered Shares offered pursuant to
the Company Offering and 600,000 shares of Common Stock issuable upon
conversion of the Company's outstanding Preferred Stock. Excludes (i)
2,000,000 shares of Common Stock reserved for issuance upon exercise of
the Company Offered Warrants; (ii) an aggregate of 400,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; and (iii) 300,000 shares of
Common Stock issuable upon exercise of the Underwriter's Over-allotment
Option; See "Management -- Employment Agreements," "Certain
Transactions," and "Description of Securities."
7
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below is derived from and should be
read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995 Three July 17, 1995
(inception) Months (inception)
to Ended to
December 31, 1995 March 31, 1996 March 31, 1996
----------------- -------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues .............................. $ 0 $ 0 $ 0
Net loss .............................. $ 910,591 $ 559,516 $ 1,470,107
Net loss per common share(1) .......... $ 0.27 $ 0.17
Weighted average number of shares(1) .. 3,383,500 3,383,500
Supplemental pro forma loss per share(2) $ 0.41
Supplemental pro forma weighted average
number of shares (2) ................. 3,883,500
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
----------------- -----------------------------------
Actual Actual As Adjusted(2)(3)(4)
---------------- ------------ --------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Working capital ............. $295,447 $ 833,405 $ 7,306,810
Total assets ................ $426,328 $ 1,392,167 $ 7,542,467
Total liabilities ........... $349,719 $ 1,488,594 $ 198,454
Deficit accumulated during the
development stage .......... $910,591 $ 1,470,107 $ 2,521,587
Stockholders' equity (deficit) $ 76,609 $ (96,427) $ 7,344,013
</TABLE>
- ------
(1) The net loss per common share has been computed in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 64
("SAB" 64). SAB 64 requires the net loss per common share to be computed
based on the weighted average number of shares of common stock
outstanding, increased for certain shares or stock options, including
shares of Series A Convertible Preferred Stock, issued within one year or
in contemplation of the Company's filing of its registration statement,
and that such shares be treated as if outstanding for all periods
presented.
(2) Assumes that: (i) of the net proceeds from the sale of the Common Stock
offered in the Company Offering, approximately $2,000,000 will be used to
repay the Bridge Notes; (ii) shares of Common Stock that would generate
net proceeds of approximately $2,000,000 at the net offering price of
$4.00 per share were outstanding during the three months ended March 31,
1996; and (iii) such indebtedness had been repaid rather than outstanding
during the three months ended March 31, 1996.
(3) Gives effect to the sale of the Common Stock and Warrants offered hereby
and the application of a portion of the estimated net proceeds therefrom
to repay the Bridge Notes and the related interest. See "Use of
Proceeds."
(4) The change in the deficit accumulated during the development stage for
the three months ended March 31, 1996 (unaudited) from an actual basis to
an as adjusted basis is attributable to an extraordinary loss of
$1,051,480 incurred in connection with the repayment of the Bridge Notes
out of the net proceeds of the Company Offering, consisting of
unamortized deferred financing costs and unamortized debt discount at
March 31, 1996 (unaudited) of $323,105 and $728,375, respectively.
8
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. This
Prospectus contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in the forward-looking
statements as a result of certain of the risk factors set forth below and
elsewhere in this Prospectus. Each prospective investor should carefully
consider the following risk factors before making an investment decision.
1. Development Stage Company; Absence of Operating History. The Company
was incorporated in July 1995, and is in the development stage. Accordingly,
the Company has no significant operating history upon which an evaluation of
the Company's prospects can be made. Since inception, the Company has been
engaged primarily in directing, supervising and coordinating Rave and the
Company's outside consultants in the continuing development of its Initial
Products and related technology, the recruitment of management and technical
personnel, including such outside consultants, the preparation of patent
applications with respect to certain of its Initial Products and technology
and raising capital to fund its operations. The Company has produced
prototypes of the AVP, the Magic Card and the NUWave Dual TBC, but not the
NUWave Ministudio. It has not licensed or sold any of its products or
technologies. The Company's viability, profitability and growth depend upon
successful completion of the development and commercialization of these
products. There can be no assurance that any of the Company's technologies or
products will be developed or commercialized. The prospects for the Company's
success must be considered in light of the risks, expenses and difficulties
often encountered in the establishment of a new business in a continually
evolving industry subject to rapid technological and price changes, and
characterized by an increasing number of market competitors. The risks,
expenses and difficulties often encountered in a shift from the research and
development of prototype products to the commercialization of new products
based on innovative technology must also be considered. See "Business."
2. Independent Accountants Qualified Report. The report of the Company's
independent accountants with respect to the financial statements of the
Company for the period from July 17, 1995 (inception) to December 31, 1995
contains a paragraph as to the Company's ability to continue as a going
concern. The factors cited by the accountants as raising substantial doubt as
to the Company's ability to continue as a going concern are that the
Company's products have not been proven commercially viable, and that the
Company has had no operating revenues, very limited capital resources and a
loss from operations. See "Management's Discussion and Analysis," the
Financial Statements and the notes thereto and the Report of Independent
Accountants included herein.
3. No Revenues; Accumulated Deficit; Anticipated Future Losses. To date,
the Company has had no operating revenue and does not anticipate any
operating revenue until such time, if ever, as its relevant technology and
one or more of its Initial Products are completely developed, manufactured in
commercial quantities and available for commercial delivery. There can be no
assurance that the Company's technology and products, if developed and
manufactured, will be able to compete successfully in the marketplace and/or
generate significant revenue. The Company anticipates incurring significant
costs in connection with the development of its technologies and proposed
Initial Products and there is no assurance that the Company will achieve
sufficient revenues to offset anticipated operating costs. As of March 31,
1996, the Company incurred a deficit of $1,470,107. Further, the Company
anticipates continuing significant losses in foreseeable future. Included in
such losses are research and development expenses, marketing costs,
manufacture and assembly, and general and administrative expenses. Inasmuch
as the Company will continue to have high levels of operating expenses and
will be required to make significant expenditures in connection with its
continued research and development activities, the Company anticipates that
such losses will continue until such time, if ever, as the Company is able to
generate sufficient revenues to support its operations. See "Summary
Financial Information."
4. Significant Capital Requirements; Dependence on Offering Proceeds; Need
for Additional Financing. The Company's capital requirements in connection
with its development activities have been and will continue to be
significant. The Company has been dependent upon the proceeds of sales of its
securities to private investors to fund its initial development activities.
Through August 1995, it raised capital of $900,000 through the sale of
600,000 shares of Series A Preferred Stock to six investors. In December
1995, it raised an additional $350,000 through the sale of units consisting
of Initial Bridge Notes in the principal amount of $350,000 and 70,000 shares
of Common Stock. In March 1995, the Company sold units consisting of an
aggregate of 400,000 Bridge Shares and $2,000,000 of Bridge Notes, for
approximately $1,315,000 in new capital (net of expenses) and the cancellation
9
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
of the Initial Bridge Notes in the principal amount of $350,000. The Initial
Bridge Notes and the Bridge Notes have been discounted by the Company in the
aggregate amount of $105,000 in the case of the Initial Bridge Notes and
$660,000 in the case of the Bridge Notes (other than those exchanged with the
Initial Bridge Investor for the Initial Bridge Notes) to reflect a valuation of
$1.50 and $2.00 for the Common Stock included in the respective units. In
connection with the exchange of Bridge Notes for the Initial Bridge Notes the
Company recorded $140,000 of deferred financing costs which will be amortized
over the term of the Notes or recognized as an extraordinary loss if repaid
earlier. The Bridge Notes will be repaid from the proceeds of the Company
Offering. The Company anticipates that the proceeds of this Offering will be
sufficient to satisfy its contemplated cash requirements for at least 12 months
following the consummation of the Company Offering. After such time, the
completion of the Company's development activities relating to its Initial
Products and the commencement of manufacturing and marketing activities in
connection with such products will require continued funding in excess of the
proceeds of this Offering or any funds otherwise currently available to the
Company. The Company has no current arrangements with respect to sources of
additional financing and there is no assurance that other additional financing
will be available to the Company in the future on commercially reasonable terms,
or at all. The inability to obtain additional financing, when needed, would have
a material adverse effect on the Company, including possibly requiring the
Company to curtail or cease operations. To the extent that any future financing
involves the sale of the Company's equity securities, the Company's then
existing stockholders, including investors in this Offering, could be
substantially diluted. See "Management's Discussion and Analysis -- Liquidity
and Capital Resources."
5. New Concept; Uncertainty of Market Acceptance; Lack of Marketing
Experience. The technology and products currently being developed by the
Company utilize new concepts and designs in video imagery and processing. The
Company's prospects for success will therefore depend on its ability to
successfully sell its products to key manufacturers and distributors who may
be inhibited from doing business with the Company because of their commitment
to their own technologies and products. As a result, demand and market
acceptance for the Company's technologies and proposed products is subject to
a high level of uncertainty. The Company currently has limited financial,
personnel and other resources to undertake the extensive marketing activities
that will be necessary to market its technology and products once their
development is completed. There is no assurance that any of the Company's
potential customers will enter into any arrangements with the Company. There
is no assurance that the Company will be able to formalize any marketing
arrangements or that its marketing efforts will be successful. See "Business
- -- Sales and Marketing" and "Business -- Research and Development."
6. Dependence on Third-Party Design Changes. Commercialization of the AVP
and Magic Card chips and their sale to manufacturers of the relevant video
equipment will require such manufacturers to adopt new circuit configurations
to accommodate the relevant chip in their products. Although the Company
expects that manufacturers wishing to utilize the AVP and Magic Card chips
will make such modifications to improve the performance of their products,
there is no assurance that the necessary modifications will be adopted
widely, or at all. Additionally, the cost of such modifications may inhibit
or prevent their adoption. The failure of designers and manufacturers to make
such modifications would have a material adverse effect on the Company's
ability to sell and/or license the relevant products. See "Business --
Manufacturing."
7. License Subject to Modification and Termination. Substantially all of
the technology on which the Company's products rely is licensed to the
Company pursuant to the License Agreement. The License Agreement provides
that Rave will receive minimum aggregate payments of royalties and
Development Fees, as defined in the development agreement between the Company
and Rave dated July 21, 1995 (the "Development Agreement"), of $65,000 per
month (the "Rave Minimum Payments"). If Rave does not receive the Rave
Minimum Payments, Rave has the option of electing to make the License
Agreement non-exclusive. If such payments are not made and Rave exercises its
option to make the License Agreement non-exclusive, it could have a material
adverse effect on the Company's operations. The License Agreement also
provides for the payment of royalties based on the net sales of the licensed
products and technology as well as any sublicensing fees paid to the Company
(the "Royalties"). If the Company fails to pay the Royalties, Rave has the
option to terminate the License Agreement. Because virtually all of the
Company's existing products and technology are licensed by the Company from
Rave, a termination of the License Agreement would render the Company unable
to continue its business. See "Certain Transactions."
10
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
8. Uncertainty of Product and Technology Development; Need for Product
Testing; Technological Factors. Neither the Company nor Rave has completed
development of any of the Company's proposed products in commercially salable
form. Technologies and proposed products being developed by Rave for the
Company are in various stages of development. From July 17, 1995 through
March 31, 1996 the Company spent approximately $768,000 on research and
development relating to the Initial Products. During the 12 months following
the consummation of this offering, the Company expects to spend approximately
$2,704,000 on research and development, substantially all of which the
Company anticipates will be spent to complete the commercial development of
the Initial Products. See "Business -- Research and Development." Product
development efforts are subject to all of the risks inherent in the
development of new technology and products (including unanticipated delays,
expenses, technical problems or difficulties, as well as the possible
insufficiency of funding to complete development). There can be no assurance
as to when, or whether, such developments will be successfully completed. No
assurance can be given that the Initial Products can be developed in
commercially saleable form within the projected development schedule. If Rave
is unable to complete its development activities with respect to certain of
the Company's Initial Products, the Company would have to complete
development itself or through third parties. Although the Company believes it
has sufficient information to allow the completion of development of these
products, there is no assurance that the Company will have sufficient
economic or human resources to complete such development in a timely manner,
or at all, or that it could enter into economically reasonable arrangements
for the completion of such products by third parties.
In connection with the development of commercially saleable prototypes,
the Company must successfully complete a testing program for the products
before they can be marketed. Unforeseen technical problems arising out of
such testing could significantly and adversely affect the Company's ability
to manufacture a commercially acceptable version. In addition, the Company's
success will depend upon its technologies and proposed products meeting
acceptable cost and performance criteria and upon their timely introduction
into the marketplace. There can be no assurance the technologies and proposed
products will satisfactorily perform the functions for which they are
designed, that they will meet applicable price or performance objectives or
that unanticipated technical or other problems will not occur which would
result in increased costs and/or material delays in their development. See
"Business -- The Company's Video Enhancement Products" and "Business -- The
Company's Video Production Products."
9. Unconditional Obligation to Share Sublicense Fees with Prime. The
Company has entered into an Agency Agreement with Prime which provides that
Prime will be the Company's exclusive agent for entering into sublicenses
with respect to the products and technology licensed to the Company pursuant
to the License Agreement and will assist the Company in the development and
implementation of a sublicensing program. Subject to certain minimum sales
requirements, the Agency Agreement provides for the payment to Prime of 35%
to 45% of net sublicense fees received by the Company along with certain
additional payments. See "Certain Transactions." To the extent payments to
Prime are based on sublicensing payments made to the Company, the Agency
Agreement provides that such payments must be made regardless of whether the
relevant sublicense is entered into through Prime's efforts or by the Company
itself. The unconditional obligation to pay Prime a portion of such
sublicensing fees may have an adverse effect on the Company's ability to
enter into profitable sublicensing arrangements or adversely affect its
ability to set competitive sublicense fees. See "Certain Transactions."
10. Dependence on Third-Party Development and Manufacturing. The Company
is dependent on Rave for the primary development of its technologies and
products. Although the Company and Rave have entered into a development plan
which provides for short and longer term schedules relating to development of
the Initial Products, there is no assurance that Rave will be able to follow
its plans, develop and produce working prototypes of all of the Initial
Products or other proposed products or otherwise meet production schedules
and timetables. The Company is dependent on Rave and other third parties as
yet unidentified to develop a sufficient number of working prototypes of
proposed products together with sufficient drawings, assembly materials,
documentation and specifications to enable their commercial production at
commercially reasonable costs. There is no assurance that Rave will be able
to perform such development services or that necessary third party
contractors can be identified to perform these functions at acceptable costs
or be able to perform them at all.
The Company will be dependent on third parties for the manufacture of the
ASIC based AVP, Magic Card and NUWave Dual TBC, and for the manufacture
and/or assembly of PCBs, frames and other subassemblies, as well as for the
11
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
supply of the various components, that will be incorporated into its NUWave
Ministudio. Although the Company has identified certain potential manufacturers
with respect to its ASIC chips, it has not yet entered into any manufacturing or
supply arrangements with respect to those products or any others. Although
management believes it will be able to negotiate satisfactory manufacturing and
supply agreements, the failure to do so would have a material adverse effect on
the Company. Furthermore, there can be no assurance that such manufacturers will
dedicate sufficient production capacity to satisfy the Company's requirements
within scheduled delivery times or at all. Failure or delay by the Company's
suppliers in fulfilling its anticipated needs would adversely affect the
Company's ability to develop and market its products.
In addition, the Company will be dependent on third-party vendors for many
of the components necessary for the final assembly of its NUWave Ministudio.
However, the Company may have difficulty in obtaining contractual agreements
with the suppliers of such materials due to, among other things, possible
material shortages or possible lack of adequate purchasing power. While
management believes that these components are available from multiple
sources, it anticipates that the Company will obtain certain of them from a
single source, or limited number of sources, of supply. In the event that
certain of such suppliers are unable or unwilling to provide the Company with
components used in the NUWave Ministudio on commercially reasonable terms, or
at all, delays in securing alternative sources of supply would result and
could have a material adverse effect on the Company's operations. See
"Business -- Manufacturing."
11. Dependence on Randy Burnworth; Retention of Key Personnel; Potential
Conflicts of Interest. The success of the Company will be largely dependent
on the technology developed and being developed by Mr. Burnworth, a principal
shareholder of Rave and the principal inventor of its proprietary products
and technologies. Mr. Burnworth has no contractual agreement with the Company
and the Company will have to rely on Rave to cause him to render services. In
any event, the loss of Mr. Burnworth's services would have a material adverse
effect on the Company's ability to maximize its use of such technologies and
proposed products or to develop related technologies and products. The
Company intends to obtain key man insurance on Mr. Burnworth's life in the
amount of $1,000,000 prior to the consummation of this Offering. Although the
Company is not aware of any actual or potential conflicts of interest,
conflicts of interest may develop in the future between the Company and Mr.
Burnworth and there can be no assurance such conflicts will be resolved in
the Company's interest. The success of the Company also is dependent upon its
ability to hire and retain additional qualified executive, scientific and
marketing personnel. There is no assurance that the Company will be able to
hire or retain such necessary personnel.
12. Broad Discretion in Application of Proceeds by Management; Repayment
of Debt. Approximately $1,808,000 (22.1%) of the estimated net proceeds of
the Company Offering have been allocated to working capital and general
corporate purposes. Accordingly, the Company will have broad discretion as to
the application of such proceeds. In addition, approximately $2,050,000
(25.1%) of the proceeds of the Company Offering will be used to repay the
Bridge Notes and Initial Bridge Notes and related interest, and, accordingly,
such funds will not be available to fund future growth. See "Use of
Proceeds."
13. Competition. The markets that the Company intends to enter are
characterized by intense competition, and, particularly with respect to the
market for video, editing, production and processing products, significant
price erosion over the life of a product. The Company's products will
directly compete with those of numerous well-established companies, such as
Sony Electronics, Inc., Panasonic Division of Matsushita Electric Industrial
Co., Motorola, Inc., Mitsubishi International Corp. and Phillips Electronics,
NV, which design, manufacture and/or market video technology and other
products. All of these companies have substantially greater financial,
technical, personnel and other resources than the Company and have
established reputations for success in the development, licensing, sale and
service of their products and technology. Certain of these competitors
dominate their industries and have the necessary financial resources to
enable them to withstand substantial price competition or downturns in the
market for video products. See "Business -- Competition."
14. Rapid Changes to Industry Standards; Product Obsolesence. The markets
for the technology and products being developed by the Company are
characterized by rapid changes and evolving industry standards often
resulting in product obsolescence or short product life cycles. As a result,
certain companies may be developing technologies or products of which the
Company is unaware which may be functionally similar, or superior, to some or
all of those being developed by the Company. As a result of all of the above,
the ability of the Company to compete will depend on its ability to
12
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
complete development and introduce to the marketplace in a timely and
cost-competitive manner its proposed products and technology, to continually
enhance and improve such products and technology, to continually enhance and
improve such products and technology, to adapt its proposed products to be
compatible with specific products manufactured by others, and to successfully
develop and market new products and technology. There is no assurance that the
Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily. See "Business -- Competition."
15. Enforceability of Patents and Similar Rights; Possible Issuance of
Patents to Competitors; Trade Secrets. The Company has filed patent
applications relating to its AVP and the related technology and copyright
applications with respect to the software controlling the NUWave Dual TBC. To
the extent practicable, the Company intends to file other U.S. patents and/or
copyright applications relating to certain of its proposed products and
technologies either on its own behalf (or on behalf of Rave with respect to
products and technology licensed pursuant to the License Agreement). Although
the Company believes certain of its technology contains patentable claims,
there is no assurance that any patents will be obtained. If obtained, there
is no assurance that any patents will afford the Company commercially
significant protection of its technologies or that the Company will have
adequate resources to enforce its patents. Because the Company also intends
to license its technology and products in foreign markets, it intends to seek
foreign patent protection. With respect to foreign patents, the patent laws
of other countries may differ significantly from those of the United States
as to the patentability of the Company's products or technology. Moreover,
the degree of protection afforded by foreign patents may be different from
that in the United States. Patent applications in the United States are
maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, the Company cannot be certain that it will be
the first creator of inventions covered by any patent applications it makes
or the first to file patent applications on such inventions.
Based on Rave's experience in the video industry, that of the Company's
own officers and directors and patent searches made in connection with the
patent applications filed for the Company's AVP, the Company believes that
its products do not infringe the patents or other proprietary rights of third
parties. However, there can be no assurance that third parties will not
assert infringement claims against the Company or that such claims will not
be successful. Competitors in both the United States and foreign countries,
many of which have substantially greater resources and have made substantial
investments in competing technologies, may have applied for or obtained, or
may in the future apply for and obtain, patents that will prevent, limit or
otherwise interfere with the Company's ability to make and sell its products.
The Company has not conducted an independent review of patents issued to
third parties except with respect to its AVP in connection with its own
patent application. In addition, because of the developmental stage of the
Company, claims that the Company's products infringe on the proprietary
rights of others are more likely to be asserted after commencement of
commercial sales incorporating the Company's technology. There can also be no
assurance that competitors will not infringe the Company's patents. Defense
and prosecution of patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject
the Company to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require the Company to cease
selling its products.
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information,
the Company requires employees, consultants, advisors and collaborators to
enter into confidentiality agreements. There can be no assurance that these
agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets,
know-how or other proprietary information. If the Company is unable to
maintain the proprietary nature of its technologies, the Company could be
adversely affected. See "Business -- Patents; Proprietary Information."
16. Control by Management and Prime. Upon consummation of the Company
Offering, the officers of the Company will beneficially own 789,524 shares of
Common Stock, or approximately 15% of the Company's then outstanding shares of
13
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
Common Stock, and Prime Technology, Inc. (20% of the capital stock of which is
owned by Mr. David Kwong, a director of the Company, and 20% of which is owned
by Rave) will beneficially own 1,090,000 shares of Common Stock or approximately
21.3% of the Company's then outstanding shares of Common Stock. Such officers
and Prime would therefore be in a position to significantly influence the
election of the Company's directors and thereby select the management, and
direct the policies, of the Company. See "Management," "Principal Stockholders"
and "Description of Securities."
17. No Dividends. The Company has paid no cash dividends to date. Payment
of dividends on the Common Stock is within the discretion of the Board of
Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to declare any dividends on its Common Stock or
Preferred Stock in the foreseeable future. Currently, the Company plans to
retain any earnings it receives for development of its business operations.
See "Summary Financial Information."
18. Dilution. Investors purchasing shares of Common Stock in the Company
Offering will incur immediate and substantial dilution in the net tangible
book value per share of the Common Stock from the initial public offering
price as compared to the increase in net tangible book value per share that
will accrue to existing stockholders. Such dilution is estimated to be $3.57
per share (or approximately 71.4% of the public offering price). See
"Dilution."
19. Shares Eligible for Future Sale; Registration Rights. Upon the
consummation of the Company Offering, the Company will have 5,130,000 shares
of Common Stock outstanding, assuming no exercise of the Warrants or
outstanding options. Subject to the contractual restrictions described below,
3,070,000 of these shares, including all 2,000,000 of the shares being
offered in the Company Offering and the 1,070,000 currently outstanding
shares of Common Stock offered hereby will be freely tradeable without
restriction or further registration under the Securities Act. The remaining
2,060,000 shares are deemed to be "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act ("Rule 144") and
may, in certain circumstances, be sold without registration pursuant to such
rule. All of such "restricted" shares will become eligible for sale under
Rule 144 in July 1997 (subject to certain recurring three-month volume
limitations prescribed by Rule 144). However, the Company's current
stockholders (including the holders of the Selling Stockholders Shares)
owning all but 10,000 shares of Common Stock, have agreed not to sell or
otherwise dispose of any of their shares for a period of 12 months (in the
case of 400,000 such shares) and 18 months (in the case of all other shares),
from the date of this Prospectus without the prior written consent of the
Underwriter. Nevertheless, the possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Common Stock and the Warrants and could impair the Company's
ability in the future to raise additional capital through the sale of its
equity securities. See "Principal Stockholders," "Description of Securities
- -- Registration Rights," "Shares Eligible for Future Sale," "Underwriting"
and "Concurrent Registration of Common Stock."
20. Effect of Issuance of Common Stock Upon Exercise of
Warrants. Immediately after the Offering, assuming full exercise of the
Underwriter's Over-allotment Option, the Company will have outstanding
warrants to purchase an aggregate of up to 2,500,000 shares of Common Stock,
including the Warrants and the Underwriter's Warrants (but excluding the
Warrants issuable upon the exercise thereof). The exercise of such warrants
and the sale of the underlying shares of Common Stock (or even the potential
of such exercise or sale) may have a depressive effect on the market price of
the Company's securities. The exercise of the warrants also may have a
dilutive effect on the interests of investors in the Offering. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected because the holders of the outstanding warrants can
be expected to exercise them, to the extent they are able to, at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the warrants. See
"Description of Securities" and "Underwriting."
21. No Assurance of Public Market; Determination of Public Offering Price;
Possible Volatility of Market Price of Common Stock and Warrants. Prior to
the Company Offering, there has been no public trading market for the shares
of Common Stock or the Warrants. Consequently, the initial offering price of
the Company offered shares has been determined by negotiations between the
Company and the Underwriter and do not necessarily reflect the Company's book
value or other established criteria of valuation. There can be no assurance
14
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
that a regular trading market for either the Common Stock or the Warrants
will develop after this offering or that, if developed, it will be sustained.
In addition, the market price of the securities of development-stage
companies in high-technology industries has been highly volatile. Factors
such as the Company's operating results, announcements by the Company of
licensing of distribution contracts, orders for its products and
announcements by the Company or its competitors concerning technological
innovations, new products or systems may have a significant impact on the
market price of the Company's securities. In addition, the market prices for
securities of many emerging companies have experienced wide fluctuations not
necessarily related to the operating performance of such companies. See
"Underwriting."
22. Anti-Takeover Statutes. Delaware has enacted legislation which
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder," unless the business combination is approved in a prescribed
manner. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within the
prior three years did own) 15% or more of a corporation's voting stock. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." See
"Description of Securities -- Anti- Takeover Provisions of Delaware Law."
23. Limitation on Tax Loss Carryforwards. At March 31, 1996, the Company
had available unused net operating loss carryforwards ("NOLs") aggregating
approximately $718,848 to offset future taxable income. Under Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"), utilization of
prior NOLs is limited after an ownership change, as defined in such Section
382, to an amount equal to the value of the loss corporation's outstanding
stock immediately before the date of the ownership change, multiplied by the
federal long-term tax-exempt rate in effect during the month that the
ownership change occurred. Upon the consummation of this offering, the
Company may be subject to limitations on the use of its NOLs as provided
under Section 382. Accordingly, there can be no assurance that a significant
amount of the Company's existing NOLs will be available to the Company
following the Offering. In the event that the Company achieves profitability,
as to which there can be no assurance, such limitation would have the effect
of increasing the Company's tax liability and reducing the net income and
available cash resources of the Company in the future. See Note 2 of Notes to
Financial Statements.
15
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
24. Possible Delisting and Risk of Low-Priced Securities. The Company has
applied for quotation of the Common Stock and the Warrants on NASDAQ No
assurance can be given that the Common Stock and the Warrants will qualify
for initial quotation or listing or that the Company will continue to be able
to satisfy certain specified financial tests and market related criteria
required for continued quotation on NASDAQ following the Offering. If the
Company is unable to satisfy such maintenance criteria in the future, the
Common Stock and the Warrants may be delisted from trading on NASDAQ and
consequently an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities and
the Warrants would no longer be redeemable.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection
with trades in any stock defined as a penny stock. Commission regulations
generally define a penny stock to be an equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
In addition, if the Company's securities are not quoted on NASDAQ or if
the Company does not meet the other exceptions to the penny stock regulations
cited above, trading in the Company's securities would be covered by Rule
15g-9 promulgated under the Exchange Act for non-NASDAQ and non-national
securities exchange listed securities. Under such rule, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a
transaction prior to sale. Securities also are exempt from this rule if the
market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable
to penny stocks, the market liquidity for the Company's securities could be
adversely affected. In such event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Company's securities and thus
the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
25. Limitation on Liability of Directors and Officers. The Certificate of
Incorporation of the Company provides that (i) the Company will indemnify any
director, officer, employee or agent of the Company with respect to actions,
suits or proceedings relating to the Company and (ii) subject to certain
limitations, a director shall not be personally liable for monetary damages
for breach of his fiduciary duty. In addition, the Company has entered into
an indemnification agreement with each of the directors of the Company, which
provides that the director is entitled to indemnification to the fullest
extent permitted by law. Such indemnification will cover all expenses,
liabilities, judgments, penalties, fines and amounts paid in settlement which
are incurred or imposed upon the director if the director is a party,
threatened to be made a party to any action, suit or proceeding of any kind
by reason of the fact that such person served or serves as a director of the
Company or served as a director, officer, employee or agent with any other
enterprise at the request of the Company. See "Description of
Securities--Limited Liability and Indemnification."
16
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
CONCURRENT REGISTRATION OF COMMON STOCK AND WARRANTS
Concurrently with this offering, the Company has registered the offering
of 2,000,000 shares of Company Offered Shares and 2,000,000 Company Offered
Warrants in the Company Offering underwritten by Rickel & Associates, Inc.
The Company Offered Shares and Company Offered Warrants have been registered
by the Company under the Securities Act pursuant to a Company Prospectus
included within the Registration Statement of which this Prospectus forms a
part.
GLOSSARY
A/B Roll Editing. The ability to access two or more playback tape machines
simultaneously and combine the video signals in the process of Video
Production.
Analog Light Wave. A spectrum (band) of electro magnetic waves of
different frequencies in which each frequency represents a specific color.
Analog Video Waves. Electrical currents that represent corresponding light
waves in an electrical circuit.
ASIC. An Application Specific Integrated Circuit. ASICs are produced in
the form of a silicon wafer (a "chip") containing electrical circuits through
which information in the form of electric signals flows and is processed.
ASICs are generally produced in large quantities by highly automated
equipment.
Compression. The process of reducing actual data transmitted or stored
through the removal of data, with the objective that enough of the data
removed will be retrieved during expansion by interpolation or other
processing methods that attempt to recreate such data in order to create an
acceptable image.
Digital Process. The process by which information is broken down into
binary bits and thereafter manipulated and transmitted.
FPS. Frames Per Second. The rate at which video frames are presented. In
standard broadcast television, frames are presented at 30 fps.
Frame Extrapolation Process. The process by which one or more Virtual
Frames are produced by comparing two real frames and inferring location and
other information in the Virtual Frame by manipulating the compared data. The
Virtual Frame is then inserted into the video to create a smooth motion.
Frame Synchronization. The presentation of two or more video frames of the
same duration at the same time, from different sources, usually for purposes
of mixing or otherwise manipulating them in the course of a video production.
Initial Products. The principal products currently being developed by the
Company, i.e., the AVP, the Magic Card, the NUWave Dual TBC and the NUWave
Ministudio.
17
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
NTSC or PAL. National Television Standard Codes or Phase Alternate Lines,
used in virtually all broadcast television in North America and Europe,
respectively, based on interlaced scanning of alternating horizontal lines
(525 in the case of NTSC and 625 in the case of PAL). In these systems, two
separate fields are presented on an alternating basis, each at the rate of 30
fps.
OEM. Original Equipment Manufacturer. A manufacturer who includes
components such as the AVP or the Magic Card in a final product that such
manufacturer markets under its own label.
PCB. A printed circuit board. Generally a multi-layered board comprised of
several layers of insulating material (usually fiberglass) on which copper
traces (copper lines capable of carrying electric current) have been
imprinted.
Real Time. Transmission of data as an event occurs.
Satellite Distribution System. A system based on the transmission of
information from a point of origination to an orbiting satellite relay
station, from which such information may be retransmitted directly over a
large area to discrete receivers.
Settop Box. A device providing for the conversion and/or distribution of
video signals interposed between individual items of video equipment, such as
between a television and an arcade game, a personal computer and/or a
satellite broadcast receiver.
TBC. Time Base Corrector. A device attached to a video source that
corrects to a known timing source distortions in the rate each frame
containing video information is presented and presents a consistent timed
signal and frame synchronization. TBCs are an essential component in
sophisticated video production processes in which multivideo sources are
manipulated, combined and otherwise processed.
VGA. Video Graphics Array. The typical form in which video is encoded in a
computer for processing or display on a computer monitor. A VGA display is
based on individual "pixels" making up a computer screen. VGA must be
converted into broadcast signals that are displayed in compliance with NTSC
or PAL standards.
Video Production. The process by which individual video source material is
collected, created, combined, edited and recorded.
Virtual Frame. An artificial frame produced by a Frame Extrapolation
Process.
18
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Since its inception in July 1995, the Company, a development stage
company, has been engaged primarily in directing, supervising and
coordinating Rave and the Company's outside consultants in the continuing
development of its Initial Products and related technology, the recruitment
of key management and technical personnel, including such outside
consultants, the preparation of patent applications with respect to certain
of its Initial Products and technology and raising capital to fund its
operations. The Company has produced and tested fully operational working
prototypes of the AVP, the Magic Card and the NUWave Dual TBC. It has
produced and tested initial prototypes of the NUWave Ministudio and expects
to produce and test fully operational prototypes of that product in the
second half of 1996. See "Management's Discussion and Analysis -- Research
and Development" and "Business -- Research and Development." It has not
licensed or sold any of its products or technologies. The Company requires
the proceeds of the Company Offering to continue to develop its Initial
Products and (in the event the Company is able to successfully complete
certain additional research and development, prototypes and product testing
relating thereto) to commence the commercialization of the Initial Products.
As of March 31, 1996, the Company had a deficit accumulated during the
development stage of $1,470,107 which includes the net loss for the three
months ended March 31, 1996 of $559,516. Significant additional losses have
been incurred since such date. The Company will continue to have a high level
of operating expenses and will be required to make significant expenditures
in connection with its research and development activities and the production
and marketing of its proposed products and technologies following the
consummation of this Offering. Although the Company anticipates deriving some
revenue from the sale of its AVP and Magic Card within the next 12 months, no
assurance can be given that these products will be successfully brought to
market or even completely developed and tested during such period, and the
Company has projected its expenses based on the assumption that it will
receive no revenues from the sale of its products during the 12 months after
the conclusion of this Offering. Even if revenues are produced from the sale
of such Initial Products, the Company expects to continue to incur
substantial losses for at least the next 12 months, and thereafter until the
Company is able, if ever, to attain revenues from sales, licensing or other
arrangements sufficient to support its operations.
RESEARCH AND DEVELOPMENT
From July 17, 1995 through March 31, 1996, the Company spent approximately
$768,000 on research and development, of which approximately 85% was paid to
Rave pursuant to the Development Agreement. During the 12 months following
the Company Offering, the Company intends to spend approximately $2,704,000
of the proceeds of such offering on research and development. Of that amount
the Company estimates that at least 40% will be paid to Rave pursuant to the
Development Agreement, 38% will be spent on software development, ASIC chip
development, and production engineering undertaken by third parties, and the
balance will be spent on internal research and development. In the event the
Company is able to generate revenues from sales of its Initial Products
during such 12-month period, it anticipates it will increase its expenditures
on research and development.
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which
the Company and Rave entered into the License Agreement and the Development
Agreement. Pursuant to the Development Agreement, the Company has retained
Rave to continue the development of the Initial Products by utilizing Rave's
proprietary Analog Video Wave mapping techniques and processes through which
Analog Video Waves may, among other things, be digitized, compressed,
transmitted, manipulated and processed. Rave, pursuant to the Development
Agreement, has provided to the Company development plans outlining costs,
schedules and timetables for development of working prototypes of products
described in such development plans.
In addition to utilizing the services of Rave pursuant to the terms of the
Development Agreement, the Company has utilized the services of third party
contractors in connection with its research and development activities. The
Company intends to continue to use outside consultants to assure exposure to
new ideas and technology and its in house personnel to direct, supervise and
coordinate the efforts of Rave and its outside consultants. See "Business --
Research and Development."
22
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
MARKETING AND DISTRIBUTION
Achieving significant market acceptance and commercialization of the
Company's Initial Products will require substantial marketing efforts and the
expenditure of significant funds to establish market awareness of the Company
and the Initial Products. The Company anticipates spending $426,000 over the
12 months following the Company Offering to develop and implement a formal
advertising program. The Company initially intends to market the Initial
Products to manufacturers of televisions, multimedia computers and
teleconferencing equipment as well as broadcasting and video production
professionals. It also may license to third parties the rights to manufacture
the products, either through direct licensing, OEM arrangements or otherwise.
See "Business -- Manufacturing."
The Company does not currently have a sales force to implement the sale
and/or licensing of its products or related technology. The Company intends
to rely principally on national sales representative organizations to
represent its products. However, the Company has determined that it will need
to employ an internal sales staff of at least four people by December 31,
1996. See "Business -- Marketing and Distribution."
MANUFACTURING
The Company does not contemplate that it will directly manufacture any of
its products. It intends to contract with third parties to manufacture its
proposed AVP and Magic Card, and related retail products, and its NUWave Dual
TBC, and NUWave Ministudio.
EMPLOYEES
The Company currently has three employees and, depending on its level of
business activity, expects to hire additional employees in the next 12
months, including marketing and sales, manufacturing and technical personnel,
and has allocated $1,116,000 of the proceeds of the Company Offering for the
recruitment and related payroll expenses for approximately 30 additional
employees over the next 12-month period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has relied for all of its funding ($2,900,000
in cash plus the cancellation of the Initial Bridge Notes in the principal
amount of $350,000) on private sales of its debt and equity securities. The
Company intends to use $2,050,000 of the proceeds of the Company Offering to
repay the principal and interest on the outstanding Bridge Notes issued to
investors in connection with such financings.
Pursuant to the terms of the License Agreement and the Development
Agreement, the Company must pay Rave minimum aggregate royalties and
development fees of $65,000 per month for the term of the License Agreement
commencing in March 1996. The License Agreement also provides for additional
payments of $60,000 per year to be made to Rave on a quarterly basis on
account of consulting services to be rendered to the Company. The Development
Agreement also provides for Rave to receive additional payments aggregating
$850,000 to purchase or lease equipment for use in developing the Licensed
Products and Technology. The payments are to be made in monthly installments
of $23,611 commencing upon the submission of appropriate development
schedules to the Company, but not before March 1996, with a lump sum payment
of $283,336 due at the end of the 24-month period. The Company expects such
payments to commence during the second quarter of 1996.
Pursuant to the terms of an agency agreement with Prime Technology, Inc.
("Prime") dated July 21, 1995 (the "Agency Agreement"), Prime will receive
35% of net sublicensing fees received by the Company with respect to the
first $50,000,000 of aggregate net sales made by the Company's sublicensees,
after subtracting the payments to Rave and licensing expenses, and thereafter
45%. Prime will also receive up to an additional $1,500,000 of which (i)
$400,000 is payable regardless of the receipt of sublicense fees in
installments of $15,000 per month which began January 1, 1996 and
installments of $40,000 per month after the completion of the Company
Offering, (ii) $400,000 is payable out of the Company's first sublicensing
royalties, if any, and (iii) $700,000 is payable out of the Company's portion
of sublicensing royalties when net sublicensing sales exceed $200,000,000.
23
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
The Company intends to use proceeds of the Company Offering of
approximately $1,081,000 and $325,000, respectively, to pay its obligations
to Rave under the License Agreement and Development Agreement and to Prime
under the Agency Agreement during the 12 month period following the
completion of the Company Offering.
The Company's plan of operation over the 12 months following the
consummation of the Company Offering focuses primarily on the continued
design, development and patent protection of its proposed products and in
particular, the production of prototypes, testing and the marketing and/or
licensing of the AVP and Magic Card. The Company anticipates, based on its
current proposed plans and assumptions relating to its operations, that the
proceeds of the Company Offering will be sufficient to satisfy the
contemplated cash requirements of the Company for at least 12 months
following the consummation of the Company Offering. In the event that the
Company's plans change or its assumptions prove to be inaccurate or the
proceeds of the Company Offering prove to be insufficient to fund operations
(due to unanticipated expenses, delays, problems, or otherwise), the Company
would be required to seek additional funding sooner than anticipated.
Depending upon the Company's progress in the development of its products and
technology, their acceptance by third parties, and the state of the capital
markets, the Company may also determine that it is advisable to raise
additional equity capital, possibly within the next 12 months. In addition,
in the event that the Company receives a larger than anticipated number of
initial purchase orders upon introduction of its AVP and Magic Card, it may
require resources substantially greater than the proceeds of this offering or
than are otherwise available to the Company. In such event the Company may be
required to raise additional capital. The Company has no current arrangements
with respect to, or sources of, any such capital, and there can be no
assurance that such additional capital will be available to the Company when
needed, on commercially reasonable terms or at all. The inability of the
Company to obtain additional capital would have a material adverse effect on
the Company and could cause the Company to be unable to implement its
business strategy, to postpone or cancel the development of certain of its
proposed products, or to otherwise significantly curtail or cease its
operations. Additional equity financing may involve substantial dilution to
the interests of the Company's then existing stockholders.
The Company's future performance will be subject to a number of business
factors, including those beyond the Company's control, such as economic
downturns and evolving industry needs and preferences, as well as the level
of competition and the ability of the Company to successfully market its
products and technology and to effectively monitor and control its costs.
There can be no assurance that the Company will be able to successfully
implement a marketing strategy, generate significant revenues or ever achieve
profitable operations. In addition, because the Company has had only limited
operations to date, there can be no assurance that its estimates will prove
to be accurate or that unforeseen events will not occur.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") in October 1995, which is effective in Fiscal 1996. SFAS 123
requires companies to estimate the fair value of common stock, stock options,
or other equity instruments ("Equity Instruments") issued to employees, using
pricing models which take into account various factors, such as the current
price of the common stock, volatility, and the expected life of the Equity
Instrument. SFAS 123 permits companies to elect either to provide pro forma
note disclosure or adjust operating results for the amortization of the
estimated value of the Equity Instrument as compensation expense over the
vesting period of the Equity Instrument. The Company has elected to provide
pro forma note disclosure, which will appear in its financial statements for
the year ending December 31, 1996, and therefore, the adoption of SFAS 123
will have no effect on the Company's financial position or results of
operations.
24
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
Roll Editing and will provide operating commands for the external sources.
The Company also intends to include in its Ministudio third-party morphing
software, editing software (which provides among other things edit decision
lists), title generating software, animation software, other special effects
software and machine control software. The Company intends that the PCBs making
up the NUWave Ministudio will contain proprietary circuits with switching
controlled by the Company's proprietary software allowing the videographer to
perform discrete functions on all four inputs simultaneously. The AVP, the Magic
Card and the NUWave Dual TBC are all included in the NUWave Ministudio. The
Company has produced and tested initial prototypes of the NUWave Ministudio
mounted on PCBs. The initial prototypes are fully operational except for the
ability to store and access video in the hard drive of the host computer. The
Company is currently developing the software necessary to allow the integration
of such storage and retrieval functions into the NUWave Ministudio and expects
to test the fully operational prototypes sometime in the second half of 1996.
THE COMPANY'S OTHER POTENTIAL PRODUCTS
Through its Development Agreement with Rave and other potential
opportunities with other third parties, the Company is conducting
investigation, research and development activities with respect to several
other products relating to video telecommunications although none are
material to the Company's present plan of operations. These activities may
give rise to additional products which may be commercialized by the Company.
However, there can be no assurance that its efforts will result in marketable
products or products which can be produced at commercially acceptable costs.
RESEARCH AND DEVELOPMENT
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995 when the Company and
Rave entered into the License Agreement and the Development Agreement.
Pursuant to the Development Agreement, the Company has retained Rave to
continue the development of the Initial Products. Although the Company's
Initial Products are the result of the research and development efforts of
Rave, the Company believes that it could, if necessary, complete the
development of the Initial Products using independent third party consultants
and the Company's internal technical staff (currently two persons).
In addition, although the Company's strategy with respect to new products
and technologies is to rely upon Rave to a significant extent, the Company
believes there are also other independent third party sources for potential
new products and technologies which the Company will attempt to seek and
evaluate on a regular basis.
In addition to utilizing the services of Rave pursuant to the terms of the
Development Agreement, the Company has utilized the services of third party
contractors, and its own personnel, in connection with its research and
development activities. From July 17, 1995 through December 31, 1995, the
Company spent approximately $491,000 on research and development, of which
approximately 85% was paid to Rave pursuant to the Development Agreement.
From January 1, 1996 to March 31, 1996 the Company spent approximately
$277,000 on research and development, of which approximately 85% was paid to
Rave pursuant to the development Agreement and the remainder to outside
consultants. The Company has used outside consultants to develop software for
each of its Initial Products and to reconfigure the circuitry in its AVP,
Magic Board and NUWave Dual TBC to allow them to be produced as ASICs. It has
utilized its own personnel to direct, supervise and coordinate the efforts of
Rave and its third party consultants. Over the next 12 months the Company
intends to spend approximately $2,704,000 of the proceeds from the Bridge
Financing and the Company Offering on research and development. Of that
amount the Company estimates that at least 40% will be paid to Rave pursuant
to the Development Agreement, 38% will be spent on software development, ASIC
chip development, and production engineering undertaken by third parties. The
balance will be spent on internal research and development. Because the video
imaging field is rapidly developing, in addition to Rave, the Company intends
to continue to make significant use of outside experts to assure exposure to
new ideas and technology. The Company and Rave maintain strict
confidentiality with both inside and outside staff to protect development
secrets.
Rave currently employs 12 persons and retains the services of 6
consultants on a regular basis. It also has informed the Company that it
intends to hire or retain additional persons to assist it in fulfilling its
obligations pursuant to the Development Agreement.
29
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
PRINCIPAL STOCKHOLDERS
The table below sets forth information as of the date of this Prospectus
and, as adjusted, assumes the sale of all of the Company Offered Shares
offered in the Company Offering. The table also assumes, with respect to each
individual shareholder, the exercise of all warrants, options or conversion
of all convertible securities held by such shareholder. It does not assume
the exercise or conversion of securities held by any other shareholder. The
table is based on information obtained from the persons named below with
respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the aggregate
outstanding shares of Common Stock, (ii) each director, (iii) each executive
officer, and (iv) all officers and directors as a group.
Percentage
of Outstanding
Common Stock
Number of Beneficially Owned
Shares of ----------------------
Common Stock
Names and Addresses of Beneficially Prior to After
Beneficial Owner(1) Owned(2) Offering Offering
- ---------------------- -------------- ---------- --------
Helene Burgess (3) ................. 577,854 19% 11%
Ernest Chu (4) ..................... 415,000 16% 8%
Prime Technology, Inc. ............. 1,090,000 43% 21%
Gerald Zarin (5) ................... 650,000 24% 12%
Jeremiah F. O'Brien (6) ............ 27,857 1% *%
David Kwong ........................ 30,000 1% *%
Ed Bohn (7) ........................ 20,000 *% *%
Lyle Gramley (8) ................... 20,000 1% *%
Robert Webb (9) .................... 30,000 1% *%
Joseph A. Sarubbi (10) ............. 11,667 *% *%
All Officers and Directors as a
Group (8 persons)(5)(6)(7)(8)(9)(10) 789,524 28% 15%
- ------
* Less than 1%
(1) Unless otherwise indicated the address of each beneficial owner
identified is One Passaic Avenue, Fairfield, New Jersey 07004.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the beneficial owner of securities that can be acquired by such
person within 60 days from the date of this Prospectus upon the exercise
of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that convertible
securities, options or warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60 days
of the date of this Prospectus have been exercised.
(3) Includes 437,854 shares of Series A Preferred Stock.
(4) Includes 215,000 shares of Common Stock issued to First Earth Investors
("First Earth"), 125,000 shares of Common Stock issued to Corporate
Builders, Inc. ("Builders"), and 75,000 shares of Common Stock issued to
W2 Technologies, Inc. ("W2"). Ernest Chu is a shareholder in Builders
and W2 and the sole proprietor of First Earth.
(5) Includes options to purchase up to 200,000 shares of Common Stock at an
exercise price of $1.50 per share. The options expire December 31, 2000.
(6) Includes options to purchase 17,857 and 5,000 shares of Common Stock at
an exercise price of $1.50 and $2.00 per share, respectively, which
vested July 17, 1995 and March 1, 1996; does not include options to
purchase 7,143 shares of Common Stock at $1.50 per share which vest on
July 17, 1997. The options expire on the fifth anniversary of their
vesting.
(7) Includes options to purchase 15,000 shares of Common Stock at an
exercise price of $2.00 per share which vested March 1, 1996. The
options expire March 1, 2001.
(8) Includes options to purchase 20,000 shares of Common Stock at an
exercise price of $1.50 per share. The options expire June 30, 1996.
39
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
DESCRIPTION OF SECURITIES
GENERAL
Upon completion of the Company Offering, the Company will be authorized to
issue 20,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Preferred Stock, par value $.01 per share of which
1,000,000 shares have been designated Series A Convertible Preferred Shares.
As of the date of this Prospectus, there are 2,530,000 shares of Common Stock
outstanding, and 600,000 shares of Series A Convertible Preferred Stock
outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
Common Stock are entitled to receive ratably such dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
In the event of liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
which are available for distribution to them after payment of liabilities and
after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are (and the shares of Common Stock offered hereby,
when issued in exchange for the consideration set forth in this Prospectus,
will be) fully paid and nonassessable.
PREFERRED STOCK
Upon completion of the Company Offering, all of the Company's outstanding
Series A Preferred Stock will be automatically converted into 600,000 shares
of Common Stock and the Company will be authorized to issue 1,000,000
additional shares of Preferred Stock, which may have such preferences and
rights as the Board of Directors may designate.
REDEEMABLE WARRANTS
Each Company Offered Warrant (the "Warrants") entitles the registered
holder thereof (the "Warrant Holders") to purchase one share of Common Stock
at a price of $5.50, subject to adjustment in certain circumstances. At any
time during the period commencing one year from the date of this Prospectus
and expiring on the fifth anniversary of the date hereof. Unless exercised
the Warrants will automatically expire on , 2001 (five years following the
date of this Prospectus). The Warrants will be separately transferable
immediately upon issuance.
The Warrants are redeemable by the Company at any time commencing 12
months from the date hereof (or earlier with the prior written consent of the
Underwriter) upon notice of not less than 30 days, at a price of $.10 per
Warrant, provided that the closing bid quotation of the Common Stock on all
20 trading days ending on the third day prior to the day on which the Company
gives notice has been at least 150% (currently $8.25, subject to adjustment)
of the then effective exercise price of the Warrants. The Warrant Holders
shall have the right to exercise their Warrants until the close of business
on the date fixed for redemption. The Warrants will be issued in registered
form under a warrant agreement by and among the Company, American Stock
Transfer & Trust Company, as warrant agent, and the Underwriter (the "Warrant
Agreement"). The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Common
Stock at prices below the exercise price of the Warrants. Reference is made
to the Warrant Agreement (which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part) for a complete
description of the terms and conditions therein (the description herein
contained being qualified in its entirety by reference thereto).
43
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent
for the number of Warrants being exercised. The Warrant Holders do not have
the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the
holder of such Warrant. The Company will use its best efforts to have all
such shares so registered or qualified on or before the exercise date and to
maintain a current prospectus relating thereto until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to do so, there can be no assurance that it will be able
to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay to such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
DIVIDENDS
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment by the Company of dividends, if any, is within the
discretion of the Board of Directors and will depend on the Company's
earnings, if any, its capital requirements and financial condition, as well
as other relevant factors. The Board of Directors does not intend to declare
any dividends in the foreseeable future, but instead intends to retain
earnings for use in the Company's business operations.
REGISTRATION RIGHTS
The Company has registered all 470,000 Bridge Shares and Initial Bridge
Shares and all 600,000 shares of Common Stock issuable upon conversion of
Preferred Stock pursuant to the Registration Statement of which this
Prospectus is a part.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company.
REPORTS TO STOCKHOLDERS
The Company intends to file an application with the Securities and
Exchange Commission to register its Common Stock under the provisions of
Section 12(g) of the Exchange Act prior to the date of this Prospectus and
has agreed with the Underwriter that it will use its best efforts to continue
to maintain such registration. Such registration will require the Company to
comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless the business
combination is approved in a prescribed manner. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the prior three years did own) 15%
or more of a corporation's voting stock. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit
to the "interested stockholder."
44
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Company Offering, the Company will have
5,130,000 shares of Common Stock outstanding, assuming no exercise of the
Company Offered Warrants or other outstanding options and warrants. Subject
to the contractual restrictions described below, 3,070,000 of these shares,
including all 2,000,000 of the Company Offered Shares and the 600,000 shares
of Common Stock issuable upon conversion of the currently outstanding shares
of Series A Preferred Stock (the "Conversion Stock"), the 400,000 shares of
Common Stock constituting the Bridge Shares and the 70,000 shares of Common
Stock constituting the Initial Bridge Shares included in the Selling
Stockholders Shares, will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control
relationship with the Company), which shares will be subject to the resale
limitations, described below, of Rule 144 promulgated under the Securities
Act. The remaining 2,060,000 shares (the "Founders Shares") are deemed to be
"restricted securities," as that term is defined under Rule 144, in that such
shares were issued and sold by the Company in private transactions not
involving a public offering and, as such, may only be sold pursuant to an
effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. All of such "restricted" shares will become eligible for sale
under Rule 144 in July 1997. See "Concurrent Registration of Common Stock and
Warrants."
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who
has owned restricted shares of Common Stock beneficially for at least two
years is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding
shares of the same class or, if the common stock is quoted on NASDAQ, the
average weekly trading volume during the four calendar weeks preceding the
sale. A person who has not been an affiliate of the Company for at least
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such
shares under Rule 144 without regard to any of the limitations described
above.
The Company's stockholders (62 as of the date of this Prospectus),
beneficially owning all but 10,000 of the "restricted" shares of Common Stock
referred to above, including all of the Selling Stockholders, have agreed not
to sell or otherwise dispose of any of their shares for a period of 18 months
from the date of this Prospectus, in the case of the holders of Founders
Shares, Conversion Shares and the Initial Bridge Shares, and 12 months from
the date of this Prospectus in the case of the holders of the Bridge Shares
without the prior written consent of the Underwriter. All of such shares,
other than the Founders Shares, are also being registered concurrently with
the Company Offering pursuant to this Selling Stockholder Prospectus. See
"Concurrent Registration of Common Stock and Warrants."
Prior to the Company Offering, there has been no market for the Common
Stock and no prediction can be made as to the effect, if any, that public
sales of shares of Common Stock or the availability of such shares for sale
will have on the market prices of the Common Stock and the Warrants
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and the Warrants and could
impair the Company's ability in the future to raise additional capital
through the sale of its equity securities.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 1,070,000 shares of Common Stock may be offered and
sold pursuant to this Prospectus by the Selling Stockholders. The Company
registered such shares under the Securities Act and agreed to pay all
expenses in connection therewith (other than brokerage commissions and fees
and expenses of counsel). Such shares have been included in the Registration
Statement of which this Prospectus forms a part. Other than Helen Burgess,
none of the Selling Stockholders owns beneficially more than 5% of the
Company's Outstanding Common Stock. Mr. Kwong, a director of the Company, may
offer and sell up to 30,000 shares pursuant to this Prospectus. See
"Principal Stockholders."
46
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
Beneficial Ownership of Beneficial Ownership of
Shares of Common Stock Shares of Common Stock
Selling Stockholders Prior to Sale After Sale
- -------------------- ----------------------- ----------------------
John and Anna Albanese .... 5,000 0
Theodore Anastopoulos ..... 2,500 0
David and Meredith Ash .... 10,000 0
Jessica Baron ............. 40,000 0
Dale and Beverly Bearden .. 5,000 0
Glenn and Heidi Bierman ... 5,000 0
Helen Burgess ............. 577,854 0
Frank Chiarulli ........... 5,000 0
Karen Cooper .............. 5,000 0
David Cornstein ........... 5,000 0
Deborah M. Couples ........ 35,000 0
Edward Culverwell ......... 10,480 0
Robert Foisie ............. 10,000 0
Ernest Gottdiener ......... 5,000 0
Carl Greenfield ........... 2,500 0
Raquel Grunwald ........... 10,000 0
Diane Hom ................. 20,000 0
Independence Funding Corp. . 5,000 0
Mitchell Knapp ............ 5,000 0
Lawrence Kupferberg ....... 5,000 0
David Kwong ............... 30,000 0
Howard Lefkowitz .......... 5,000 0
Gail Markiewicz ........... 10,000 0
Charles Merlis ............ 5,000 0
Michael Miller ............ 10,000 0
Albert Milstein ........... 5,000 0
Azriel Nagar .............. 86,666 0
Ronald Nash ............... 20,000 0
Neil and Catherine Nasta .. 2,500 0
David and Carole Nisnewitz . 5,000 0
Robert Rickel ............. 5,000 0
Bruce Ross ................ 2,500 0
Jeffery Secrest ........... 5,000 0
Edward Shapiro ............ 5,000 0
Indira Shetty ............. 5,000 0
Hilary Seiden ............. 2,500 0
Jeffrey Silverman ......... 10,000 0
Mark Silverman ............ 20,000 0
Beverly Smith ............. 5,000 0
Henry Snow ................ 10,000 0
Steven Snow ............... 10,000 0
Joseph Stanley ............ 5,000 0
Terry Trabich ............. 2,500 0
Leon Verrico .............. 5,000 0
Steve Wallitt ............. 5,000 0
Ronald Weiss .............. 10,000 0
Phil Wyatt ................ 5,000 0
Robert Zara ............... 10,000 0
--------- ---------------------
Total ................... 1,070,000 0
- ------
(1) Assumes all of the Selling Stockholders Shares offered hereby are sold
and no additional shares are acquired.
47
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
The 1,070,000 shares of Common Stock being offered by the Selling
Stockholders pursuant to this Prospectus may be offered and sold from time to
time as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Selling
Stockholders Shares may be sold by one or more of the following methods,
without limitation: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; and (c) face-to-face
transactions between sellers and purchasers without a broker/dealer. In
effecting sales, brokers or dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers to participate. Such brokers or dealers
may receive commissions or discounts from Selling Stockholders in amounts to
be negotiated. Such brokers and dealers and any other participating brokers
and dealers may be deemed the be "Underwriters" within the meaning of the
Securities Act in connection with such sales.
The Company has agreed to indemnify the Selling Stockholders against
certain civil liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Honigman Miller Schwartz and Cohn, 222 Lakeview Avenue, Suite 800,
West Palm Beach, Florida 33401-6112. Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, has acted as counsel
for the Underwriter in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for
the period from July 17, 1995 (inception) to December 31, 1995, included in
this Prospectus have been so included in reliance on the report, which
includes an explanatory paragraph related to the Company's ability to
continue as a going concern, of Coopers & Lybrand L.L.P. independent
accountants, given on the authority of said firm as experts in auditing and
accoutanting.
ADDITIONAL INFORMATION
The Company has filed with the Southeast Regional Office of the Securities
and Exchange Commission (the "Commission") a registration statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to
the securities offered by this Prospectus. This Prospectus, filed as a part
of such Registration Statement, does not contain all of the information set
forth in, or annexed as exhibits to, the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulation of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith, which may be inspected without charge at the Office
of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549; 1400
Citicorp Center, 500 West Madison, Chicago, Illinois 60661; and 7 World Trade
Center, New York, New York 10048. Copies of the Registration Statement may be
obtained from the Commission at its principal office upon payment of
prescribed fees. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete, and where the
contract or other document has been filed as an exhibit to the Registration
Statement, each statement is qualified in all respects by reference to the
applicable document filed with the Commission.
48
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
==============================================================================
No underwriter, dealer, salesman or other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus, in connection with this Offering, and, if given
or made, such information or representations must not be relied upon as
having been authorized by the Company. The delivery of this Prospectus at any
time does not imply that there has not been any change in the information set
forth herein or in the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any security other than the securities offered hereby, or an offer to
sell or solicitation of an offer to buy such securities in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person
to whom such offer or solicitation would be unlawful.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ......................... 5
Summary Financial Information .............. 8
Risk Factors ............................... 9
Concurrent Registration of Common Stock .... 17
Glossary ................................... 17
Use of Proceeds ............................ 19
Dilution ................................... 20
Capitalization ............................. 21
Management's Discussion and Analysis ....... 22
Business ................................... 25
Management ................................. 33
Principal Stockholders ..................... 39
Certain Transactions ....................... 40
Description of Securities .................. 43
Shares Eligible for Future Sale ............ 46
Underwriting ............................... 47
Legal Matters .............................. 48
Experts .................................... 48
Additional Information ..................... 48
Financial Statements ....................... F-1
------
===============================================================================
<PAGE>
[Alternate Page for Selling Stockholders' Prospectus]
===============================================================================
NUWAVE
TECHNOLOGIES,
INC.
1,070,000 SHARES OF
COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
, 1996
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees), actually
and reasonably incurred by him in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of such section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any,
as the board of directors deems appropriate.
Section 145(f) of the DGCL provides that the indemnification and
advancement of expenses provided by, or granted pursuant to, the other
subsections of this section shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
II-1
<PAGE>
Section 145(g) of the DGCL provides that a corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
Section 145(j) of the DGCL provides that the indemnification and
advancement of expenses provided by, or granted pursuant to, this section
shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.
The foregoing statutes do not affect a director's responsibilities under
any other law, including federal securities laws or federal or state
environmental laws.
CERTIFICATE OF INCORPORATION OF THE COMPANY
The Certificate of Incorporation of the Company (the "Certificate")
provides that, to the fullest extent permitted by applicable law, as amended
from time to time, the Company will indemnify any person who was or is a
party or is threatened to be made a party to an action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was director, officer, employee or agent of the
Company or serves or served any other enterprise at the request of the
Company. This indemnification includes the right to advancement of expenses
when allowed pursuant to applicable law.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with its directors
(collectively, the "Agreements") which provide that each director is entitled
to indemnification to the fullest extent permitted by applicable law. Such
indemnification will cover all expenses, liabilities, judgments (including
punitive and exemplary damages), penalties, fines (including excise taxes
relating to employee benefit plans and civil penalties) and amounts paid in
settlement which are incurred or imposed upon the director if the director is
a party or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding of any kind, whether civil, criminal,
administrative or investigative (including actions by or in the right of the
Company and any preliminary inquiry or claim by any person or authority), by
reason of the fact that the director is or was a director, officer, employee
or agent of the Company or is or was serving at the Company's request as a
director, officer, employee or agent of another corporation (including a
subsidiary), partnership, joint venture, trust or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof (collectively, the "Covered Matters"). Pursuant to the Agreements,
the directors are presumed to be entitled to indemnification and will receive
such indemnification irrespective of whether the Covered Matter involves
allegations of intentional misconduct, alleged violations of Section 16(b) of
the Exchange Act alleged violations of Section 10(b) of the Exchange Act
(including Rule 10b-5 thereunder), breach of the director's fiduciary duties
(including duties of loyalty or care) or any other claim.
In addition to the foregoing, the Company intends to maintain a director
and officer liability insurance policy insuring directors and officers of the
Company against certain liabilities.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions to be paid by the Company to the Underwriter) are
estimated to be as follows:
ITEM AMOUNT
- ---- ------
SEC Registration Fee ......................... $ 11,086.70
NASD Filing Fee .............................. 3,715.00
NASD Listing Fee ............................. *
Underwriters Nonaccountable Expense Allowance . 306,000.00
Printing and Engraving ....................... *
Legal Fees and Expenses ...................... *
Blue Sky Fees and Expenses ................... *
Accounting Fees and Expenses ................. *
Transfer Agent's Fees and Expenses ........... *
Miscellaneous ................................ *
--------------
Total ....................................... $1,006,000.00
==============
- ------
*To be filed by amendment
The Company has agreed to pay the expenses in connection with the
registration of the Selling Stockholders' Shares offered by the Selling
Stockholders pursuant to the Selling Stockholder Prospectus (other than
brokerage commissions and fees and expenses of counsel incurred by such
Selling Stockholders), which expenses are included in the expenses set forth
above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following securities of the registrant were sold by the registrant
since its inception in July 1995. Exemption from registration with respect to
the following sales was claimed under Section 4(2) of the Securities Act
regarding transactions not involving any public offering, or under Rule 701
promulgated pursuant to Section 3(b) of the Securities Act regarding offers
and sales in connection with certain benefit plans and contracts.
On July 17, 1995, in exchange for services performed in connection with
the formation of the Corporation and the creation of its business plan and
related matters, the Company granted 5,000 shares of its Common Stock along
with options to purchase 25,000 additional Common Stock at an exercise price
of $1.50 per share to Jeremiah F. O'Brien.
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 450,000 shares of its Common Stock to
Gerald Zarin.
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 1,090,000 shares of its Common Stock to
Prime Technology, Inc..
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 23,333 shares of its Common Stock to
Jeffrey Mehler.
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 11,667 shares of its Common Stock to
Quinn Speck.
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 10,000 shares of its Common Stock to
Barry A. Carr.
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 10,000 shares of its Common Stock to
Arlene K. Stoller.
II-3
<PAGE>
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 5,000 shares of its Common Stock to Ed
Bohn.
On July 17, 1995, in exchange for services rendered in connection with the
formation of the Corporation and the creation of its business plan and
related matters, the Company issued 5,000 shares of its Common Stock to
Warren A. Weiss.
On July 17, 1995, in exchange for services rendered by Mr. Ernest Chu in
connection with the formation and organization of the Company and the
creation of its business plan and related matters, the Company issued 450,000
shares of the Company's Common Stock to First Earth Investors, Corporate
Builders, Inc. and W(2) Technologies, Inc (250,000, 125,000, and 75,000
shares, respectively).
On July 21, 1995, pursuant to an Employment Agreement, the Company granted
stock options to Gerald Zarin to acquire a total of 200,000 shares of its
Common Stock.
From July 21, 1995 through August 30, 1995, in a private offering the
Company sold 600,000 shares of Series A Preferred Stock to six accredited
investors for $1.50 per share.
On September 11, 1995, in connection with an Employment Agreement, the
Company granted to Robert Webb an option to purchase 70,000 shares of the
Company's Common Stock, at an exercise price of $1.50 per share.
On November 9, 1995, in exchange for his agreement to serve as a director,
the Company granted Lyle Gramley an option to purchase 20,000 shares of its
Common Stock, at an exercise price of $1.50 per share.
On December 15 and 29, 1995, the Company sold unsecured 10% promissory
notes in the principal amount of $350,000 (the "Initial Bridge Notes") and
70,000 shares of the Company's Common Stock to Helen Burgess, an accredited
investor, for an aggregate consideration of $350,000.
On March 1, 1996, in exchange for services rendered, the Company granted
Jeremiah F. O'Brien, Vice-President, Secretary and Chief Financial Officer
of the Company, an option to purchase 5,000 shares of its Common Stock, at an
exercise price of $2.00 per share.
On March 1, 1996, in exchange for continuing service as a director, the
Company granted Ed Bohn an option to purchase 15,000 shares of its Common
Stock, at an exercise price of $2.00 per share.
On March 1, 1996, in exchange for his agreement to serve as a director,
the Company granted Joseph A. Sarubbi an option to purchase 35,000 shares of
its Common Stock, at an exercise price of $2.00 per share.
On March 1, 1996 and March 27, 1996, the Company sold an aggregate of 80
Units to 66 accredited investors for an aggregate consideration of $1,650,000
in cash and the exchange of the Initial Bridge Notes. Each of the 80 Units
consisted of (i) a senior subordinated non-negotiable promissory note bearing
interest at 10% in the principal amount of $25,000, and (ii) 5,000 shares of
Common Stock. Rickel & Associates, Inc. acted as placement agent for the
Company with respect to all 80 Units sold and received fees of $200,000 with
respect thereto. No commissions were paid in connection with the exchange of
the Initial Bridge Notes.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
1.1 Form of Underwriting Agreement.
<S> <C>
3.1(a) Articles of Incorporation of the Company (Delaware).*
3.1(b) Certificate of Amendment to Articles of Incorporation of the Company (Delaware).*
3.1(c) Certificate of Authority (New Jersey).*
3.1(d) Amended Certificate of Authority (New Jersey).*
3.1(e) Certificate of Amendment to Articles of Incorporation of the Company (Delaware).
3.2 By-Laws of the Company.*
4.1 Form of Common Stock Certificate.**
II-4
<PAGE>
4.2 Form of Public Warrant Agreement between the Company, American Stock Transfer & Trust Company and Rickel &
Associates, Inc.
4.3 Form of Public Warrant Certificates.
4.4 Form of Underwriter's Warrant Agreement (including Warrant Certificate) between the Company and Rickel &
Associates, Inc.
5.1 Opinion of counsel to the Company concerning the legality of the securities being offered.**
10.1 Restated Employment Agreement dated as of July 20, 1995 between NUWave Engineering, Inc. and Gerald Zarin.*
10.2 Employment Agreement dated as of September 11, 1995 between NUWave Engineering, Inc. and Robert I. Webb.*
10.3 Consulting Agreement dated as of July 18, 1995 between NUWave Engineering Inc. and Corporate Builders, L.P.*
10.4 Consulting Agreement dated as of August 1, 1995 between NUWave Engineering, Inc. and Christopher J. Daly (expired
by its terms).*
10.5 Letter Agreement dated as of November 22, 1995 between NUWave Technologies, Inc. and Rickel & Associates,
Inc.
10.6 1996 Performance Incentive Plan.*
10.7 Exclusive Worldwide License Agreement dated as of July 21, 1995 between NUWave Engineering, Inc. and Rave
Engineering Corporation.*
10.8 Development Agreement dated as of July 21, 1995 between NUWave Engineering, Inc. and Rave Engineering Corporation.*
10.9 Exclusive Agency Agreement dated as of July 21, 1995 between NUWave Engineering, Inc. and Prime Technology,
Inc.*
10.10 Assignment dated as of July 21, 1995 between NUWave Engineering, Inc., Prime Technology, Inc. and Rave Engineering
Corporation.*
10.11 Shareholders' Agreement dated as of July 21, 1995.*
10.12 Finder's Agreement dated as of September 1, 1995 among NUWave Technologies, Inc., Prime Technology, Inc. and
Harvest Technologies, Inc.*
10.13 Finder's Agreement dated as of January 16, 1996 among NUWave Engineering, Inc., Prime Technology, Inc. and
Jay Vahl.*
10.14 Option Agreement for the Purchase of Common Stock dated as of July 17, 1995 between NUWave Engineering, Inc.
and Jeremiah F. O'Brien.*
10.15 Option Agreement for the Purchase of Common Stock dated as of September 11, 1995 between NUWave Engineering,
Inc. and Robert I. Webb.*
10.16 Option Agreement for the Purchase of Common Stock dated as of November 9, 1995 between NUWave Engineering,
Inc. and Lyle E. Gramley.*
10.17 Option Agreement for Purchase of Common Stock dated as of March 1, 1996 between NUWave Technologies, Inc.
and Jeremiah F. O'Brien.*
10.18 Option Agreement for Purchase of Common Stock dated as of July 20, 1995 between NUWave Technologies, Inc.
and Gerald Zarin.*
10.19 Option Agreement for Purchase of Common Stock dated as of March 1, 1996 between NUWave Technologies, Inc.
and Joseph A. Sarubbi.*
10.20 Option Agreement for Purchase of Common Stock dated as of March 1, 1996 between NUWave Technologies, Inc.
and Ed Bohn.*
10.21 Shareholder's Agreement dated as of July 17, 1995 between NUWave Engineering, Inc. and its Common Stockholders.*
10.22 Form of Subscription Agreement between NUWave Engineering, Inc. and its Series A Preferred Stockholders through
August 1995.*
10.23 Loan and Stock Purchase Agreement dated as of December 15, 1995 between NUWave Engineering, Inc. and Helen
Burgess.*
10.24 Form of Indemnification Agreement between the Company and its directors, dated as of January 31, 1996.*
10.25 Form of Note entered into between the Company and the Initial Bridge Investor relating to the Initial Bridge
Financing.*
II-5
<PAGE>
10.26 Form of 10% Promissory Note delivered by the Company in connection with the private placement of 80 Units
(the "Private Placement Bridge"), each unit consisting of an unsecured 10% non- negotiable promissory note
in the amount of $25,000 and 5,000 shares of Common Stock of the Company, during February and March of 1996.*
10.27 Form of Securities Registration Rights Agreement entered into between the Company and the purchasers of Common
Stock in the Private Placement.*
10.28 Form of Registration Rights Agreement entered into between Company and the purchasers of its Series A Preferred
Stock.*
10.29 Form of Lock-up letter between the Company and certain holders of its Common Stock.*
10.30 Lease Letter Agreement between the Company and Simon, Sarver & Rosenberg dated July 28, 1995.*
10.31 Guaranty executed by the Company as of October 13, 1995 in connection with Standard Industrial Net Lease between
Collins Tech RB and Rave Engineering, Inc.*
11 Computation of earnings (loss) per share.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Honigman Miller Schwartz and Cohn (contained in Exhibit 5.1).**
25.1 Power of Attorney (contained on signature page of the Registration Statement).*
27 Financial Data Schedule.
</TABLE>
- ------
* Previously filed.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth
in the registration statement; and Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
the volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The undersigned registrant hereby undertakes to provide to the
Underwriter at the Closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required
by the Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
II-6
<PAGE>
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(d) The undersigned registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat 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 (4) or
497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and has duly caused this
Amendment No. 1 to its Registration Statement to be signed on its behalf, in
the City of New York, State of New York, on this 22nd day of May 1996.
NUWAVE TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Gerald Zarin
---------------------------------
Chairman of the Board, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to its Registration Statement has been signed by the
following persons on behalf of the Registrant and in the capacities indicated
on this 22nd day of May 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Gerald Zarin Chairman of the Board, Director, President and Chief Executive Officer
- ------------------------- (Principal Executive Officer)
Gerald Zarin
/s/ Jeremiah O'Brien Chief Financial Officer and Secretary (Principal Financial and Accounting
- ------------------------- Officer)
Jeremiah O'Brien
*
- -------------------------
David Kwong Director
*
- -------------------------
Lyle Gramley Director
*
- -------------------------
Ed Bohn Director
*
- -------------------------
Joseph A. Sarubbi Director
*By: /s/ Gerald Zarin
- -------------------------
Gerald Zarin
Attorney-In-Fact
</TABLE>
II-8
<PAGE>
REGISTRATION NO. 333-3110
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
NUWAVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VOLUME I
==============================================================================
<PAGE>
REGISTRATION NO. 333-3110
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
NUWAVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VOLUME II
==============================================================================
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1(a) Articles of Incorporation of the Company (Delaware).*
3.1(b) Certificate of Amendment to Articles of Incorporation of the Company (Delaware).*
3.1(c) Certificate of Authority (New Jersey).*
3.1(d) Amended Certificate of Authority (New Jersey).*
3.1(e) Certificate of Amendment to Articles of Incorporation of the Company (Delaware).
3.2 By-Laws of the Company.*
4.1 Form of Common Stock Certificate.**
4.2 Form of Public Warrant Agreement between the Company, American Stock Transfer & Trust Company
and Rickel & Associates, Inc.
4.3 Form of Public Warrant Certificates.
4.4 Form of Underwriter's Warrant Agreement (including Warrant Certificate) between the Company
and Rickel & Associates, Inc.
5.1 Opinion of counsel to the Company concerning the legality of the securities being offered.**
10.1 Restated Employment Agreement dated as of July 20, 1995 between NUWave Engineering, Inc.
and Gerald Zarin.*
10.2 Employment Agreement dated as of September 11, 1995 between NUWave Engineering, Inc. and
Robert I. Webb.*
10.3 Consulting Agreement dated as of July 18, 1995 between NUWave Engineering Inc. and Corporate
Builders, L.P.*
10.4 Consulting Agreement dated as of August 1, 1995 between NUWave Engineering, Inc. and Christopher
J. Daly (expired by its terms).*
10.5 Letter Agreement dated as of November 22, 1995 between NUWave Technologies, Inc. and Rickel
& Associates, Inc.
10.6 1996 Performance Incentive Plan.*
10.7 Exclusive Worldwide License Agreement dated as of July 21, 1995 between NUWave Engineering,
Inc. and Rave Engineering Corporation.*
10.8 Development Agreement dated as of July 21, 1995 between NUWave Engineering, Inc. and Rave
Engineering Corporation.*
10.9 Exclusive Agency Agreement dated as of July 21, 1995 between NUWave Engineering, Inc. and
Prime Technology, Inc.*
10.10 Assignment dated as of July 21, 1995 between NUWave Engineering, Inc., Prime Technology,
Inc. and Rave Engineering Corporation.*
10.11 Shareholders' Agreement dated as of July 21, 1995.*
10.12 Finder's Agreement dated as of September 1, 1995 among NUWave Technologies, Inc., Prime Technology,
Inc. and Harvest Technologies, Inc.*
10.13 Finder's Agreement dated as of January 16, 1996 among NUWave Engineering, Inc., Prime Technology,
Inc. and Jay Vahl.*
10.14 Option Agreement for the Purchase of Common Stock dated as of July 17, 1995 between NUWave
Engineering, Inc. and Jeremiah F. O'Brien.*
10.15 Option Agreement for the Purchase of Common Stock dated as of September 11, 1995 between
NUWave Engineering, Inc. and Robert I. Webb.*
10.16 Option Agreement for the Purchase of Common Stock dated as of November 9, 1995 between NUWave
Engineering, Inc. and Lyle E. Gramley.*
10.17 Option Agreement for Purchase of Common Stock dated as of March 1, 1996 between NUWave Technologies,
Inc. and Jeremiah F. O'Brien.*
10.18 Option Agreement for Purchase of Common Stock dated as of July 20, 1995 between NUWave Technologies,
Inc. and Gerald Zarin.*
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
10.19 Option Agreement for Purchase of Common Stock dated as of March 1, 1996 between NUWave Technologies,
Inc. and Joseph A. Sarubbi.*
10.20 Option Agreement for Purchase of Common Stock dated as of March 1, 1996 between NUWave Technologies,
Inc. and Ed Bohn.*
10.21 Shareholder's Agreement dated as of July 17, 1995 between NUWave Engineering, Inc. and its
Common Stockholders.*
10.22 Form of Subscription Agreement between NUWave Engineering, Inc. and its Series A Preferred
Stockholders through August 1995.*
10.23 Loan and Stock Purchase Agreement dated as of December 15, 1995 between NUWave Engineering,
Inc. and Helen Burgess.*
10.24 Form of Indemnification Agreement between the Company and its directors, dated as of January
31, 1996.*
10.25 Form of Note entered into between the Company and the Initial Bridge Investor relating to
the Initial Bridge Financing.*
10.26 Form of 10% Promissory Note delivered by the Company in connection with the private placement
of 80 Units (the "Private Placement Bridge"), each unit consisting of an unsecured 10%
non-negotiable promissory note in the amount of $25,000 and 5,000 shares of Common Stock
of the Company, during February and March of 1996.*
10.27 Form of Securities Registration Rights Agreement entered into between the Company and the
purchasers of Common Stock in the Private Placement.*
10.28 Form of Registration Rights Agreement entered into between Company and the purchasers of
its Series A Preferred Stock.*
10.29 Form of Lock-up letter between the Company and certain holders of its Common Stock.*
10.30 Lease Letter Agreement between the Company and Simon, Sarver & Rosenberg dated July 28, 1995.*
10.31 Guaranty executed by the Company as of October 13, 1995 in connection with Standard Industrial
Net Lease between Collins Tech RB and Rave Engineering, Inc.*
11 Computation of earnings (loss) per share.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Honigman Miller Schwartz and Cohn (contained in Exhibit 5.1).**
25.1 Power of Attorney (contained on signature page of the Registration Statement).*
27 Financial Data Schedule.
</TABLE>
- ------
* Previously filed.
** To be filed by amendment.
<PAGE>
EXHIBIT 1.1
NUWAVE TECHNOLOGIES, INC.
2,000,000 Shares of Common Stock
and
2,000,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
_________________, 1996
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Gentlemen:
NUWave Technologies, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Rickel & Associates, Inc. ("you"
or the "Underwriter") as set forth below.
The Company proposes to issue and sell to the Underwriter an
aggregate of (i) 2,000,000 shares (the "Firm Shares") of the Company's common
stock, par value $.01 per share (the "Common Stock") and (ii) 2,000,000
redeemable warrants to purchase Common Stock (the "Firm Warrants"). The Company
also proposes to grant to the Underwriter an option to purchase (i) up to an
additional 300,000 shares of Common Stock and (ii) up to an additional 300,000
redeemable warrants to purchase Common Stock, as provided in section 2(c) of
this agreement. Any and all shares of Common Stock to be purchased by the
Underwriter pursuant to such option are referred to herein as the "Option
Shares," and the Firm Shares and any Option Shares are collectively referred to
herein as the "Shares." Any and all redeemable warrants to purchase Common Stock
to be purchased by the Underwriter pursuant to such option are referred to
herein as the "Option Warrants," and the Firm Warrants and any Option Warrants
are collectively referred to herein as the "Warrants." Any shares of Common
Stock issuable upon the exercise of any Warrants are referred to herein as
"Warrant Shares." The Firm Shares and the Firm Warrants are collectively
referred to herein as the "Firm Securities"; the Option Shares and the Option
Warrants are collectively referred to herein as the "Option Securities;" and the
Firm Securities, the Option Securities and the Warrant Shares are collectively
referred to herein as the "Securities."
Pursuant to an agreement to be entered into among the Company,
the Underwriter and American Stock Transfer & Trust Company (first anniversary
of the "Warrant Agreement"), each Warrant will be exercisable during the period
commencing on the first anniversary of the effective date of the Registration
Statement (as hereinafter defined) (the "Effective Date") and expiring on the
fifth anniversary thereof, subject to prior redemption by the Company (as
described below), at an initial exercise price (subject to adjustment as set
forth in the Warrant Agreement) equal to $5.50 per share. The Warrants will be
redeemable at a price of $.10 per Warrant, commencing on the first anniversary
of the Effective Date and prior to their expiration, upon not less than 30 days
prior written notice to the holders of the Warrants, provided the average
closing bid quotations of Common Stock as reported on The Nasdaq Stock Market if
traded thereon, or if not traded thereon, the average closing sale price if
listed on a national or regional securities exchange (or other reporting system
that provides last sales prices), shall have been at least 150% of the then
current Warrant exercise price (initially $8.25 per share, subject to
adjustment), for a period of 20 consecutive trading days ending on the third day
prior to the date on which the Company gives notice of redemption, subject to
the right of the holder to exercise such Warrants prior to redemption.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
<PAGE>
(a) A registration statement on Form SB-2 (File No.
333-3110) with respect to the Securities and the Underwriter's Warrant
Securities (as hereinafter defined), including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Act"), and
one or more amendments to that registration statement may have been so filed.
Copies of such registration statement and of each amendment heretofore filed by
the Company with the Commission have been delivered to you. After the execution
of this agreement, the Company will file with the Commission either (i) if the
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in that registration statement (or, if an amendment thereto shall have
been filed, in such amendment), with such changes or insertions as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriter prior to the execution of this
agreement, or (ii) if that registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to that registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Underwriter prior
to the execution of this agreement. As used in this agreement, the term
"Registration Statement" means that registration statement, as amended at the
time it was or is declared effective, and any amendment thereto that was or is
thereafter declared effective, including all financial schedules and exhibits
thereto and any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion filed with
that registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement at the
time it was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the Act
or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
those copies for the purposes permitted by the Act.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When each Preliminary
Prospectus and each amendment and each supplement thereto was filed with the
Commission it (i) contained all statements required to be stated therein, in
accordance with, and complied with the requirements of, the Act and the rules
and regulations of the Commission thereunder and (ii) did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement was or is
declared effective, it (i) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus and each amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b) (or, if
the Prospectus or such amendment or supplement is not required so to be filed,
when the Registration Statement containing such Prospectus or amendment or
supplement thereto was or is declared effective) and on the Firm Closing Date
and any Option Closing Date (as each such term is hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use
therein.
<PAGE>
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of
Delaware and is duly qualified or authorized to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
leasing of its property or the conduct of its business requires such
qualification or authorization.
(d) The Company has full corporate power and authority
to own or lease its property and conduct its business as now being conducted and
as proposed to be conducted as described in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, any
capital stock of any corporation, any interest in any partnership or limited
liability company or any other equity interest or participation in any other
person.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Shares and the Warrant Shares have been duly
authorized, and the Warrant Shares have been duly reserved for issuance, by all
necessary corporate action on the part of the Company and, when the Shares are
issued and delivered to and paid for by the Underwriter pursuant to this
agreement and the Warrants Shares are issued and delivered to and paid for by
the holders of Warrants upon exercise of the Warrants in accordance with the
terms thereof, the Shares and the Warrant Shares will be validly issued, fully
paid, nonassessable and free of preemptive rights and will conform to the
description thereof in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). No holder of outstanding
securities of the Company is entitled as such to any preemptive or other right
to subscribe for any of the Securities, and no person is entitled to have
securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
<PAGE>
(g) The capital stock of the Company conforms to the
description thereof contained in the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(h) Since the inception of the Company on July 17, 1995
all issuances of securities of the Company were effected pursuant to valid
private offerings exempt from registration pursuant to section 4(2) of the Act.
Since the inception of the Company, no compensation was paid to or on behalf of
any member of the National Association of Securities Dealers, Inc. ("NASD"), or
any affiliate or employee thereof, in connection with any such private offering,
except as previously disclosed in writing to the Underwriter.
(i) The financial statements of the Company included in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company as of the dates indicated and the results of operations
of the Company for the periods specified. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied. The financial data set forth under the caption "Summary
Financial Information" in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present, on the basis
stated in the Prospectus (or such Preliminary Prospectus), the information
included therein.
(j) Coopers & Lybrand, who have certified certain
financial statements of the Company and delivered their report with respect to
the financial statements and schedules included in the Registration Statement
and the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants with respect to the
Company as required by the Act and the applicable rules and regulations
thereunder.
(k) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (and, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (i) except as
otherwise contemplated therein, there has been no material adverse change in the
business, operations, condition (financial or otherwise), earnings or prospects
of the Company, whether or not arising in the ordinary course of business, (ii)
except as otherwise stated therein, there have been no transactions entered into
by the Company and no commitments made by the Company that, individually or in
the aggregate, are material with respect to the Company, (iii) there has not
been any change in the capital stock or indebtedness of the Company, and (iv)
there has been no dividend or distribution of any kind declared, paid or made by
the Company in respect of any class of its capital stock.
<PAGE>
(l) The Company has full corporate power and authority to
enter into and perform its obligations under this agreement and the
Underwriter's Warrant Agreement (as hereinafter defined). The execution and
delivery of this agreement and the Underwriter's Warrant Agreement have been
duly authorized by all necessary corporate action on the part of the Company and
this agreement and the Underwriter's Warrant Agreement have each been duly
executed and delivered by the Company and each is a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and except as rights to indemnity and contribution under this agreement
may be limited by applicable law. The issuance, offering and sale by the Company
to the Underwriter of the Securities pursuant to this agreement or the
Underwriter's Securities pursuant to the Underwriter's Warrant Agreement, the
compliance by the Company with the provisions of this agreement and the
Underwriter's Warrant Agreement, and the consummation of the other transactions
contemplated in this agreement and the Underwriter's Warrant Agreement do not
(i) require the consent, approval, authorization, registration or qualification
of or with any court or governmental or regulatory authority, except such as
have been obtained, such as may be required under state securities or blue sky
laws and, if the registration statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution hereof, such
as may be required (and shall be obtained as provided in this agreement) under
the Act, or (ii) conflict with or result in a breach or violation of, or
constitute a default under, any contract, indenture, mortgage, deed of trust,
loan agreement, note, lease or other agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of its property is bound or subject, or the certificate of incorporation
or by-laws of the Company or any Subsidiary, or any statute or any rule,
regulation, judgment, decree, or order of any court or other governmental or
regulatory authority or any arbitrator applicable to the Company or any
Subsidiary.
(m) No legal or governmental proceedings are pending to
which the Company or any Subsidiary is a party or to which the property of the
Company is subject and no such proceedings have been threatened against the
Company or with respect to any of its property, except such as are described in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (and, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus) or
filed as required.
(n) The Company is not in (i) violation of its certificate
of incorporation or by-laws, (ii) violation in any material respect of any law,
statute, regulation, ordinance, rule, order, judgment or decree of any court or
any governmental or regulatory authority applicable to the Company, or (iii)
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company is a party or by which it or any of
its property may be bound or subject.
(o) The Company currently owns or possesses adequate
rights to use all intellectual property, including all U.S. and foreign patents,
trademarks, service marks, trade names, copyrights, inventions, know-how, trade
secrets, proprietary technologies, processes and substances, or applications or
licenses therefor, that are described in the Prospectus (and if the Prospectus
is not in existence, the most recent Preliminary Prospectus), and any other
rights or interests in items of intellectual property as are necessary for the
conduct of the business now conducted or proposed to be conducted by it as
described in the Prospectus (or, such Preliminary Prospectus); and, except as
disclosed in the Prospectus (and such Preliminary Prospectus), the Company is
not aware of the granting of any patent rights to, or the filing of applications
therefor by, others, nor is the Company aware of, nor has the Company received
notice of, infringement of or conflict with asserted rights of others with
respect to any of the foregoing. All such intellectual property rights and
interests are (i) valid and enforceable and (ii) to the best knowledge of the
Company, not being infringed by any third parties.
<PAGE>
(p) The Company possesses adequate licenses, orders,
authorizations, approvals, certificates or permits issued by the appropriate
federal, state or foreign regulatory agencies or bodies necessary to conduct its
business as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
and, except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of
the properties and assets reflected in the Company's financial statements or as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind, except those
reflected in such financial statements or as described in the Registration
Statement and the Prospectus (and such Preliminary Prospectus). The Company
occupies its leased properties under valid and enforceable leases conforming to
the description thereof set forth in the Registration Statement and the
Prospectus (and such Preliminary Prospectus).
(r) The Company is not subject to registration as an
"investment company" under the Investment Company Act of 1940.
(s) The Company has obtained and delivered to the
Underwriter the agreements (the "Lock-up Agreements") with respect to all
outstanding shares of Common Stock or preferred stock to the effect that, among
other things, each such person (i) will not, commencing on the Effective Date
and continuing for periods of 12 or 18 months (as applicable) thereafter,
directly or indirectly, sell, offer or contract to sell or grant any option to
purchase, transfer, assign or pledge, or otherwise encumber, or dispose of any
shares of Common Stock or preferred stock or any securities convertible into or
exercisable for Common Stock or preferred stock now or hereafter owned by such
person without the prior written consent of the Underwriter, and (ii) will
comply with any additional restriction or condition on the disposition of such
Common Stock or preferred stock which may be required to qualify the offering of
the Securities in any state in accordance with the blue sky or securities laws
of such state.
(t) No labor dispute with the employees of the Company
exists, is threatened or, to the best of the Company's knowledge, is imminent
that could result in a material adverse change in the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Underwriter's Warrants will conform to the
description thereof in the Registration Statement and in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus) and,
when sold to and paid for by the Underwriter in accordance with the
Underwriter's Warrant Agreement, will have been duly authorized and validly
issued and will constitute valid and binding obligations of the Company entitled
to the benefits of the Underwriter's Warrant Agreement. The Underwriter's
Warrant Shares (as hereinafter defined) and the Underwriter's Warrant Warrant
Shares (as hereinafter defined) have been duly authorized and reserved for
issuance upon exercise of the Underwriter's Warrants and the Underwriter's
Warrant Warrants (as hereinafter defined), respectively, by all necessary
corporate action on the part of the Company and, when issued and delivered and
paid for upon such exercise in accordance with the terms of the Underwriter's
Warrant Agreement and the Underwriter's Warrant Warrants, respectively, will be
validly issued, fully paid, nonassessable and free of preemptive rights and will
conform to the description thereof in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus).
<PAGE>
(w) The Company has engaged Corporate Builders L.P. to
serve as its financial public relations firm.
(x) No person has acted as a finder in connection with, or
is entitled to any commission, fee or other compensation or payment for services
as a finder for or for originating, or introducing the parties to, the
transactions contemplated herein and the Company will indemnify the Underwriter
with respect to any claim for finder's fees in connection herewith. Except as
set forth in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has no management or financial consulting agreement with anyone. No
promoter, officer, director or stockholder of the Company is, directly or
indirectly, affiliated or associated with an NASD member, no securities of the
Company have been acquired by an NASD member except as has been previously
disclosed in writing to the Underwriter.
2. Purchase, Sale and Delivery of the Securities and the
Warrant Securities.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, the Firm
Shares at a purchase price of $4.50 per share and the Firm Warrants at a
purchase price of $.09 per warrant.
(b) Certificates in definitive form for the Firm
Securities that the Underwriter has agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Underwriter requests upon notice to the Company at least 48 hours prior to the
Firm Closing Date, shall be delivered by or on behalf of the Company to the
Underwriter, against payment by or on behalf of the Underwriter of the purchase
prices therefor by certified or official bank check or checks drawn upon or by a
New York Clearing House bank and payable in next-day funds to the order of the
Company. Such delivery of and payment for the Firm Securities shall be made at
the offices of the Underwriter, 875 Third Avenue, New York, New York (the
"Underwriter's Office") at 9:30 A.M., New York time, on _______________, 1996,
or at such other place, time or date as the Underwriter and the Company may
agree upon, such time and date of delivery against payment being herein referred
to as the "Firm Closing Date." The Company will make such certificates for the
Firm Securities available for checking and packaging by the Underwriter, at the
Underwriter's option, at the offices in New York, New York of the Company's
transfer agent and registrar or the Underwriter's Office at least 24 hours prior
to the Firm Closing Date.
<PAGE>
(c) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as contemplated
by the Prospectus, the Company hereby grants to the Underwriter an option to
purchase any or all of the Option Securities. The purchase price to be paid for
any of the Option Securities shall be the same price per share or warrant as the
price per share or warrant for the Firm Securities set forth above in paragraph
(a) of this section 2. The option granted hereby may be exercised as to all or
any part of the Option Securities from time to time within 45 calendar days
after the Firm Closing Date. The Underwriter shall not be under any obligation
to purchase any of the Option Securities prior to the exercise of such option.
The Underwriter may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the
Underwriter is then exercising the option and the date and time for delivery of
and payment for such Option Securities. Any such date of delivery shall be
determined by the Underwriter but shall not be earlier than two business days or
later than three business days after such exercise of the option and, in any
event, shall not be earlier than the Firm Closing Date. The time and date set
forth in such notice, or such other time on such other date as the Underwriter
and the Company may agree upon, is herein called the "Option Closing Date" with
respect to such Option Securities. Upon exercise of the option as provided
herein, the Company shall become obligated to sell to the Underwriter, and,
subject to the terms and conditions herein set forth, the Underwriter shall
become obligated to purchase from the Company, the Option Securities as to which
the Underwriter is then exercising its option. If the option is exercised as to
all or any portion of the Option Securities, certificates in definitive form for
such Option Securities, and payment therefor, shall be delivered on the related
Option Closing Date in the manner, and upon the terms and conditions, set forth
in paragraph (b) of this section 2, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (c), to refer to such Option Securities and Option Closing Date,
respectively.
(d) On the Firm Closing Date, the Company will further
issue and sell to the Underwriter or, at the direction of the Underwriter, to
bona fide officers of the Underwriter, for an aggregate purchase price of
$10.00, warrants to purchase Common Stock and redeemable warrants to purchase
Common Stock (the "Underwriter's Warrants") entitling the holders thereof to
purchase an aggregate of 200,000 shares of Common Stock and 200,000 redeemable
warrants to purchase Common Stock for a period of four years, such period to
commence on the first anniversary of the Effective Date. The Underwriter's
Warrants shall be exercisable at a price equal to 120% 165% of the initial
public offering price per share and warrant, respectively and shall contain
terms and provisions more fully described herein below and as set forth more
particularly in the warrant agreement relating to the Underwriter's Warrants to
be executed by the Company on the Effective Date (the "Underwriter's Warrant
Agreement"), including, but not limited to, (i) customary anti-dilution
provisions in the event of stock dividends, split mergers, sales of all or
substantially all of the Company's assets, sales of stock below then prevailing
market or exercise prices and other events, and (ii) prohibitions of mergers,
consolidations or other reorganizations of or by the Company or the taking by
the Company of other action during the five-year period following the Effective
Date unless adequate provision is made to preserve, in substance, the rights and
powers incidental to the Underwriter's Warrants. As provided in the
Underwriter's Warrant Agreement, the Underwriter may designate that the
Underwriter's Warrants be issued in varying amounts directly to bona fide
officers of the Underwriter. As further provided, no sale, transfer, assignment,
pledge or hypothecation of the Underwriter's Warrants shall be made for a period
of 12 months from the Effective Date, except (i) by operation of law or
reorganization of the Company, or (ii) to the Underwriter and bona fide
partners, directors and officers of the Underwriter and selling group members.
The shares of Common Stock issuable upon exercise of the Underwriter's Warrants
are referred to herein as the "Underwriter's Warrant Shares"; the warrants
issuable upon exercise of the Underwriter's Warrants are referred to herein as
the "Underwriter's Warrant Warrants"; the shares of Common Stock issuable upon
exercise of the Underwriter's Warrant Warrants are referred to herein as the
"Underwriter's Warrant Warrant Shares"; and the Underwriter's Warrant Shares,
the Underwriter's Warrant Warrants and the Underwriter's Warrant Warrant Shares
are collectively referred to herein as the "Underwriter's Securities."
<PAGE>
3. Offering by the Underwriter. The Underwriter proposes to offer
the Firm Shares for sale to the public upon the terms set forth in the
Prospectus.
4. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
agreement, to become effective as promptly as possible. If required, the Company
will file the Prospectus and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act. During any time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of sales
of or dealings in the Securities in accordance with the provisions hereof and of
the Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section 1(a) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriter shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriter
shall not have given its consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriter or counsel to the Underwriter, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Shares by the Underwriter, and will use its best efforts to
cause any such amendment to the Registration Statement to be declared effective
by the Commission as promptly as possible. The Company will advise the
Underwriter, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Underwriter of each such
filing or effectiveness.
(b) The Company will advise the Underwriter, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
(ii) the suspension of the qualification of any Securities for offering or sale
in any jurisdiction, (iii) the institution, threat or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best efforts
to prevent the issuance of any such stop order and, if any such stop order is
issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the
Underwriter, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriter may designate and will continue such qualifications in effect for as
long as may be necessary to complete the distribution of the Securities.
<PAGE>
(d) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs as a
result of which the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the Act or the rules or regulations of the Commission thereunder,
the Company will promptly notify the Underwriter thereof and, subject to section
4(a) hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or effects
such compliance.
(e) So long as any warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and any
dealer as many copies of each such Prospectus as the Underwriter or dealer may
reasonably request. The Company shall not call for redemption of the Warrants
unless a registration statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least until
the date fixed for redemption. In addition, for so long as any Warrant is
outstanding, the Company will promptly notify the Underwriter of any material
change in the business, financial condition or prospects of the Company. So long
as any of the Warrants remain outstanding, the Company will timely deliver and
supply to its Warrant agent sufficient copies of the Company's current
Prospectus, as will enable such Warrant agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
(f) The Company will, without charge, provide to the
Underwriter and to counsel for the Underwriter (i) as many signed copies of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) as the Underwriter
may reasonably request, (ii) as many conformed copies of such registration
statement and each amendment thereto (in each case without exhibits thereto) as
the Underwriter may reasonably request and (iii) so long as a prospectus
relating to the Securities is required to be delivered under the Act, as many
copies of each Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto as the Underwriter may reasonably request. The Company will
timely file, and will provide or cause to be provided to the Underwriter and
counsel to the Underwriter a copy of the report on Form SR required to be filed
by the Company pursuant to Rule 463 under the Act.
(g) The Company, as soon as practicable, will make
generally available to its security holders and to the Underwriter an earnings
statement of the Company that satisfies the provisions of section 11(a) of the
Act and Rule 158 thereunder.
<PAGE>
(h) The Company will reserve and keep available for
issuance that maximum number of its authorized but unissued shares of Common
Stock which are issuable upon exercise of the Warrants and issuable upon
exercise of the Underwriter's Warrants (including the underlying securities)
outstanding from time to time.
(i) The Company will apply the net proceeds from the sale
of the Securities as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, without the prior written
consent of the Underwriter, directly or indirectly offer, agree to sell, sell,
grant any option to purchase or otherwise dispose (or announce any offer,
agreement to sell, sale, grant of any option to purchase or other disposition)
of any shares of Common Stock, preferred stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock or preferred
stock for a period of 18 months after the Effective Date, except (i) the Shares
and Warrants issued pursuant to this agreement, (ii) the Warrant Shares issuable
upon exercise of the Warrants, (iii) the Underwriter's Warrant, (iv) the
Underwriter's Warrant Shares and Underwriter's Warrant Warrants issuable upon
the exercise of the Underwriter's Warrants, (v) the Underwriter's Warrant
Warrant Shares issuable upon exercise of the Underwriter's Warrant Warrants, and
(vi) up to a maximum of 205,000 shares of Common Stock issuable upon the
exercise of options granted under the Company's Stock Option Plan.
(k) Prior to the Closing Date or the Option Closing Date
(if any), the Company will not, directly or indirectly, without your prior
written consent, which shall not be unreasonably withheld or delayed, issue any
press release or other public announcement or hold any press conference with
respect to the Company or its activities with respect to the Offering (other
than trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations).
(l) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted therefrom in reliance
upon Rule 430A under the Act, then immediately following the execution of this
agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies of
the Prospectus including the information omitted in reliance on Rule 430A, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included
in The Nasdaq Stock Market, Inc. ("Nasdaq") SmallCap Market, and use its best
efforts to cause the Securities to be listed on the Boston Stock Exchange (the
"BSE"), on the Effective Date and to maintain such listings thereafter. The
Company will file with Nasdaq and the BSE all documents and notices that are
required by Nasdaq and the BSE, respectively, of companies with securities that
are traded on the Nasdaq Smallcap Market and the BSE.
<PAGE>
(n) During the period of five years from the Firm Closing
Date, the Company will, as promptly as possible, (i) not to exceed 90 days,
after each annual fiscal period render and distribute reports to its
stockholders which will include audited statements of its operations and changes
of financial position during such period and its audited balance sheet as of the
end of such period, as to which statements the Company's independent certified
public accountants shall have rendered an opinion and (ii) not to exceed 45
days, after each of the first three quarterly fiscal periods render and
distribute reports to its stockholders which will include unaudited statements
of its operations and changes in financial position during such period and
year-to-date period and its unaudited balance sheet as of the end of such
period.
(o) During a period of three years commencing with the
Firm Closing Date, the Company will furnish to the Underwriter, at the Company's
expense, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(p) The Company has appointed American Stock Transfer &
Trust Company as transfer agent for the Common Stock and warrant agent for the
Warrants, subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Firm Closing Date without first
obtaining the written consent of the Underwriter. For a period of three years
after the Effective Date, the Company shall cause the transfer agent and warrant
agent to deliver promptly to the Underwriter a duplicate copy of the daily
transfer sheets relating to trading of the Securities. The Company shall also
provide to the Underwriter, promptly upon its request, up to four times in any
calendar year, copies of DTC or equivalent transfer sheets.
(q) The Company shall continue to engage Corporate
Builders L.P. or, if the Company terminates such engagement, shall immediately
engage another financial public relations firm acceptable to the Underwriter
until the first anniversary of the Closing Date.
(r) During the period of 180 days after the date of this
agreement, the Company will not at any time, directly or indirectly, take any
action designed to or that will constitute, or that might reasonably be expected
to cause or result in, the stabilization of the price of the Common Stock to
facilitate the sale or resale of any of the Shares.
(s) The Company will not take any action to facilitate the
sale of any shares of Common Stock pursuant to Rule 144 under the Act if any
such sale would violate any of the terms of the Lock-up Agreements.
(t) Prior to the 90th day after the Firm Closing Date, the
Company will provide the Underwriter and its designees with four bound volumes
of the transaction documents relating to the Registration Statement and the
closing(s) hereunder, in form and substance reasonably satisfactory to the
Underwriter.
<PAGE>
(u) The Company shall consult with the Underwriter prior
to the distribution to third parties of any financial information news releases
or other publicity regarding the Company, its business, or any terms of this
offering and the Underwriter will consult with the Company prior to the issuance
of any research report or recommendation concerning the Company's securities.
Copies of all documents that the Company or its public relations firm intend to
distribute will be provided to the Underwriter for review prior to such
distribution.
(v) The Company and the Underwriter will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent this offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriter will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(w) The Company, for itself and on behalf of its
Subsidiaries and its affiliates, grants to the Underwriters a right of first
refusal for a period of three years from the Effective Date to manage,
underwrite or act as agent for any public or private offering of securities to
raise capital and sale of securities to be made by the Company, its affiliates
or any of its present or future Subsidiaries.
(x) On the Closing Date, the Company shall enter into an agreement retaining the
Underwriter as management and financial consultants to the Company for a
two-year period commencing as of the Closing at a fee equal to $29,000 per year,
payable in full at the Closing.
(y)(x) The Company will, for a period of no less than
three years commencing immediately after the Effective Date, engage a designee
by the Underwriter as advisor (the "Advisor") to the Company's Board of
Directors, who shall attend meetings of the Board, receive all notices and other
correspondence and communications sent by the Company to its Board of Directors
and receive compensation equal to that of other non-officer directors; provided,
that in lieu of the Underwriter's right to designate an Advisor, the Underwriter
shall have the right during such three-year period, in its sole discretion, to
designate one person for election as a director of the Company and the Company
will utilize its best efforts to obtain the election of such person who shall be
entitled to receive the same compensation, expense reimbursements and other
benefits as set forth above. In addition, such Advisor shall be entitled to
receive reimbursement for all costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. The Company,
during said three-year period, shall schedule no less than four formal meetings
(at least one of which shall be "in person" and the others may be held
telephonically) of its Board of Directors in each such year at which meetings
such Advisor shall be permitted to attend (in person, for each meeting held "in
person") as set forth herein; said meetings shall be held quarterly each year
and advance notice of such meetings identical to the notice given to directors
shall be given to the Advisor. The Company and its principal stockholders shall,
during such three year period, give the Underwriter timely prior written notice
of any proposed acquisitions, mergers, reorganizations or other similar
transactions. The Company shall indemnify and hold the Underwriter and such
Advisor or director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of such Advisor or director at any such meeting described herein,
and, if the Company maintains a liability insurance policy affording coverage
for the acts of its officers and directors, it shall, if possible, include such
Advisor or director as an insured under such policy.
(z)(y) The Company shall first submit to the Underwriter
certificates representing the Securities for approval prior to printing, and
shall, as promptly as possible,
after filing the Registration Statement with the Commission, obtain CUSIP
numbers for the Securities.
(aa)(z) The Company shall engage the Underwriter's
counsel to provide the Underwriter, at the closing of any sale of Securities
hereunder and quarterly thereafter,
with an opinion, setting forth those states in which the Common Stock and
Warrants may be traded in non-issuer transactions under the blue sky or
securities laws of the 50 states. The Company shall pay such counsel a one-time
fee of $7,500 for such opinions at the closing of the sale of the Firm
Securities.
<PAGE>
(bb)(aa) The Company will prepare and file a registration
statement with the Commission pursuant to section 12(g) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and will use its best efforts
to have such registration statement declared effective by the Commission on an
accelerated basis on the day after the Effective Date. For this purpose the
Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(cc)(bb) For so long as the Securities are registered
under the 1934 Act, the Company will hold an annual meeting of stockholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(dd) Prior to the Effective Date, the Company shall enter
into an employment contract (acceptable to the Underwriter) with such key
officers as may be selected by the Underwriter on terms and conditions
reasonably satisfactory to the Underwriter and shall obtain key-person life
insurance in the minimum amount of $1,000,000 on each such person on such terms
and conditions as are reasonably satisfactory to the Underwriter, assuming such
coverage is available on commercially reasonable terms.
(ee) Gerald Zarin shall be President and Chief Executive
Officer of the Company and Robert Webb shall be the Vice President - Marketing
of the Company on the Closing Dates.
<PAGE>
5. Expenses.
(a) The Company shall pay all costs and expenses incident
to the performance of its obligations under this agreement, whether or not the
transactions contemplated hereby are consummated or this agreement is terminated
pursuant to section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the registration
statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, (iii) the fees
and disbursements of the counsel, the accountants and any other experts or
advisors retained by the Company, (iv) the preparation, issuance and delivery to
the Underwriter of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements of
counsel for the Underwriter relating thereto (such counsel fees not to exceed
$35,000, $15,000 of which shall be due and payable upon the commencement of blue
sky filing, together with the related filing fees) and any fees and
disbursements of local counsel, if any, retained for such purpose, (vi) the
filing fees of the Commission and the NASD relating to the Securities, (vii) the
inclusion of the Securities on the Nasdaq SmallCap Market and listing on the BSE
and in the Standard and Poor's Corporation Descriptions Manual, (viii) any "road
shows" or other meetings with prospective investors in the Securities, including
transportation, accommodation, meal, conference room, audio-visual presentation
and similar expenses of the Underwriter or its representatives or designees
(other than as shall have been specifically approved by the Underwriter to be
paid for by the Underwriter) and (ix) the placing of "tombstone advertisements"
in publications selected by the Underwriter and the manufacture of prospectus
memorabilia. In addition to the foregoing, the Company shall reimburse the
Underwriter for its expenses on the basis of a non-accountable expense allowance
in the amount of 3% of the gross offering proceeds to be received by the
Company, $50,000 of which has been paid by the Company to the Underwriter. The
Underwriter hereby acknowledges receipt of such $50,000, which shall be credited
against the non-accountable expense allowance to be paid by the Company. The
unpaid portion of the expense allowance, based on the gross proceeds from the
sale of the Firm Securities, shall be deducted from the funds to be paid by the
Underwriter in payment for the Firm Securities, pursuant to section 2 of this
agreement, on the Firm Closing Date. To the extent any Option Securities are
sold, any remaining non-accountable expense allowance based on the gross
proceeds from the sale of the Option Securities shall be deducted from the funds
to be paid by the Underwriter in payment for the Option Securities, pursuant to
section 2 of this agreement, on the Option Closing Date. The Company warrants,
represents and agrees that all such payments and reimbursements will be promptly
and fully made.
(b) Notwithstanding any other provision of this agreement,
if the Company determines not to proceed with the offering of the Securities
contemplated hereby is terminated for any reason, the advance payment of the
expense allowance shall be non-refundable and be retained by the Underwriter. If
the Underwriter elects to terminate this agreement pursuant to section 10
hereof, the Company agrees that, in addition to the Company paying its own
expenses as described in subparagraph (a) above, (i) the Company shall reimburse
the Underwriter for all of its only for its actual accountable out-of-pocket
legal expenses (in addition to blue sky legal fees and expenses referred to in
subparagraph (a) above), and (ii) the Underwriter shall be entitled to retain
the non-accountable expense allowance paid by the Company pursuant to
subparagraph (a) above; provided, however, that the amount retained pursuant to
this clause (ii) shall not exceed the Underwriter's expenses on an accountable
basis to the date of such cancellation and that all unaccounted for amounts
shall be refunded to the Company. Such expenses shall include, but are not to be
limited to, fees for the services and time of counsel for the Underwriter to the
extent not covered by clause (i) above, plus any additional expenses and fees,
including, but not limited to, travel expenses, postage expenses, "ticket"
charge, duplication expenses, long-distance telephone expenses, and other
expenses incurred by the Underwriter in connection with the proposed offering.
6. Warrant Solicitation Fee.
The Company agrees to pay the Underwriter a fee of
five percent (5%) of the aggregate exercise price of the Warrants if (i) the
market price of the Common stock is greater than the exercise price of the
Warrants on the date of exercise; (ii) the exercise of the Warrants is solicited
by a member of the NASD; (iii) the Warrants are not held in a discretionary
account; (iv) the disclosure of compensation arrangements is made both at the
time of this offering and at the time of the exercise of the Warrant; and (v)
the solicitation of the Warrant exercise is not in violation of Rule 10b-6 under
the 1934 Act. The Company agrees not to solicit the exercise of any Warrant
other than through the Underwriter and will not authorize any other dealer to
engage in such solicitation without the prior written consent of the Underwriter
which will not be unreasonably withheld. The Warrant solicitation fee will not
be paid in a non-solicited transaction. Any request for exercise will be
presumed to be unsolicited unless the customer states in writing that the
transaction was solicited and designates in writing the broker/dealer to receive
compensation for the exercise. No Warrant solicitation by the Underwriter will
occur for a period of 12 months after the Effective Date.
<PAGE>
7. Conditions of the Underwriter' Obligations. The obligations of
the Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the registration statement, as heretofore amended,
has not been declared effective as of the time of execution hereof, the
registration statement, as heretofore amended or as amended by an amendment
thereto to be filed prior to the Firm Closing Date, shall have been declared
effective not later than 11 A.M., New York time, on the date on which the
amendment to such registration statement containing information regarding the
initial public offering price of the Shares has been filed with the Commission,
or such later time and date as shall have been consented to by the Underwriter;
if required, the Prospectus and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period required
by Rule 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
<PAGE>
(b) The Underwriter shall have received an opinion, dated
the Firm Closing Date, of Honigman Miller Schwartz and Cohn, counsel to the
Company, to the effect that:
(1) the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
state of its incorporation and is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of any properties or the conduct
of its business requires such qualification;
(2) the Company and each Subsidiary has full
corporate power and authority to own or lease its property and conduct its
business as now being conducted and as proposed to be conducted, in each case as
described in the Registration Statement and the Prospectus, and the Company has
full corporate power and authority to enter into this agreement and the
Underwriter's Warrant Agreement and to carry out all the terms and provisions
hereof and thereof to be carried out by it;
(3) there are no outstanding options, warrants
or other rights granted by the Company to purchase shares of its Common Stock,
preferred stock or other securities other than as described in the Prospectus;
the Shares have been duly authorized and the Warrant Shares, the Underwriter's
Warrant Shares and the Underwriter's Warrant Warrant Shares have been duly
reserved for issuance by all necessary corporate action on the part of the
Company and, when issued and delivered to and paid for by the Underwriter
pursuant to this agreement, as to the Shares, the holders of the Warrants
pursuant to the terms thereof, as to the Warrant Shares, the Underwriter
pursuant to the Underwriter's Warrant, as to the Underwriter's Warrant Shares,
pursuant to the Underwriter's Warrant Warrants, as to the Underwriter's Warrant
Warrant Shares, will be validly issued, fully paid, nonassessable and free of
preemptive rights and will conform to the description thereof in the Prospectus;
no holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares, the Warrant
Shares, the Underwriter's Warrant Shares or the Underwriter's Warrant Warrant
Shares; and no person is entitled to have securities registered by the Company
under the Registration Statement or otherwise under the Act other than as
described in the Prospectus;
(4) the Shares have been approved for inclusion
in the Nasdaq SmallCap Market and for listing on the BSE;
(5) the execution and delivery of this agreement
and the Underwriter's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this agreement and the
Underwriter's Warrant Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this agreement and the Underwriter's Warrant Agreement may be
limited by applicable law;
(6) the Underwriter's Warrants conform to the
description thereof in the Registration Statement and in the Prospectus and are
duly authorized and validly issued and constitute valid and binding obligations
of the Company entitled to the benefits of the Underwriter's Warrant Agreement;
(7) the statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as those statements
purport to summarize the terms of the capital stock and warrants of the Company,
provide a fair summary of such terms; the statements in the Prospectus, insofar
as those statements constitute matters of law or legal conclusions, or summaries
of the contracts and agreements referred to therein, constitute a fair summary
of those matters, legal conclusions, contracts and agreements and include all
material terms thereof, as applicable;
<PAGE>
(8) none of (A) the execution and delivery of
this agreement and the Underwriter's Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriter of the Securities pursuant
to this agreement and the Underwriter's Warrant Securities pursuant to the
Underwriter's Warrant Agreement, nor (C) the compliance by the Company with the
other provisions of this agreement and the Underwriter's Warrant Agreement and
the consummation of the transactions contemplated hereby and thereby, (1)
requires the consent, approval, authorization, registration or qualification of
or with any court or governmental authority, except such as have been obtained
and such as may be required under state blue sky or securities laws, or (2)
conflicts with or results in a breach or violation of, or constitutes a default
under, any contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary or any of its property is
bound or subject, of which such counsel is aware after reasonable inquiry, or
the certificate of incorporation or by-laws of the Company or any Subsidiary, or
any material statute or any judgment, decree, order, rule or regulation of any
court or other governmental or regulatory authority applicable to the Company or
any Subsidiary;
(9) to the best of such counsel's knowledge, (A)
no legal or governmental proceedings are pending to which the Company or any
Subsidiary is a party or to which the property of the Company or any Subsidiary
is subject and (B) no contract or other document is required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(10) the Company and each Subsidiary possesses
adequate licenses, orders, authorizations, approvals, certificates or permits
issued by the appropriate federal, state or foreign regulatory agencies or
bodies necessary to conduct its business as described in the Registration
Statement and the Prospectus, and, to the best of such counsel's knowledge after
due inquiry, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus.
(11) the Registration Statement is effective
under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(12) the registration statement originally filed
with respect to the Shares and each amendment thereto and the Prospectus (in
each case, other than the financial statements and schedules and other financial
and statistical information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the rules and regulations of the
Commission thereunder; and
(13) the Company is not subject to registration
as an "investment company" under the Investment Company Act of 1940.
Such counsel shall also state that such counsel has participated
in the preparation of the Registration Statement and the Prospectus and that
nothing has come to such counsel's attention that has caused them to believe
that the Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials, copies of which
certificates will be provided to the Underwriter, and, as to matters of the laws
of certain jurisdictions, on the opinions of other counsel to the Company, which
opinions shall also be delivered to the Underwriter, in form and substance
acceptable to the Underwriter, if such other counsel expressly authorize such
reliance and counsel to the Company expressly states in their opinion that such
counsel's and the Underwriter's reliance upon such opinion is justified.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at the
date of such opinion.
<PAGE>
(c) The Underwriter shall have received from Coopers &
Lybrand a letter dated the Effective Date and a letter dated the Firm Closing
Date, in form and substance satisfactory to the Underwriter, to the effect that
(i) they are independent public accountants with respect to the Company within
the meaning of the Act and the applicable rules and regulations thereunder; (ii)
in their opinion, the financial statements examined by them and included in the
Registration Statement and the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable rules and regulations thereunder; (iii) based upon procedures set
forth in detail in such letter, nothing has come to their attention which causes
them to believe that (A) the financial information set forth under "Summary
Financial Information" in the Prospectus was not determined on a basis
substantially consistent with that used in determining the corresponding amounts
in the financial statements included in the Registration Statement or (B) at a
specified date not more than five days prior to the date of this agreement,
there has been any change in the capital stock of the Company or any increase in
the long-term debt of the Company or any decrease in working capital or net
assets as compared with the amounts shown in the December 31, 1995 balance sheet
included in the Registration Statement or, during the period from July 17, 1995
to a specified date not more than five days prior to the date of this agreement,
there were any decreases, as compared with the corresponding period in the
preceding quarter, in revenues, or any increase in certain specified expense
items of the Company, except in all instances for changes, increases or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur; and (iv) in addition to the examination referred to in
their opinions and the limited procedures referred to in clause (iii) above,
they have carried out certain specified procedures, not constituting an audit,
with respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified by
the Underwriter, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and other
records of the Company identified in such letter. References to the Registration
Statement and the Prospectus in this paragraph (c) with respect to the letter
referred to above shall include any amendment or supplement thereto at the date
of such letter.
(d) The representations and warranties of the Company
contained in this agreement shall be true and correct as if made on and as of
the Firm Closing Date; the Registration Statement shall not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Firm Closing Date, shall not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Firm Closing Date.
(e) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or
contemplated by the Commission.
(f) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall not have been any material adverse change, or any development involving a
prospective material adverse change, in the business, operations, condition
(financial or otherwise), earnings or prospects of the Company, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
<PAGE>
(g) The Underwriter shall have received a certificate,
dated the Firm Closing Date, of the Chief Executive Officer and the Secretary of
the Company to the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock shall be qualified in such
jurisdictions as the Underwriter may reasonably request pursuant to section
4(c), and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the
Underwriter the Underwriter's Warrant Agreement and a certificate or
certificates evidencing the Underwriter's Warrants, in each case in a form
acceptable to the Underwriter.
(j) On or before the Firm Closing Date, the Underwriter
and counsel for the Underwriter shall have received such further certificates,
documents, letters or other information as they may have reasonably requested
from the Company.
All opinions, certificates, letters and documents delivered
pursuant to this agreement will comply with the provisions hereof only if they
are reasonably satisfactory in all material respects to the Underwriter and
counsel for the Underwriter. The Company shall furnish to the Underwriter such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriter and counsel for the Underwriter shall reasonably
request.
The respective obligations of the Underwriter to purchase and pay
for any Option Securities shall be subject, in its discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls any Underwriter within the
meaning of section 15 of the Act or section 20 of the 1934 Act against any
losses, claims, damages, amounts paid in settlement or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(1) any breach of any representation or warranty
of the Company contained in section 1 of this agreement,
(2) any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration Statement
originally filed with respect to the Securities or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the Blue Sky or securities laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or
(3) the omission or alleged omission to state in
such Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriter and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
loss, claim, damage, liability, action, investigation, litigation or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Underwriter or any
person who controls any Underwriter within the meaning of section 15 of the Act
or section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
<PAGE>
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of section 15 of the Act or section 20 of the Exchange Act against, any losses,
claims, damages or liabilities to which the Company or any such director,
officer or controlling person may become subject under the Act or otherwise, but
only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application, or (ii) the omission
or the alleged omission to state therein a material fact required to be stated
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application, or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
Underwriter specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or any action in respect thereof. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
<PAGE>
(c) Promptly after receipt by an indemnified party under
this section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this section 7, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this section 7. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this section 7 is unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriter. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriter agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Shares purchased by such Underwriter under
this agreement, less the aggregate amount of any damages that such Underwriter
has otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this paragraph (d), each person, if any, who controls an Underwriter within the
meaning of section 15 of the Act or section 20 of the 1934 Act shall have the
same rights to contribution as the Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company within the meaning of section 15
of the Act or section 20 of the 1934 Act, shall have the same rights to
contribution as the Company.
<PAGE>
9. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, any of
its officers or directors and the Underwriter set forth in this agreement or
made by or on behalf of them, respectively, pursuant to this agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, any Underwriter or
any controlling person referred to in section 7 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in sections 5 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
agreement.
10. Termination.
(a) This agreement may be terminated with respect to the
Firm Securities or any Option Shares in the sole discretion of the Underwriter
by notice to the Company given prior to the Firm Closing Date or the related
Option Closing Date, respectively, in the event that the Company shall have
failed, refused or been unable to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively,
(1) the Company sustains a loss by reason of explosion,
fire, flood, accident or other calamity, which, in the opinion of the
Underwriter, substantially affects the value of the properties of the Company or
which materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any person
or by any federal, state, foreign or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock or Warrants shall have
been suspended by the Commission, the NASD or the BSE, or trading in securities
generally on the New York Stock Exchange shall have been suspended or minimum or
maximum prices shall have been established on either such exchange or quotation
system;
(4) a banking moratorium shall have been declared by New
York or United States authorities; or
(5) there shall have been (A) an outbreak of hostilities
between the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement; or
(6) the Company's counsel or independent public
accountants are unable to deliver any opinion, report or certificate relating to
this offering which is qualified in any material respect (other than, in the
case of this accountant's audit report, qualification with respect to the
viability of the Company as a going concern).
(b) Termination of this agreement pursuant to this section
10 shall be without liability of any party to any other party except as provided
in section 5(b) and section 8 hereof.
<PAGE>
11. Information Supplied by the Underwriter. The statements set
forth in the last paragraph on the front cover page and in the third paragraph
under the heading "Underwriting" in any Preliminary Prospectus or the Prospectus
(to the extent such statements relate to the Underwriter) constitute the only
information furnished by the Underwriter to the Company for the purposes of
sections 1(b) and 8(b) hereof. The Underwriter confirms that such statements (to
such extent) are correct.
12. Notices. All notice hereunder to or upon either party hereto
shall be deemed to have been duly given for all purposes if in writing and (i)
delivered in person or by messenger or an overnight courier service against
receipt, or (ii) send by certified or registered mail, postage paid, return
receipt requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company at: One Passaic Avenue
Fairfield, New Jersey 07064 07004
Attn: President
Fax: (201) 882-8810 8812
To the Underwriter: 875 Third Avenue
New York, New York 10022
Attn: Corporate Finance Department
Fax: (212) 754-9636 9646
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the cas of clause (iii), the business day next
following the date such notice is sent.
<PAGE>
13. Amendment. Except as otherwise provided herein, no amendment
of this agreement shall be valid or effective, unless in writing and signed by
or on behalf of the parties hereto.
14. Waiver. No course of dealing or omission or delay on the part
of either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
15. Applicable Law. This agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
16. Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the exclusive jurisdiction of the Supreme Court of the
State of New York and the United States District Court for the Southern District
of New York in connection with any suit, action or other proceeding arising out
of or relating to this agreement or the transactions contemplated hereby, waives
any objection to venue in the County of New York, State of New York, [or such
District] and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
17. Remedies. In the event of any actual or prospective breach or
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
18. Attorneys' Fees. The prevailing party in any suit, action or
other proceeding arising out of or relating to this agreement or the
transactions contemplated hereby, shall be entitled to recover its costs and
reasonable attorneys' fees.
19. Severability. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
20. Counterparts. This agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute
one and the same agreement.
<PAGE>
21. Successors. This agreement shall inure to the benefit of and
be binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this agreement, or any provisions herein contained,
this agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
section 8 of this agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of section 15 of the Act
or section 20 of the Exchange Act and (ii) the indemnities of the Underwriter
contained in section 8 of this agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act. No
purchaser of Securities from the Underwriter shall be deemed a successor because
of such purchase.
22. Titles and Captions. The titles and captions of the articles
and sections of this agreement are for convenience of reference only and do not
in any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
23. Grammatical Conventions. Whenever the context so requires,
each pronoun or verb used herein shall be construed in the singular or the
plural sense and each capitalized term defined herein and each pronoun used
herein shall be construed in the masculine, feminine or neuter sense.
24. References. The terms "herein," "hereto," "hereof," "hereby,"
and "hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
25. Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes any prior agreement, commitment or arrangement relating thereto.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and the
Underwriter.
Very truly yours,
NUWAVE TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
RICKEL & ASSOCIATES, INC.
By:
--------------------------------------
Name:
Title:
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "NUWAVE TECHNOLOGIES, INC.", FILED IN THIS OFFICE ON THE THIRD DAY
OF MAY, A.D. 1996, A.D. 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
SEAL -------------------------------------
OF THE OFFICE Edward J. Freel, Secretary of State
OF THE STATE OF
DELAWARE AUTHENTICATION: 7933792
DATE: 05-06-96
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE
OF INCORPORATION OF
NUWAVE TECHNOLOGIES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
NUWAVE TECHNOLOGIES, INC.
2. The Certificate of Incorporation of the Corporation is hereby amended by
striking out Section 1 of the Fourth Article thereof and by substituting in lieu
of said Section 1 the following new Section 1 of the Fourth Article:
"FOURTH:
1. Authorized Capital. The total number of shares of all classes
of capital stock which the Corporation has authority to issue is
22,000,000 shares, par value $.01 per share, consisting of (i)
20,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock") and (ii) 2,000,000 shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock").
3. The amendment of the Certificate of Incorporation of the Corporation
herein certified was duly adopted, pursuant to the provisions of Section 242 of
the General Corporation Law of the State of Delaware, by all of the Directors of
the Corporation, who have been elected and qualified, and by a majority of
shareholders of the Corporation.
Signed on April 30, 1996. By: /s/ Jeremiah F. O'Brien
-----------------------------
Jeremiah F. O'Brien, Secretary
<PAGE>
NUWAVE TECHNOLOGIES, INC.
a Delaware corporation,
RICKEL & ASSOCIATES, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. Appointment of Warrant Agent........................................6
2. Form of Warrant.....................................................6
3. Countersignature and Registration...................................7
4. Transfers and Exchanges.............................................8
5. Exercise of Warrants; Payment of Warrant Solicitation Fee...........9
6. Payment of Taxes...................................................12
7. Mutilated or Missing Warrants......................................13
8. Reservation of Common Stock........................................13
9. Adjustments of Warrant Price and Number of Securities..............14
10. Fractional Interests...............................................24
11. Notices to Warrantholders..........................................24
12. Disposition of Proceeds on Exercise of Warrants....................26
13. Redemption of Warrants.............................................26
14. Merger or Consolidation or Change of Name of Warrant Agent.........27
15. Duties of Warrant Agent............................................28
16. Change of Warrant Agent............................................30
17. Identity of Transfer Agent.........................................31
18. Notices............................................................32
19. Supplements and Amendments.........................................33
20. New York Contract..................................................33
21. Benefits of this Agreement.........................................33
22. Successors.........................................................34
i
<PAGE>
WARRANT AGREEMENT, dated as of-1996, among NUWAVE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), RICKEL & ASSOCIATES, INC. ("Rickel"), and
AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant agent (the "Warrant Agent").
The Company proposes to issue and sell through an initial public
offering (the "IPO") underwritten by Rickel (the "Underwriter"), an aggregate of
up to 2,000,000 shares of common stock, par value $.01 per share (the "Common
Stock") , and 2,000,000 redeemable Common Stock purchase warrants and, pursuant
to the Underwriter's overallotment option (the "Overallotment Option"), up to an
additional 300,000 shares of Common Stock and 300,000 Warrants (collectively,
the warrants to purchase such 2,300,000 shares of common stock and the
Underlying Warrants hereinafter defined are called the "Warrants");
Each Warrant will entitle the holder to purchase one share of Common
Stock;
In connection with the IPO the Company proposes to sell to the
Underwriter warrants (the "Underwriter's Warrant") to purchase up to 200,000
shares of Common Stock and up to 200,000 warrants (the "Underlying Warrants");
The Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants;
THEREFORE, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
1
<PAGE>
Upon the execution of this Agreement, certificates representing
2,000,000 Warrants to purchase up to an aggregate of 2,000,000 shares of Common
Stock (subject to modification and adjustment as provided in Section 9 hereof)
shall be executed by the Company and delivered to the Warrant Agent.
Upon the exercise of the Overallotment Option, certificates
representing up to 300,000 Warrants to purchase up to an aggregate of 300,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 9 hereof) shall be executed by the Company and delivered to the Warrant
Agent.
Upon exercise of the Underwriter's Warrant as provided therein,
certificates representing up to 200,000 Warrants to purchase up to an aggregate
of 200,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 9 hereof) shall be executed by the Company and delivered to
the Warrant Agent.
Section 2. Form of Warrant. The text of the Warrants and the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto (the provisions of which
are hereby incorporated herein) . All of the certificates for the Warrants may
have such letters, numbers or other marks of identification or designation and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. Each Warrant shall initially entitle the registered holder thereof to
purchase one share of Common Stock at a purchase price of five dollars and fifty
cents ($5.50) (as adjusted as hereinafter provided, the "Warrant Price"), at any
time during the period (the "Exercise Period") commencing on _______________
1997, the first anniversary of the date of the Company's prospectus (the
"Prospectus") pursuant to which the Warrants are being sold in the IPO) and
expiring at 5:00 p.m. New York time, on ____________, 2001 (the fifth
anniversary of the date of the Prospectus). The Warrant Price and the number of
shares of Common Stock issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, all as hereinafter provided.
The Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future President or Vice President of
the Company, and attested to by the manual or facsimile signature of the present
or any future Secretary or Assistant Secretary of the Company.
2
<PAGE>
Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration date of the Warrants falls on a
day that is not a business day, then the Warrants shall expire at 5:00 p.m. New
York time on the next succeeding business day. For purposes hereof, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, New York, are authorized or
obligated by law to be closed.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
3
<PAGE>
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer,
from time to time, any outstanding Warrants upon the books to be maintained by
the Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock. No certificates for
Warrants shall be issued except for (i) Warrants initially issued hereunder in
accordance with Section 1 hereof, (ii) Warrants issued upon any transfer or
exchange of Warrants, (iii) Warrants issued in replacement of lost, stolen,
destroyed or mutilated certificates for Warrants pursuant to Section 7 hereof,
and (iv) at the option of the Board of Directors of the Company, Warrants in
such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Warrant Price or the number of shares of Common
Stock purchasable upon exercise of the Warrants made pursuant to Section 9
hereof.
4
<PAGE>
Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, at any time during the Exercise Period, to exercise such
Warrants and purchase the number of fully paid and non-assessable shares of
Common Stock specified in such Warrants upon presentation and surrender of such
Warrants to the Company at the corporate office of the Warrant Agent, with the
exercise form on the reverse thereof duly executed, and upon payment to the
Company of the Warrant Price, determined in accordance with the provisions of
Sections 2, 9 and 10 of this Agreement, for the number of shares of Common Stock
in respect of which such Warrants are then exercised. Payment of such Warrant
Price shall be made in cash or by certified or bank check payable to the
Company. Subject to Section 6 hereof, upon such surrender of Warrants and
payment of the Warrant Price, the Warrant Agent on behalf of the Company shall
cause to be issued and delivered with all reasonable dispatch to or upon the
written order of the registered holder of such Warrants and in such name or
names as such registered holder may designate, a certificate or certificates for
the number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares of Common Stock immediately prior to the close
of business on the date of the surrender of such Warrants and payment of the
Warrant Price as aforesaid. The rights of purchase represented by the Warrants
shall be exercisable during the Exercise Period, at the election of the
registered holders thereof, either as an entirety or from time to time for a
portion of the shares specified therein and, in the event that any Warrant is
exercised in respect of less than all of the shares of Common Stock specified
therein at any time prior to the date of expiration of the Warrants, a new
Warrant or Warrants will be issued to the registered holder for the remaining
number of shares of Common Stock specified in the Warrant so surrendered, and
the Warrant Agent is hereby irrevocably authorized to countersign and to deliver
the required new Warrants pursuant to the provisions of this Section and of
Section 3 of this Agreement and the Company, whenever requested by the Warrant
Agent, will supply the Warrant Agent with Warrants duly executed on behalf of
the Company for such purpose. Upon the exercise of any one or more Warrants, the
Warrant Agent shall promptly notify the Company in writing of such fact and of
the number of securities delivered upon such exercise and, subject to the
provisions below, shall cause all payments of an amount, in cash or by check
made payable to the order of the Company, equal to the aggregate Warrant Price
for such Warrants, less any amounts payable to the Underwriter, as provided
below, to be deposited promptly in the Company's bank account. The Company and
Warrant Agent shall determine, in their sole and absolute discretion, whether a
Warrant certificate has been properly completed for exercise by the registered
holder thereof.
5
<PAGE>
Anything in the foregoing to the contrary notwithstanding, no Warrant
will be exercisable and the Company shall not be obligated to deliver any
securities pursuant to the exercise of any warrant unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the securities issuable upon exercise of such Warrant and such
registration statement shall have been declared and shall remain effective and
shall be current, and such shares have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
holder of such Warrant and the exercise of such Warrant in any such state or
other jurisdiction shall not otherwise be unlawful. During the Exercise Period,
the Company shall use its best efforts to have a current registration statement
on file with the Securities and Exchange Commission covering the issuance of
Common Stock underlying the Warrants so as to permit the Company to deliver to
each person exercising a Warrant a prospectus meeting the requirements of
Section 10(a) (3) of the Act and otherwise complying therewith, and will deliver
such prospectus to each such person. During the Exercise Period, the Company
shall also use its best efforts to effect appropriate qualifications of the
Common Stock underlying the Warrants under the laws and regulations of the
states and other jurisdictions in which the Common Stock and Warrants are sold
by the Underwriter in the IPO in order to comply with applicable laws in
connection with the exercise of the Warrants.
6
<PAGE>
(a) If at the time of exercise of any Warrant (i) the market price of
the Common Stock is equal to or greater than the then exercise price of the
Warrant, (ii) the exercise of the Warrant is solicited by the Underwriter at
such time as it is a member of the National Association of Securities Dealers,
Inc. ("NASD") , (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangement is made in documents provided to the
holders of the Warrants, and (v) the solicitation of the exercise of the Warrant
is not in violation of Rule 10b-6 (as such rule or any successor rule may be in
effect as of such time of exercise) promulgated under the Securities Exchange
Act of 1934, as amended, then the Underwriter shall be entitled to receive from
the Company following exercise of each of the Warrants so exercised a fee of
five percent (5%) of the aggregate exercise price of the Warrants so exercised
(the "Exercise Fee") The procedures for payment of the Exercise Fee are set
forth in Section 5(b) below.
7
<PAGE>
(b) (i) Within five (5) days after the last day of each month
commencing with __________________, 1996, the Warrant Agent will notify the
Underwriter of each Warrant certificate which has been properly completed for
exercise by holders of Warrants during the last month. The Warrant Agent will
provide the Underwriter with such information, in connection with the exercise
of each Warrant, as the Underwriter shall reasonably request.
(ii) The Company hereby authorizes and instructs the Warrant Agent to
deliver to the Underwriter the Exercise Fee, if payable, in respect of each
exercise of Warrants, promptly after receipt by the Warrant Agent from the
Company of a check payable to the order of the Underwriter in the amount of such
Exercise Fee. In the event that an Exercise Fee is paid to the Underwriter with
respect to a Warrant which the Company or the Warrant Agent determines is not
properly completed for exercise or in respect of which the Underwriter is not
entitled to an Exercise Fee, the Underwriter will return such Exercise Fee to
the Warrant Agent which shall forthwith return such fee to the Company.
The Underwriter and the Company may at any time during business hours
examine the records of the Warrant Agent, including its ledger of original
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
Notwithstanding any provision to the contrary, the provisions of paragraph 5 (a)
and 5 (b) may not be modified, amended or deleted without the prior written
consent of the Underwriter.
8
<PAGE>
Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; 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 or delivery of any certificates for shares of Common Stock in a name
other than that of the registered holder of Warrants in respect of which such
shares are issued, and in such case neither the Company nor the Warrant Agent
shall be required to issue or deliver any certificate for shares of Common Stock
or any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid or that no such tax is required to be paid.
Section 7. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
9
<PAGE>
Section 8. Reservation of Common Stock. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized shares of
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the Warrants, and the transfer
agent for the shares of Common Stock and every subsequent transfer agent for any
shares of Common Stock issuable upon the exercise of any of the aforesaid rights
of purchase are irrevocably authorized and directed at all times to reserve such
number of authorized shares of Common Stock as shall be required for such
purpose. The Company agrees that all shares of Common Stock issued upon exercise
of the Warrants shall be, at the time of delivery of the certificates for such
shares against payment of the Warrant Price therefor, validly issued, fully paid
and nonassessable and listed on any national securities exchange or included in
any interdealer automated quotation system upon or in which the other shares of
outstanding Common Stock are then listed or included. The Company will keep a
copy of this Agreement on file with the transfer agent for the shares of Common
Stock (which may be the Warrant Agent) and with every subsequent transfer agent
for any shares of Common Stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired.
10
<PAGE>
Section 9. Adjustments of Warrant Price and Number of Securities.
(a) Computation of Adjusted Price. Except as hereinafter provided, in
case the Company shall, at any time after the date of closing of the sale of
securities pursuant to the IPO (the "Closing Date"), issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 9 (f)
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed pursuant to
Section 9(h) hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, for a
consideration per share less than both the "Market Price" (as defined in Section
9(a)(vi) hereof) per share of Common Stock on the trading day immediately
preceding such issuance or sale and the Warrant Price in effect immediately
prior to such issuance or sale, or without consideration, then forthwith upon
such issuance or sale, the Warrant Price shall (until another such issuance or
sale) be reduced to the price (calculated to the nearest full cent) determined
by multiplying the Warrant Price in effect immediately prior to such issuance or
sale by a fraction, the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
multiplied by the Warrant Price immediately prior to such issuance or sale plus
(2) the consideration received by the Company upon such issuance or sale, and
the denominator of which shall be the product of (x) the total number of shares
of Common Stock outstanding immediately after such issuance or sale, multiplied
by (y) the Warrant Price immediately prior to such issuance or sale; provided,
however, that in no event shall the Warrant Price be adjusted pursuant to this
computation to an amount in excess of the Warrant Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 9(c) hereof.
11
<PAGE>
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock are
offered by the Company for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the public offering price) before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company) of shares of
Common Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
12
<PAGE>
(iv) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subsection (ii) of this
Section 9(a).
(v) The number of shares of Common Stock at any one
time outstanding shall include the aggregate number of shares issued or issuable
upon the exercise of options, warrants or rights and upon the conversion or
exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at
any date shall be deemed to be the average of the last reported sale price, or,
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the Nasdaq Stock
Market, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq Stock Market, the closing
bid quotation as furnished by the National Association of Securities Dealers,
Inc. through Nasdaq or a similar organization if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith by resolution of the Board of Directors of the Company, based on
the best information available to it for the day immediately preceding such
issuance or sale, the day of such issuance or sale and the day immediately after
such issuance or sale. If the Common Stock is listed or admitted to trading on a
national securities exchange and also quoted on the Nasdaq Stock Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the Nasdaq Stock Market; provided that if the Common Stock is
listed or admitted to trading on the New York Stock Exchange, the Market Price
shall be determined as hereinabove provided by reference to the prices reported
by such exchange.
13
<PAGE>
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Section 9(h) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in section 9 (f) hereof, (i) for a
consideration per share less than the lesser of (a) the Warrant Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or (b) the Market Price on the trading
day immediately preceding such issuance, or (ii) without consideration, the
Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Section 9(a) hereof; provided that:
14
<PAGE>
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of Section 9(a)), if any, received by the Company for
the options, rights or warrants, and if no minimum purchase price is provided in
the options, rights or warrants, then the minimum purchase price shall be equal
to zero; provided, however, that upon the expiration or other termination of the
options, rights or warrants, if any thereof shall not have been exercised, the
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this subsection (b) (and for the purposes of subsection (v) of Section 9(a)
hereof) shall be reduced by such number of shares as to which options, warrants
or rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding, and the Warrant
Price then in effect shall forthwith be readjusted and thereafter be the price
which it would have been had adjustment been made on the basis of the issuance
only of shares actually issued or issuable upon the exercise of those options,
rights or warrants as to which the exercise rights shall not have expired or
terminated unexercised.
15
<PAGE>
(ii) The aggregate maximum number of shares of
Common Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at the time
of issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Common Stock in accordance with the terms of Section
9 (a)) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the expiration or other termination of the
right to convert or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares deemed to
be issued and outstanding pursuant to this subsection (ii) (and for the purpose
of subsection (v) of Section 9(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subsection (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of subsection
(i) of this subsection 9 (b).
16
<PAGE>
(iii) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
subsection (i) of this Section 9 (b) , or in the price per share at which the
securities referred to in subsection (ii) of this Section 9(b) are convertible
or exchangeable, or if any such options, rights or warrants are exercised at a
price greater than the minimum purchase price provided for in such options,
rights or warrants, or any such securities are converted or exercised for more
than the minimum consideration receivable by the Company upon such conversion or
exchange, the options, rights or warrants or conversion or exchange rights, as
the case may be, shall be deemed to have expired or terminated on the date when
such price change became effective in respect of shares not theretofore issued
pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities at the new price in respect of the number
of shares issuable upon the exercise of such options, rights or warrants or the
conversion or exchange of such convertible or exchangeable securities; provided,
however, that no adjustment shall be made pursuant to this subsection (iii) with
respect to any change in the price per share provided for in any of the options,
rights or warrants referred to in subsection (b) (i) of this Section 9 (b), or
in the price per share at which the securities referred to in subsection (b)
(ii) of this Section 9(b) are convertible or exchangeable, which change results
from the application of the anti-dilution provisions thereof in connection with
an event for which, subject to subsection (iv) of this Section 9(f), an
adjustment to the Warrant Price and the number of securities issuable upon
exercise of the Warrants will be required to be made pursuant to this Section 9.
(c) Subdivision and Combination. In case the Company shall at
any time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
17
<PAGE>
(d) Adjustment in Number of Shares. Upon each adjustment of
the Warrant Price pursuant to the provisions of this Section 9, the number of
shares of Common Stock issuable upon the exercise of the Warrants shall be
adjusted to the nearest full whole number by multiplying a number equal to the
Warrant Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Warrant Price.
(e) Reclassification, Consolidation, Merger etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the 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 shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the Warrant Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Warrant.
(f) No Adjustment of Warrant Price in Certain Cases.
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
18
<PAGE>
(i) Upon the issuance or sale of the Underwriter's
Warrant, the shares of Common Stock or Warrants issuable upon the exercise of
the Underwriter's Warrant or the shares of Common Stock issuable upon exercise
of the Warrants underlying the Underwriter's Warrant; or
(ii) Upon the issuance or sale of (A) the shares of
Common Stock or Warrants issued by the Company in the IPO (including pursuant to
the Over-allotment Option) or other shares of Common Stock or warrants issued by
the Company upon consummation of the IPO or, (B) the shares of Common Stock (or
other securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to
the Company's incentive stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other employee or
executive stock option plan approved by stockholders of the Company or the sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock and Warrants pursuant to the IPO
or (iii) the issuance or sale by the Company of any shares of Common Stock
pursuant to the Company's restricted stock plan in effect on the date hereof; or
(iv) If the amount of said adjustment shall be less
than two cents (2(cent)) per share of Common Stock.
19
<PAGE>
(g) Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time after
the Closing Date and prior to the exercise or expiration of all Warrants declare
a dividend (other than a dividend consisting solely of shares of Common Stock or
a cash dividend or distribution payable out of current or retained earnings) or
otherwise distribute to the holders of Common Stock any monies, assets,
property, rights, evidences of indebtedness, securities (other than such a cash
dividend or distribution or dividend consisting solely of shares of Common
Stock), whether issued by the Company or by another person or entity, or any
other thing of value, the Holders of the unexercised Warrants shall thereafter
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same monies, 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 Holders were the
owners of the shares of Common Stock underlying such Warrants. 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 Section 9(g).
(h) Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at anytime
after the date hereof and prior to the exercise of all the Warrants issue any
rights to subscribe for shares of Common Stock or any other securities of the
Company or of such affiliate to all the holders of Common Stock, the Holders of
the unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive such rights at the time such rights are distributed to the other
stockholders of the Company but only to the extent of the number of shares of
Common Stock, if any, for which the Warrants remain exercisable.
20
<PAGE>
(i) Notice in Event of Dissolution. In case of the
dissolution, liquidation or winding-up of the Company, all rights under the
Warrants shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding-up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
each registered holder of the Warrants, as the same shall appear on the books of
the Company maintained by the Warrant Agent, by registered mail at least thirty
(30) days prior to such termination date.
(j) Computations. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Section 9, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Section 9.
Section 10. Fractional Interests. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the Market Price on the last
trading day prior to the exercise date.
21
<PAGE>
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and the number of
shares of Common Stock issuable upon exercise of a Warrant, then and in each
such case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company shall also mail such notice to the holders of the Warrants at their
respective addresses appearing in the Warrant register. Failure to give or mail
such notice, or any defect therein, shall not affect the validity of the
adjustments.
(b) In case at any time after the Closing Date:
(i) the Company shall pay dividends payable in stock
upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of Common Stock; or
(ii) the Company shall offer for subscription pro
rata to all of the holders of Common Stock any additional shares of stock of any
class or other rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; then in any one or more
of such cases, the Company shall give written notice to the Warrant Agent and
the holders of the Warrants in the manner set forth in Section 11(a) of the date
on which (A) a record shall be taken for such dividend, distribution or
subscription rights, or (B) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or windingup, as the case may be. Such notice shall be given at
least ten (10) days prior to the action in question and not less than ten (10)
days prior to the record date in respect thereof. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any of the
matters set forth in this Section 11(b).
22
<PAGE>
(c) The Company shall cause copies of all financial statements
and reports, proxy statements and other documents that are sent to its
stockholders to be sent by first-class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing in the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
Section 12. Disposition of Proceeds on Exercise of Warrants.
(a) The Warrant Agent shall promptly forward to the Company
all monies received by the Warrant Agent for the purchase of shares of Common
Stock through the exercise of these Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
Section 13. Redemption of Warrants. The Warrants are redeemable by the
Company commencing on the first anniversary the date of the Prospectus, in whole
or in part, on not less than thirty (30) days' prior written notice at a
redemption price of $.10 per Warrant (or earlier with the prior consent of
Rickel), provided the average closing bid quotation of the Common Stock as
23
<PAGE>
reported on the Nasdaq Stock Market, if traded thereon, or if not traded
thereon, the average closing sale price if listed on a national securities
exchange (or other reporting system that provides last sale prices), has been at
least 150% of the then current Exercise Price of the Warrants, for a period of
20 consecutive trading days ending on the third day prior to the date on which
the Company gives notice of redemption. Any redemption in part shall be made pro
rata to all Warrant holders. The redemption notice shall be mailed to the
holders of the Warrants at their respective addresses appearing in the Warrant
register. Any such notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given in accordance with this Agreement
whether or not the registered holder receives such notice. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a registered holder
of a Warrant (i) to whom notice was not mailed or (ii) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. Holders
of the Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption.
Section 14. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation or company which may succeed to the corporate trust business of
the Warrant Agent by any merger or consolidation or otherwise shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
24
<PAGE>
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned. In all such cases such Warrants shall
have the full force provided in the Warrants and in this Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and
in the Warrants shall be taken as statements of the Company, and the Warrant
Agent assumes no responsibility for the correctness of any of the same except as
such describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of the
Warrants except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
25
<PAGE>
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order, certificate
or other instrument believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expenses unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any such security or
indemnity. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any of
the Warrants or the production thereof at any trial or other proceeding. Any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the registered holders of the Warrants, as their respective
rights and interests may appear.
26
<PAGE>
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and
its duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys, agents or employees, and the Warrant Agent shall
not be answerable or accountable for any such attorneys, agents or employees or
for any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Warrant Agent by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Company.
27
<PAGE>
Section 16. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their respective addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation shall
take effect. The Warrant Agent may be removed by like notice to the Warrant
Agent from the Company and the like mailing of notice to the holders of the
Warrants. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of action, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
thirty (30) days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or after the Company has received such notice from a registered holder of a
Warrant (who shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor Warrant Agent, whether appointed by the Company or by such a
court, shall be a bank or trust company, in good standing, incorporated under
New York or federal law. After appointment, the successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibility as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
canceled Warrants, records and property at the time held by it hereunder, and
execute and deliver any further assurance or conveyance necessary for this
purpose. Failure to file or mail any notice provided for in this Section,
however, or any defect therein, shall not affect the validity of the resignation
or removal of the Warrant Agent or the appointment of the successor Warrant
Agent, as the case may be.
28
<PAGE>
Section 17. Identity of Transfer Agent. Forthwith upon the appointment
of any transfer agent (other than American Stock Transfer & Trust Company) for
the shares of Common Stock or of any subsequent transfer agent for the shares of
Common Stock, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
Section 18. Notices. Any notice pursuant to this Agreement to be given
by the Warrant Agent or the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
NUWave Technologies, Inc.
One Passaic Avenue
Fairfield, New Jersey 07004
Attention: President
and a copy thereof to:
Honigman Miller Schwartz and Cohn
222 Lakeview Avenue, Ste. 800
West Palm Beach, FL 33401
Attention: Morris C. Brown, P.A.
29
<PAGE>
Any notice pursuant to this Agreement to be given by the Company or the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Executive Vice President
Any notice pursuant to this Agreement to be given by the Warrant Agent
or the Company to the Underwriter shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Warrant Agent) as follows:
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Attention: Gregg Smith
and a copy thereof to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Timothy I. Kahler, Esq.
Section 19. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
materially adversely affect the interest of the holders of Warrants; and in
addition the Company and the Warrant Agent may modify, supplement or alter this
Agreement with the consent in writing of the registered holders of the Warrants
representing not less than a majority of the Warrants then outstanding.
30
<PAGE>
Section 20. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York without
regard to the conflicts of law principles thereof.
Section 21. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
Section 22. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
31
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
NUWAVE TECHNOLOGIES, INC.
By: ________________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ________________________________
RICKEL & ASSOCIATES, INC.
By: ________________________________
32
<PAGE>
No. W_______________________ VOID AFTER_____________, 2001
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
NUWAVE TECHNOLOGIES, INC.
CUSIP [ ]
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share (the "Common Stock"), of NUWave Technologies, Inc., a Delaware
corporation (the "Company"), at any time from ______________, 1996 (the "Initial
Warrant Exercise Date") , and prior to the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Exercise Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company, 99 Wall Street, New York, New York
10005, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $5.50, subject to adjustment (the "Exercise Price"), in lawful money
of the United States of America in cash or by certified or bank check made
payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of _______________, 1996 (the "Warrant
Agreement"), among the Company, Rickel & Associates, Inc. ("Rickel") and the
Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the date which is the fifth anniversary of the Initial Warrant
Exercise Date]; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the securities issuable upon exercise of the Warrants represented
hereby and such registration statement has been declared and shall remain
effective and shall be current, and such securities have been registered or
qualified or be exempt under the securities laws of the state or other
jurisdiction of residence of the Registered Holder and the exercise of the
Warrants represented hereby in any such state or other jurisdiction shall not
otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing ________________, 1997 [the first anniversary of
the date of the Prospectus] (or earlier with the consent of Rickel), provided
that the average closing bid quotation of the Common Stock as reported on The
A-2
<PAGE>
Nasdaq Stock Market, if traded thereon, or is not traded thereon, the average
closing sale price if listed on national exchange (or other reporting system
that provides last sale prices), shall have for a period of 20 consecutive days
on which such market is open for trading ending on the third day prior to the
date on which the Company gives the Notice of Redemption (as defined below)
equaled or exceeded 150% of the then current Exercise Price. Notice of
redemption (the "Notice of Redemption") shall be given by the Company no less
than thirty days before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no right with respect to this Warrant except to receive the
$.10 per Warrant upon surrender of this Certificate.
Under certain circumstances described in the Warrant Agreement, Rickel
shall be entitled to receive as a solicitation fee an aggregate of five percent
(5%) of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of law principles thereof.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated __________________________, 1996
SEAL NUWAVE TECHNOLOGIES, INC.
By:
------------------------------------
President
By:
------------------------------------
Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
--------------------------------------------
Authorized Officer
A-2
<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder
in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
--------------------------
--------------------------
--------------------------
(please print or type name and address)
and be delivered to
--------------------------
--------------------------
--------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by
Rickel & Associates, Inc., please check the following box. |_|
2. The exercise of this warrant was solicited by
---------------------------------------------------------------
A-2
<PAGE>
3. If the exercise of this Warrant was not solicited, please
check the following box. |_|
Dated:
----------------------- X__________________________________
----------------------------------
----------------------------------
Address
-----------------------------------
Social Security or Taxpayer
Identification Number
-----------------------------------
Signature Guaranteed
A-2
<PAGE>
ASSIGNMENT
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------
-------------------------
-------------------------
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
______________________________________ as its/his/her attorney-in-fact to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: x
----------------------- --------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
<PAGE>
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES
UNDERLYING THIS WARRANT MAY BE MADE UNTIL THE EFFECTIVENESS OF
A REGISTRATION STATEMENT OR OF A POST-EFFECTIVE AMENDMENT
THERETO UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), COVERING
THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT, OR
UNTIL THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY TO THE EFFECT THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER
OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
NUWAVE TECHNOLOGIES, INC.
(a Delaware corporation)
Dated: , 1996
THIS CERTIFIES THAT, for value received, Rickel & Associates,
Inc. (the "Underwriter") or its registered assigns ( the Underwriter and any
such registered assign, a "Holder") is the owner of warrants (the "Underwriter's
Warrant") to purchase from NUWave Technologies, Inc., a Delaware corporation
(the "Company"), during the period and at the prices hereinafter specified, up
1
<PAGE>
to 200,000 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), and up to 200,000 redeemable common stock purchase warrants
(the "Warrants" and, together with the Common Stock, the "Securities").
This Underwriter's Warrant is issued pursuant to an
Underwriting Agreement dated, 1996 between the Company and the Underwriter in
connection with a public offering through the Underwriter (the "Public
Offering") of (i) 2,000,000 shares of Common Stock and 2,000,000 warrants, and
(ii) pursuant to this Underwriter's over-allotment option (the "Over-allotment
Option") , an additional 300,000 shares of Common Stock and 300,000 warrants
(collectively, the warrants to purchase such 2,300,000 shares and the warrants
issuable upon exercisable upon exercise of this Warrant are called the
"Warrants"). The Warrants will be issued pursuant to, and subject to the terms
and conditions set forth in, an agreement between the Company, the Underwriter
and American Stock Transfer & Trust Company (the "Warrant Agreement").
1. Exercise of the Underwriter's Warrant.
(a) The rights represented by this Underwriter's Warrant shall
be exercisable at the prices and during the period specified below, upon the
terms and subject to the conditions as set forth herein:
(i) During the period from, 1996 to, 1997,
inclusive, the Holder shall have no right to purchase any Securities hereunder.
(ii) Between, 1997 and, 2001, inclusive, the
Holder shall have the option to purchase 200,000 shares of Common Stock and
200,000 Warrants hereunder at a price of $6.00 per share and $.12 per Warrant,
respectively, the purchase price of the Common Stock and the Warrants being 165%
of the public offering prices for the Securities set forth in the Prospectus
forming a part of the registration statement on Form SB-2 (File No. 333-3110) of
the Company, as amended (the "Registration Statement").
2
<PAGE>
(iii) After, 2001, the Holder shall have no right
to purchase any Securities hereunder and this Underwriter's Warrant shall expire
effective at 5:00 p.m., New York time on such date.
(b) The rights represented by this Underwriter's Warrant may
be exercised at any time within the period above specified, in whole or in part,
by (i) the surrender of this Underwriter's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of shares of Common Stock and Warrants specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Underwriter's Warrant is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 1, and the person or persons in whose name or names the
certificates for the Securities shall be issuable upon such exercise shall
become the holder or holders of record of such Common Stock and Warrants at that
time and date. The Common Stock and Warrants so purchased shall be delivered to
the Holder within a reasonable time, not exceeding ten business days, after the
rights represented by this Underwriter's Warrant shall have been so exercised.
3
<PAGE>
2. Restrictions on Transfer. This Underwriter's Warrant shall
not be sold, transferred, assigned, pledged or hypothecated for a period of one
year commencing on , 1996, except that it may be transferred to successors of
the Holder, and may be assigned in whole or in part to any person who is an
officer of the Underwriter or a partner, officer of any other member of the
selling group during such period. Any such assignment shall be effected by the
Holder by (i) completing and executing the transfer form at the end hereof and
(ii) surrendering this Underwriter's Warrant with such duly completed and
executed transfer form for cancellation, accompanied by funds sufficient to pay
any transfer tax, at the office or agency of the Company referred to in
Paragraph 1 hereof, accompanied by a certificate (signed by a duly authorized
representative of the Holder) , stating that each transferee is a permitted
transferee under this Paragraph 2; whereupon the Company shall issue, in the
name or names specified by the Holder, a new Underwriter's Warrant or
Underwriter's Warrants of like tenor and representing in the aggregate rights to
purchase the same number of Securities as are then purchasable hereunder. The
Holder acknowledges that this Underwriter's Warrant may not be offered or sold
except pursuant to an effective registration statement under the Act or an
opinion of counsel satisfactory to the Company that an exemption from
registration under the Act is available.
3. Covenants of the Company.
(a) The Company covenants and agrees that all Common Stock
issuable upon the exercise of this Underwriter's Warrant will, upon issuance
thereof and payment therefor in accordance with the terms hereof, and all Common
Stock issuable upon exercise of the Warrants underlying this Underwriter's
Warrant will, upon the issuance thereof and payment therefor in accordance with
the terms of the Warrant Agreement, be duly and validly issued, fully paid and
nonassessable and no personal liability will attach to the Holder thereof by
reason of being such a Holder, other than as set forth herein.
4
<PAGE>
(b) The Company covenants and agrees that during the period
within which this Underwriter's Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of this Underwriter's Warrant and the Warrants
included therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding (unless the Securities shall no longer be
registered under Paragraph 12(b) or 12(g) of the Securities Exchange Act of
1934) the Company shall use its best efforts to cause all shares of Common Stock
issuable upon the exercise of the Underwriter's Warrant and the Warrants
included therein, to be included on the Nasdaq Stock Market or listed on a
national securities exchange.
4. No Rights as Stockholder. This Underwriter's Warrant shall
not entitle the Holder to any voting rights or other rights as a stockholder of
the Company, either at law or in equity, and the rights of the Holder are
limited to those expressed in this Underwriter's Warrant and are not enforceable
against the Company except to the extent set forth herein.
5
<PAGE>
5. Registration Rights.
(a) During the period of four years from , 1997, the Company
shall advise the Holder, whether the Holder holds this Underwriter's Warrant or
has exercised this Underwriter's Warrant and holds Common Stock and Warrants, or
Common Stock underlying the Warrants (the "Warrant Shares") , by written notice
at least 30 days prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act, covering any securities of the Company, for its
own account or for the account of others, and upon the request of the Holder
made during such four-year period, include in any such post-effective amendment
or registration statement such information as may be required to permit a public
offering of any of the Common Stock or Warrants issuable hereunder, and/or the
Warrant Shares (the "Registrable Securities"); provided, that this Paragraph
5(a) shall not apply to any registration statement filed pursuant to Paragraph 5
(b) hereof or to registrations of shares in connection with an employee benefit
plan or a merger, consolidation or other comparable acquisition or solely for
registration of non-convertible debt or preferred equity securities of the
Company; and provided, further, that, notwithstanding the foregoing, the Holder
shall have no right to include any Registrable Securities in any new
registration statement or post-effective amendment thereto unless as of the
effective date thereof the Registration Statement (as it may hereafter be
amended or supplemented) or any new registration statement under which the
Registrable Securities are registered shall have ceased to be effective or the
prospectus contained in such Registration Statement shall have ceased to be
current. The Company shall supply prospectuses in order to facilitate the public
sale or other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
in which the Common Stock and Warrants are offered and sold in the Public
Offering as such Holder reasonably designates, furnish indemnification in the
manner provided in Paragraph 6 hereof, and do any and all other acts and things
which may be necessary to enable such Holder to consummate the public sale of
6
<PAGE>
the Registrable Securities; provided, that, without limiting the foregoing, the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction. The Holder shall furnish information reasonably
requested by the Company in accordance with such post-effective amendments or
registration statements, including its intentions with respect thereto, and
shall furnish indemnification as set forth in Paragraph 6. The Company shall
continue to advise the Holders of the Registrable Securities of its intention to
file a registration statement or amendment pursuant to this Paragraph 5(a) until
the earliest of (i) , 2001; or (ii) such time as all of the Registrable
Securities have been registered and sold under the Act; or (iii) such time as
all of the Registrable Securities have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration or qualification of them under the Act; or (iv)
such time as in the opinion of legal counsel for the Company, the Registrable
Securities may be offered and sold by the holders thereof without being
registered under the Act and such securities, upon receipt by the purchasers
thereof pursuant to such sale, will not constitute "restricted securities" as
such term is defined in Rule 144 under the Act.
(b) If any 51% holder (as defined below) shall give notice to
the Company at any time during the four-year period beginning one year from ,
1996 to the effect that such Holder desires to register under the Act any
Registrable Securities, under such circumstances that a public distribution
(within the meaning of the Act) of any such Registrable Securities will be
involved (and the Registration Statement or any new registration statement under
which such Registrable Securities are registered shall have ceased to be
effective or the Prospectus contained therein shall have ceased to be current) ,
then the Company will as promptly as practicable after receipt of such notice,
but not later than 30 days after receipt of such notice, at the Company's
option, file a post effective amendment to the current Registration Statement or
a new registration statement pursuant to the Act to the end that the Registrable
Securities may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective as provided herein (including the taking of such
steps as are reasonably necessary to obtain the removal of any stop order);
provided, that such 51% holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request; and
provided, further, that the Company shall not be required to file such a
post-effective amendment or registration statement pursuant to this Paragraph
5(b) on more than two occasions; and provided, further, that the registration
rights of the 51% holder under this Paragraph 5(b) shall be subject to the
"piggyback" registration rights of other holders of securities of the Company to
include such securities in any registration statement or post-effective
amendment filed pursuant to this Paragraph 5(b). The Company will maintain such
registration statement or post-effective amendment current under the Act for a
period of at least nine months from the effective date thereof. The Company
shall supply prospectuses in order to facilitate the public sale of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states in which the Common Stock and
Warrants are offered and sold in the Public Offering as such holder reasonably
designates and furnish indemnification in the manner provided in Paragraph 6
hereof, provided that, without limiting the foregoing, the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
7
<PAGE>
(c) The Holder may, in accordance with Paragraphs 5(a) or (b),
at his or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registrable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Warrant. The Holder may thereafter exercise this
Underwriter's Warrant at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement which relates to the
Common Stock underlying the Underwriter's Warrants and Warrants included
therein.
(d) The term "51% holder," as used in this Paragraph 5, shall
include any owner or combination of owners of Underwriter's Warrants or
Registrable Securities if the aggregate number of shares of Common Stock and
Warrant Shares included in and underlying the Underwriter's Warrants and
Registrable Securities held of record by it or them, would constitute a majority
of the aggregate of such shares of Common Stock and Warrant Shares underlying
the Underwriter's Warrant and Registrable Securities as of the date of the
initial issuance of the Underwriter's Warrant.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
8
<PAGE>
(i) Within ten (10) days after receiving any notice
pursuant to Paragraph 5(b), the Company shall give notice to the other Holders
of Underwriter's Warrants or Registrable Securities, advising that the Company
is proceeding with such post-effective amendment or registration and offering to
include therein the Registrable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration statement, the Company shall, upon the request of any Holder of
Registrable Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its best efforts to qualify the Registrable Securities for
sale in such states in which the Common Stock and Warrants are offered and sold
in the Public Offering as the 51% holder shall reasonably designate at such
times as the registration statement is effective under the Act; provided, that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(ii) The Company shall bear the entire cost and
expense of any registration of securities initiated by it under Paragraph 5(a)
hereof notwithstanding that the Registrable Securities subject to this
Underwriter's Warrant may be included in any such registration. The Company
shall also comply with the one request for registration made by the 51% holder
pursuant to Paragraph 5(b) hereof at the Company's own expense and without
charge to any holder of the Registrable Securities, but the expenses of
registration pursuant to the second request, if any, for registration pursuant
to Paragraph 5(b) shall be borne by the Company and the Holders of Registrable
Securities included therein in proportion to the aggregate offering prices of
the securities being offered by the Company included therein and the aggregate
offering price of the Registrable Securities included therein. Notwithstanding
the foregoing, any Holder whose Registrable Securities are included in any such
registration statement pursuant to this Paragraph 5 shall, however, bear the
fees of any counsel retained by him and any transfer taxes or underwriting
discounts or commissions applicable to the Registrable Securities sold by him
pursuant thereto and, in the case of a registration pursuant to Paragraph 5(a)
hereof, any additional registration or "blue sky" or state securities fees
attributable to the registration or qualification of such Holder's Registrable
Securities.
9
<PAGE>
(iii) If the underwriter or managing underwriter in
any underwritten offering made pursuant to Paragraph 5(a) hereof shall advise
the Company that it declines to include a portion or all of the Registrable
Securities requested by the Holders to be included in the registration
statement, then distribution of all or a specified portion of the Registrable
Securities shall be excluded from such registration statement (in case of an
exclusion as to a portion of such Registrable Securities, such portion to be
allocated among such Holders in proportion to the respective numbers of
Registrable Securities requested to be registered by each such Holder). In such
event the Company shall give the Holder prompt notice of the number of
Registrable Securities excluded. Further, in such event the Company shall,
commencing six months after the completion of such underwritten offering, file
and use its best efforts to have declared effective, at its sole expense
(subject to the last sentence of Paragraph 5(a)(ii)), a registration statement
relating to such excluded securities.
(iv) Notwithstanding anything to the contrary
contained herein, the Company shall have the right at any time after it shall
have given written notice pursuant to Paragraph 5(a) or 5(b) (irrespective of
whether a written request for inclusion of any Registrable Securities shall have
been made) to elect not to file or to delay any such proposed registration
statement or post effective amendment thereto, or to withdraw the same after the
filing but prior to the effective date thereof. In addition, the Company may
delay the filing of any registration statement or post effective amendment
requested pursuant to Paragraph 5(b) hereof by not more than 120 days if the
Company, prior to the time it would otherwise have been required to file such
registration statement or post-effective amendment thereto, determines in good
faith that the filing of the registration statement would require the disclosure
of non-public material information that, in its judgment, would be detrimental
to the Company if so disclosed or would otherwise adversely affect a financing,
acquisition, disposition, merger or other material transaction.
10
<PAGE>
(v) If a registration pursuant to Paragraph 5(a)
hereof involves an underwritten offering, the Company shall have the right to
select the investment banker or investment bankers and manager or managers that
will serve as underwriters with respect to the underwritten offering. No Holder
of Registrable Securities may participate in any underwritten offering under
this Agreement unless such Holder completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwritten offering, in each case, in the
form and upon terms reasonably acceptable to the Company and the underwriters.
The requested registration pursuant to Paragraph 5 (b) hereof shall not involve
an underwritten offering unless the Company shall first give its written
approval of each underwriter that participates in the offering, such approval
not to be unreasonably withheld.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter and
each officer, employee, agent or partner of such underwriter against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such underwriter or any other person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise out
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which such statements were made, not misleading; and
will reimburse the Distributing Holder and each such underwriter or such other
person for any legal or other expenses reasonably incurred by the Distributing
Holder, or underwriter or such other person, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case (i) to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, such preliminary prospectus, such final prospectus
or such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder, any other Distributing Holder
or any such underwriter for use in the preparation thereof, or (ii) such losses,
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or omission made in or from any preliminary prospectus,
but corrected in the final prospectus, as amended or supplemented.
11
<PAGE>
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registrable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed such
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, such preliminary prospectus, such final prospectus or
such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
12
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. Adjustments of Warrant Price and Number of Shares of Common
Stock.
(a) Computation of Adjusted Price. Except as hereinafter
provided, in case the Company shall, at any time after the date of closing of
the sale of securities pursuant to the Public Offering (the "Closing Date"),
issue or sell any shares of Common Stock (other than the issuances or sales
referred to in Paragraph 7(f) hereof), including shares held in the Company's
treasury and shares of Common Stock issued upon the exercise of any options,
rights or warrants to subscribe for shares of Common Stock (other than the
issuances or sales of Common Stock pursuant to rights to subscribe for such
Common Stock distributed pursuant to Paragraph 7(j) hereof) and shares of Common
Stock issued upon the direct or indirect conversion or exchange of securities
for shares of Common Stock, for a consideration per share less than both the
"Market Price" (as defined in Paragraph 7 (a)(vi) hereof) per share of Common
Stock on the trading day immediately preceding such issuance or sale and the
Underwriter's Warrant Price (as defined below) in effect immediately prior to
such issuance or sale, or without consideration, then forthwith upon such
issuance or sale, the Underwriter's Warrant Price in respect of the Common Stock
issuable upon exercise of this Underwriter's Warrant (but not the exercise price
of the Warrants issuable upon exercise of this Underwriter's Warrant, which
shall be adjusted only in accordance with the Warrant Agreement) shall (until
another such issuance or sale) be reduced to the price (calculated to the
nearest full cent) determined by multiplying the Underwriter's Warrant Price in
effect immediately prior to such issuance or sale by a fraction, the numerator
of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the
Underwriter's Warrant Price immediately prior to such issuance or sale plus (2)
the consideration received by the Company upon such issuance or sale, and the
denominator of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issuance or sale, multiplied by
(y) the Underwriter's Warrant Price immediately prior to such issuance or sale;
provided, however, that in no event shall the Underwriter's Warrant Price be
adjusted pursuant to this computation to an amount in excess of the
Underwriter's Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Paragraph 7(c) hereof. For the purposes of this Paragraph 7, the
term "Underwriter's Warrant Price" shall mean the exercise price per share of
Common Stock issuable upon exercise of the Underwriter's Warrant (initially
$6.00 per share), as adjusted from time to time pursuant to the provisions of
this Paragraph 7.
13
<PAGE>
For the purposes of any computation to be made in accordance
with this Paragraph 7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock are
offered by the Company for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the public offering price) before deducting therefrom
any compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company) of shares of
Common Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
14
<PAGE>
(iv) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subparagraph (ii) of this
Paragraph 7(a).
(v) The number of shares of Common Stock at any one
time outstanding shall include the aggregate number of shares issued or issuable
upon the exercise of options, rights or warrants and upon the conversion or
exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at
any date shall be deemed to be the average of the last reported sale price, or,
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the Nasdaq Stock
Market, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq Stock Market, the closing
bid quotation as furnished by the National Association of Securities Dealers,
Inc. through Nasdaq or a similar organization if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith by resolution of the Board of Directors of the Company, based on
the best information available to it for the day immediately preceding such
issuance or sale, the day of such issuance or sale and the day immediately after
such issuance or sale. If the Common Stock is listed or admitted to trading on a
national securities exchange and also quoted on the Nasdaq Stock Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the Nasdaq Stock Market; provided that if the Common Stock is
listed or admitted to trading on the New York Stock Exchange, the Market Price
shall be determined as hereinabove provided by reference to the prices reported
by such exchange.
15
<PAGE>
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Paragraph 7(j) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in Paragraph 7(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Underwriter's Warrant
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or (b) the Market
Price on the trading day immediately preceding such issuance, or (ii) without
consideration, the Underwriter's Warrant Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be,, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Paragraph 7(a) hereof, provided that:
16
<PAGE>
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of Paragraph 7(a) hereof), if any, received by the
Company for the options, rights or warrants, and if no minimum purchase price is
provided in the options, rights or warrants, then the minimum purchase price
shall be equal to zero; provided, however, that upon the expiration or other
termination of the options, rights or warrants, if any thereof shall not have
been exercised, the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subparagraph (b) (and for the purposes of
subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by such number of
shares as to which options, warrants and/or rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(ii) The aggregate maximum number of shares of
Common Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at the time
of issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Common Stock in accordance with the terms of
Paragraph 7 (a) hereof) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; provided, however, that upon the expiration or other
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subparagraph (ii) (and for
the purpose of subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by
such number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Warrant Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subparagraph (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of
subparagraph (i) of this subparagraph 7(b).
17
<PAGE>
(iii) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7 (b) , or in the price per share at which
the securities referred to in subparagraph (ii) of this Paragraph 7 (b) are
convertible or exchangeable, or if any such options, rights or warrants are
exercised at a price greater than the minimum purchase price provided for in
such options, rights or warrants, or any such securities are converted or
exercised for more than the minimum consideration receivable by the Company upon
such conversion or exchange, the options, rights or warrants or conversion or
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price with respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities; provided, however, that no adjustment shall be made
pursuant to this subparagraph (iii) with respect to any change in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7, or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, which change results from the application of the
anti-dilution provisions thereof in connection with an event for which, subject
to subparagraph (iv) of Paragraph 7(f), an adjustment to the Warrant Price and
the number of securities issuable upon exercise of the Warrants will be required
to be made pursuant to this Paragraph 7 and the Warrant Agreement, respectively.
(c) Subdivision and Combination. In case the Company shall at
any time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Warrant Price pursuant to the provisions of this Paragraph 7, the number of
shares of Common Stock (but not the number of Warrants, which are subject to
adjustment as set forth in the Warrant Agreement) issuable upon the exercise of
the Underwriter's Warrant shall be adjusted to the nearest full whole number by
multiplying a number equal to the Underwriter's Warrant Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of the Underwriter's Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Underwriter's
Warrant Price.
18
<PAGE>
(e) Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the 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 shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Underwriter's Warrant immediately prior to
any such events (but not the shares of Common Stock issuable upon exercise of
any Warrants underlying the Underwriter's Warrant) at a price equal to the
product of (x) the number of shares issuable upon exercise of the Underwriter's
Warrant (but not the shares of Common Stock issuable upon exercise of any
Warrants underlying the Underwriter's Warrant) and (y) the Warrant Price in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Underwriter's Warrant.
19
<PAGE>
(f) No Adjustment of Warrant Price in Certain Cases.
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
(i) Upon the issuance or sale of the Underwriter's
Warrant, the shares of Common Stock or Warrants issuable upon the exercise of
the Underwriter's Warrant or the shares of Common Stock issuable upon exercise
of the Warrants underlying the Underwriter's Warrant; or
(ii) Upon the issuance or sale of (A) the shares of
Common Stock or Warrants issued by the Company in the Public Offering (including
pursuant to the Over-allotment Option) or other shares of Common Stock or
warrants issued by the Company upon consummation of the Public Offering, or (B)
the shares of Common Stock (or other securities) issuable upon exercise of
Warrants; or
(iii) Upon (i) the issuance of options pursuant to
the Company's incentive stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other employee or
executive stock option plan approved by stockholders of the Company or the sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock and Warrants pursuant to the
Public Offering or (iii) the issuance or sale by the Company of any shares of
Common Stock pursuant to the Company's restricted stock plan in effect on the
date hereof; or
(iv) If the amount of said adjustment shall be less
than two cents (2(cent)) per share of Common Stock.
20
<PAGE>
(g) Adjustment of Warrants Underlying Underwriter 's Warrant.
With respect to the Warrants underlying the Underwriter's Warrant, the exercise
price of such Warrants and the number of shares of Common Stock purchasable
pursuant to such Warrants shall be automatically adjusted in accordance with the
applicable provisions of the Warrant Agreement, upon the occurrence, at any time
after the date hereof, of any of the events described in the Warrant Agreement
requiring such adjustment, with the same force and effect as if such Warrants
had been issued as of this date, whether or not such Warrants shall have been
exercised (or are exercisable) at the time of the occurrence of such event and
whether or not such Warrants shall be issued and outstanding at the time of the
occurrence of such event. Thereafter, such Warrants shall be exercisable at such
Warrant's adjusted exercise price for such adjusted number of shares of Common
Stock or other securities, properties or rights as provided for in the Warrant
Agreement.
(h) Redemption of Underwriter's Warrant. Notwithstanding
anything to the contrary contained in this Agreement or elsewhere, the
Underwriters Warrant cannot be redeemed by the Company under any circumstances.
(i) Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time after
the Closing Date and prior to the exercise and expiration of the Underwriter's
Warrant declare a dividend (other than a dividend consisting solely of shares of
Common Stock or a cash dividend or distribution payable out of current or
retained earnings) or otherwise distribute to the holders of Common Stock any
monies, assets, property, rights, evidences of indebtedness, securities (other
than such a cash dividend or distribution or dividend consisting solely of
shares of Common Stock), whether issued by the Company or by another person or
entity, or any other thing of value, the Holders of the unexercised
Underwriter's Warrant shall thereafter be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise thereof, to
receive, upon the exercise of such Underwriter's Warrant, the same monies,
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 Holders were the owners of the shares of
Common Stock underlying the Underwriter's Warrant (but not the shares of Common
Stock issuable upon exercise of any Warrants underlying the Underwriter's
Warrant). 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 Paragraph 7(i).
21
<PAGE>
(j) Subscription Rights for Shares of Common Stock or Other
Securities. In case the Company or an affiliate of the Company shall at any time
after the date hereof and prior to the exercise of the Underwriter's Warrant in
full issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the holders of Common
Stock, the Holders of the unexercised Underwriter's Warrant shall be entitled,
in addition to the shares of Common Stock or other securities receivable upon
the exercise of the Underwriter's Warrant, to receive such rights at the time
such rights are distributed to the other stockholders of the Company but only to
the extent of the number of shares of Common Stock, if any, for which the
Underwriter's Warrant remains exercisable other than shares of Common Stock
issuable upon exercise of the Warrants underlying Underwriter's Warrant.
(k) Notice in Event of Dissolution. In case of the
dissolution, liquidation or winding-up of the Company, all rights under the
Underwriter's Warrant shall terminate on a date fixed by the Company, such date
to be no earlier than ten (10) days prior to the effectiveness of such
dissolution, liquidation or winding-up and not later than five (5) days prior to
such effectiveness. Notice of such termination of purchase rights shall be given
to the registered Holders of the Underwriter's Warrant, as the same shall appear
on the books and records of the Company, by registered mail at least thirty (30)
days prior to such termination date.
(l) Computations. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Paragraph, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Paragraph 7.
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of
shares of Common Stock or fractional Warrants on the exercise of this
Underwriter's Warrant; provided, however, that if the Holder exercises the
Underwriter's Warrant in full, any fractional shares of Common Stock shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock.
(b) The Holder of this Underwriter's Warrant, by acceptance
hereof, expressly waives his right to receive any fractional share of Common
Stock or fractional Warrant upon exercise of this Underwriter's Warrant.
9. Redemption of Warrants Underlying the Underwriter's
Warrant. The Warrants underlying the Underwriter's Warrant are redeemable by the
Company at a redemption price of $.10 per Warrant, in whole or in part,
commencing on the first anniversary of the date hereof (or earlier with the
22
<PAGE>
consent of the underwriter) and prior to their expiration upon not less than
thirty (30) days' prior written notice to the holders of the Warrants; provided,
that the average closing bid quotation of the Common Stock as reported on The
Nasdaq Stock Market, if traded thereon, or if not traded thereon, the average
closing sale price if listed on a national securities exchange (or other
reporting system that provides last sales prices), has been at least 150% of the
then current Exercise Price for a period of 20 consecutive trading days ending
on the third day prior to the date on which the Company gives notice of
redemption. Any redemption in part shall be made pro rata to all Warrant
holders. The redemption notice shall be mailed to the holders of the Warrants at
their respective addresses appearing in the Warrant register. Holders of the
Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption (at which time this
Underwriter's Warrant shall no longer be exercisable for Warrants).
10. Miscellaneous.
(a) This Underwriter's Warrant shall be governed by and in
accordance with the laws of the State of New York without regard to the
conflicts of law principles thereof.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, One Passaic Avenue, Fairfield,
New Jersey 07004.
(c) The Company and the Underwriter may from time to time
supplement or amend this Underwriter's Warrant without the approval of any other
Holders in order to cure any ambiguity, to correct or supplement any provision
23
<PAGE>
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Underwriter may deem necessary or
desirable and which the Company and the Underwriter deem not to materially
adversely affect the interest of the Holders.
(d) All the covenants and provisions of this Underwriter's
Warrant by or for the benefit of the Company and the Holders shall bind and
inure to the benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Warrant shall be construed
to give to any person or corporation other than the Company and the Underwriter
and any other registered Holder or Holders, any legal or equitable right, and
this Underwriter's Warrant shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder or Holders.
(f) This Underwriter's Warrant 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 Company has caused this Underwriter's
Warrant to be signed by its duly authorized officer and to be dated ,1996.
NUWAVE TECHNOLOGIES, INC.
By:
--------------------------------
Name:
Title:
24
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Warrant)
The undersigned, the Holder of the foregoing Underwriter's
Warrant, hereby irrevocably elects to exercise the purchase rights represented
by such Underwriter's Warrant for, and to purchase thereunder, _______ shares of
Common Stock and/or _______ Warrants of NUWave Technologies, Inc. and herewith
makes payment of $_______________ therefor, and requests that the certificates
for Common Stock and/or Warrants be issued in the name(s) of, and delivered to
______________________________________________ whose addresses is (are)
______________________________________________________ and whose social security
or taxpayer identification number(s) is (are) _________________________.
Dated:
---------------------
- ----------------------------
- ----------------------------
Address
- ----------------------------
Telephone
- ----------
* Signature must conform in all respects to name of registered Holder.
25
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the right to purchase shares of
Common Stock and/or Warrants of NUWave Technologies, Inc. represented by the
foregoing Underwriter's Warrant to the extent of ______________________________
shares of Common Stock and/or ___________ Warrants, and appoints
__________________________, attorney to transfer such rights on the books of
NUWave Technologies, Inc., with full power of substitution in the premises.
Dated:
--------------------------
- ---------------------------------
(name of holder)
- ---------------------------------
Address
- ---------------------------------
In the presence of:
- ---------------------------------
- ---------------------------------
26
<PAGE>
RICKEL & ASSOCIATES, INC.
875 Third Avenue
New York, New York 10022
November 22, 1995
As amended May ___, 1996
NUWave Engineering, Inc.
One Passaic Avenue
Fairfield, New Jersey 07064
Attn: Mr. Gerald Zarin,
President and Chief Executive Officer
Gentlemen:
On the basis of our recent discussions we are pleased to
confirm in principle our intent to underwrite on a firm commitment basis the
proposed public offering of the shares of Common Stock and Warrants and to be
issued by NUWave Engineering, Inc. (the "Company"), upon the following general
terms and conditions:
1. Underwriting. It is currently contemplated that, subject
to market and other conditions at the time of the offering, the Company will
offer 2,000,000 shares of its common stock (the "Common Stock") at a public
offering price of $5.00 per share and 2,000,000 warrants (the "Warrants") to
purchase shares of Common Stock at a public offering price of $.10 per Warrant.
We may rely on soliciting dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") to participate in placing a portion of the
offering and may offer the shares of Common Stock and Warrants to such dealers
at less than the public offering price.
In order to cover over-allotments, if any, that may occur
during distribution of the offering, the Company will grant the underwriters (or
at our option exercisable by us individually) an option (the "Over-Allotment
Option") to purchase all or part of an additional 15% of the total number of
shares of Common Stock and Warrants for a period of 45 calendar days from the
date of the closing of the shares of Common Stock and Warrants offered (the
"Over-Allotment Period"). The Over-Allotment Option shall be exercisable in
whole or in part, from time to time during the Over-Allotment Period and the
underlying securities may be resold to the public on the same terms as the
shares of Common Stock and Warrants. The shares of Common Stock and Warrants and
the securities underlying the Over-Allotment Option are referred to as the
"Securities."
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 2
Meetings in connection with the proposed offering will be
held as required in New York City. If meetings are held outside New York City,
the Company shall pay reasonable traveling and lodging out-of-pocket expenses
necessarily incurred by us and our counsel, payable when incurred and billed.
The Company will supply us and our counsel, at the Company's cost, with four
bound volumes of the underwriting materials within a reasonable time after the
closing of the Securities offering.
2. Registration Statement. The Company will expeditiously
take all steps necessary to effectuate the offering, including the expeditious
preparation and filing with the Securities and Exchange Commission (the "SEC")
of a registration statement, together with exhibits (the "Registration
Statement"). All financial statements contained in the Registration Statement,
as amended from time to time, shall be in compliance with the SEC Rules and
Regulations and shall have been prepared and reported on by an independent
certified public accountant acceptable to us. The proposed Registration
Statement will be submitted to us and our counsel as soon as possible, but not
later than 20 days before the Company proposes to file such Registration
Statement with the SEC.
3. Underwriter's Counsel. The Underwriting Agreement, the
Agreement Among Underwriters, if any, the Selected Dealers Agreement and the
Underwriter's Warrant Agreement (the "Underwriting Documents") will be prepared
by our counsel, who shall make all required filings with the NASD with respect
to the proposed public offering of the Securities. The Company shall provide to
our counsel such number of complete copies of the Registration Statement, the
Preliminary Prospectus and the Underwriting Documents, and such other related
materials, as they may reasonably request in connection with any applicable
filings with the NASD and the various state Blue Sky commissions, accompanied
with a certified or cashier's check in the appropriate amount payable to the
NASD and the respective state Blue Sky commissions. In addition, the Company
shall supply our counsel, no later than one week before the expected filing date
of the Registration Statement, with a written representation as to (a) the
existence or nonexistence of any NASD affiliation or association of any officer,
director, or shareholder of securities of the Company, (b) whether or not any
securities of the Company have been acquired by the NASD-affiliated person
during the 12-month period prior to filing the Registration Statement, and (c)
whether or not key-person insurance has been provided for any officer of the
Company by any NASD affiliate. The text of the Prospectus, the Registration
Statement, and all other documents filed with the SEC pursuant to the
requirements of the Securities Act of 1933, and the rules and regulations
promulgated thereunder (collectively, the "1933 Act") shall conform to the
requirements of the 1933 Act in all material respects and shall be in form and
content reasonably satisfactory to our counsel and matters which relate to the
public offering and other related transactions shall be reasonably satisfactory
in all material respects to our counsel.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 3
4. Capitalization. On the Effective Date (prior to the
Public Offering and without giving effect to any shares issued or issuable in
connection with the bridge financing referred to in paragraph 6 below), the
Company shall have capital consisting of not more than 2,955,000 shares of
Common Stock, assuming the conversion of all existing series A preferred stock
into common stock (which will occur automatically upon the consummation of the
Public Offering). There shall be no other shares of Common Stock, options,
securities convertible into Common Stock or common stock equivalents issued and
outstanding or reserved for issuance prior to the offering of the Securities,
except for a stock option plan to purchase up to 280,000 shares of Common Stock,
and no holders of any of the Company's securities shall have any registration or
pre-emptive rights. For a period of 18 months from the date on which the
Registration Statement is declared effective by the SEC (the "Effective Date"),
the Company will not issue any shares of Common Stock, preferred stock or any
warrants, options or other rights to purchase Common Stock or preferred stock
without our consent.
5. Warrants. Each Warrant shall entitle the holder thereof
to purchase one share of Common Stock at an exercise price of $5.50 per share,
at any time during the five-year period following the Effective Date (the
"Exercise Period"). The Company may call the Warrants at any time after 12
months from the Effective Date (or earlier with our prior written consent), for
a redemption price of $.10 per Warrant at any time if notice of not less than 30
days is given and the last sale price of the Common Stock has been at least 150%
of the then exercise price of the Warrant to be called, on all 20 of the trading
days ending on the third day prior to the day on which notice is given. The
exercise price and number of Warrants shall be subject to adjustment in the
event of a merger, acquisition, recapitalization or split-up of shares of the
Company or the issuance by the Company of a stock dividend or any similar event.
6. Bridge Financing. As expeditiously as possible following
the execution of this letter and the completion of necessary corporate and legal
due diligence, we will also use our best efforts to arrange for the placement
(the "Placement") of a minimum of 40 (the "Minimum Placement") and a maximum of
80 (the "Maximum Placement") units (the "Units"), each Unit consisting of (i)
one secured senior subordinated promissory note in the principal amount of
$25,000 (the "Notes") and (ii) 5,000 shares of Common Stock. Each Unit shall
have a purchase price of $25,000. The definitive terms of the Units and the
Placement will be contained in a placement agency agreement to be agreed upon
between us.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 4
Subject to the definitive placement agency agreement, the
Notes will bear interest, payable semi-annually at the rate of 10% per annum,
and will mature on the earliest to occur of (i) 18 months after the initial
closing of the Placement (the "Initial Placement"), (ii) the closing of any
public debt or equity offering, or (iii) the closing of any transaction in which
the Company's securities are exchanged for securities of a public entity
(whether by merger, acquisition or otherwise). The Notes will be senior to all
future debt of the Company; provided, however, that the Notes will be
subordinated to all pre-existing and future senior institutional debt of the
Company. The Notes will include covenants restricting changes of control,
requiring employment contracts with management and prohibiting any future
subordinated debt being senior to the Notes and additional customary debt terms.
If the Minimum Placement is not consummated by February 1,
1996, the Placement will be terminated and all funds will be returned to
subscribers, without interest thereon. Assuming the Minimum Placement is
consummated by February 1, 1996, the Placement will continue through March 15,
1996, unless extended by our mutual agreement. We shall receive a selling
commission of 10% of the gross proceeds of the Placement and a 3%
non-accountable expense allowance. In addition, the Company will pay all legal
fees, up to $25,000, and disbursements of our counsel in connection with the
Placement. The Company's counsel will prepare and file the necessary documents
to qualify the Placement under federal law and in such states as we direct.
7. Related Party Transactions. As part of our due diligence
investigation, we will review all existing and proposed relationships between
the Company and its officers, directors and/or principal stockholders ("Related
Party Transactions"), including any license or employment agreements, loans and
services. The terms of all Related Party Transactions shall be subject to
agreement between the Company and us.
8. Investigative Search. Since an important part of our due
diligence investigations involves examination of both the background of the
principals of the Company and the Company's competitive position in its
industry, the Company shall engage and pay for, if requested by us (i) an
investigative search firm (whose charges shall not exceed $5,000) selected by us
to conduct an investigation of the principals of the Company mutually selected
by the Company and us; and (ii) a consultant (whose charges shall not exceed
$5,000) expert in the Company's industry mutually selected by the Company and us
to analyze the Company's prospects and respond to the Underwriter's questions.
9. Closing. Payments for the Securities purchased by us will
be made at a closing to be held not more than five business days following the
Effective Date.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 5
10. Management and Dissemination of Information. All
necessary and desirable measures will be taken by the Company to ensure
management continuity. Further, to avoid a delay in the offering, (i) the
Company will consult with us prior to distribution to third parties of any
financial information, news releases, and/or other publicity regarding the
Company, its business, or any terms of the proposed offering; and (ii) we will
consult with the Company prior to the issuance of any research report or
recommendation concerning the Company's securities. Copies of all documents that
the Company or its public relations advisors intend to distribute will be
provided to us for review prior to such distribution.
11. Underwriting Discounts and Commission. We will purchase
the Securities from the Company at the offering price less an underwriting
discount or commission equal to 10%.
12. Non-Accountable Expense Allowance. The Company shall pay
to us a non-refundable, non-accountable expense allowance equal to 3% of the
gross proceeds of the offering. The Company shall pay to us an advance towards
our non-accountable expense allowance of $50,000, which amount shall be used to
reimburse us for those costs, fees and expenses as are customarily incurred by
an underwriter during the registration process. Such advance shall be payable as
follows: (i) $25,000 upon the signing of this letter of intent; and (ii) $25,000
upon the earlier of (A) the initial filing of a registration statement with the
SEC, or (B) the initial closing of the Placement.
If we terminate the proposed public offering because of a
material breach by the Company of a covenant, representation or warranty
contained herein, or contained in the definitive underwriting agreement to be
entered into with respect to the proposed offering, the advances toward the
non-accountable expense allowance will be refunded except to the extent of any
actual accountable out-of-pocket expenses incurred by us; if the Company
terminates the offering prior to the Effective Date, the advances toward the
non-accountable expense allowance will be refunded except to the extent of any
actual accountable out-of-pocket expenses incurred by us.
13. Proceedings. The Company and Rickel & Associates, Inc.
will advise each other immediately in writing as to any investigation,
proceeding, order, event or other circumstance, or any threat thereof, by or
relating to the SEC or any other governmental authority, that could impair or
prevent the proposed offering. Except as required by law or as otherwise
mutually agreed in writing, neither of the parties to this letter of intent will
acquiesce in such circumstances and each will actively defend any proceedings or
orders in that connection.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 6
14. Expenses including Blue Sky. The Company shall be
responsible for and shall bear all expenses incurred in connection with the
proposed financing, including: (i) the preparation, printing and filing of the
offering documents and amendments thereto, including NASD, SEC and filing fees,
preliminary and final Prospectus and the printing of the Underwriting Agreement,
the Agreement Among Underwriters and the Selected Dealer's Agreement, a Blue Sky
Memorandum, material to be circulated to any underwriter by us and other
incidental material; (ii) the mailing and distribution costs for the preliminary
and final Prospectus; (iii) the issuance and delivery of certificates
representing the Securities, including original issue and transfer taxes, if
any; (iv) the qualification of the Securities and any shares of Company's Common
Stock underlying the Securities under state securities or Blue Sky Laws,
including fees of our counsel relating thereto (up to a maximum of $35,000,
$15,000 of which shall be due and payable upon the commencement of Blue Sky
filings together with appropriate state filing fees), plus disbursements
relating to, but not limited to, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services; (v) the fees
and disbursements of counsel for the Company and the accountants for the
Company; (vi) all reasonable traveling and lodging expenses incurred by us
and/or our counsel in connection with visits to, and examination of, the
Company's premises; and (vii) advertising costs and expenses, including, but not
limited to, the costs and expenses in connection with the "road show,"
memorabilia and "tombstones" in publications selected by us. Upon the
commencement of the necessary state Blue Sky filings by our counsel, the Company
shall supply such counsel at its request, all necessary state filing fees. Blue
Sky applications shall be made in such states and jurisdictions as shall be
requested by us.
We shall not be responsible for any expense of the Company
or others for any charges or claims related to the proposed financing or
otherwise if the sale of Securities contemplated by this letter of intent is not
consummated.
15. Underwriter's Warrants. At the closing of the proposed
public offering, the Company will sell to us, for a total purchase price of
$10.00, purchase warrants (the "Underwriter's Warrants") entitling us to
purchase an amount equal to 10% of the number of Securities sold to the public
(excluding the Over-Allotment Option). The Underwriter's Warrants shall be
non-exercisable for one year following the Effective Date. For five years
following the Effective Date, the Company will agree not to merge, reorganize or
take any other action that would terminate the Underwriter's Warrants without
first making adequate provision for the Underwriter's Warrants. Also, the
Underwriter's Warrants will contain anti-dilution provisions in the event of
stock dividends, splits, mergers, sales of all or substantially all of the
Company's assets, sales of stock at below both then prevailing market and
exercise prices and for other customary events. The Underwriter's Warrants will
be exercisable for a period of four years, such period to commence one year
after the Effective Date and, if the Underwriter's Warrants are not exercised
during this term, they shall by their terms automatically expire. The exercise
price of the Underwriter's Warrants shall be an amount equal to 165% above the
offering price of the Securities sold in the public offering. The Underwriter's
Warrants will not be transferrable to anyone for a period of one year after the
Effective Date, except to officers of the Underwriter, co-underwriters, selling
group members and their officers or partners. Thereafter, the Underwriter's
Warrants will be transferable provided such transfer is in accordance with the
provisions of the 1933 Act.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 7
The Company will agree that, upon written request of the
then holder(s) of at least a majority of the shares of the Common Stock and the
Warrants (and Common Stock underlying such Warrants) underlying the
Underwriter's Warrants (the "Warrant Securities") that were originally issued to
the Underwriter or to its designees, made at any time within the period
commencing one year and ending four years after the Effective Date, the Company
will file, at its sole expense, no more than once, a Registration Statement on
Form S-1, S-3 or other appropriate Registration Statement or Offering Statement
under the 1933 Act or amendment to the Registration Statement filed in
connection with the Offering registering the Warrant Securities. The Company
will use its best efforts to cause the Registration Statement or Offering
Statement or amendment to the Registration Statement to become effective. The
holders of the Underwriter's Warrants may demand registration without exercising
the Underwriter's Warrants and, in fact, are never required to exercise same.
The Company agrees that if, at any time within the period
commencing one year and ending four years after the Effective Date, it should
file a Registration Statement with the SEC pursuant to the 1933 Act, regardless
of whether some of the holders of the Underwriter's Warrants and Warrant
Securities shall have theretofore availed themselves of any of the rights above,
the Company, at its own expense, will offer to said holders the opportunity to
register or qualify the shares of Warrant Securities, limited, in the case of a
Regulation A offering, to the amount of the available exemption. This paragraph
is not applicable to a registration statement filed by the Company with the SEC
on Form S-4, S-8 (including Form S-3 related to such Forms S-6) or any other
inappropriate form. The objection of a subsequent underwriter to the above
piggy-back rights would preclude such inclusion. However, in such event the
Company will, within six months of the completion of such subsequent
underwriting, file at its sole expense a Registration Statement relating to such
excluded securities.
In addition to the rights above provided, during the
four-year period commencing one year after the Effective Date the Company will
cooperate with the then holders of the Warrants and Warrant Securities in
preparing and signing one Registration Statement, in addition to the
Registration Statements and Offering Statements discussed above, required in
order to sell or transfer the aforesaid Warrant Securities and will supply all
information reasonably required therefor, but such additional Registration
Statement expenses or Offering Statement expenses will be pro-rated between the
Company and the holders of the Warrants and Warrant Securities according to the
aggregate sales price of the securities being sold.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 8
16. Consulting Agreement. Upon the closing of the proposed
public offering, the Company shall enter into an agreement retaining us as
management and financial consultants to the Company for a two-year period
commencing as of the Closing at a fee equal to $29,000 per year. The entire fee
shall be payable at the Closing.
17. Warrant Solicitation Fee. Subject to the rules and
regulations of the NASD, we shall be entitled to act as the warrant solicitation
agent for the solicitation of the Warrants for a period of five years after the
Effective Date, commencing one year after the Effective Date and receive a
warrant solicitation fee of 5% of the exercise price for each Warrant exercised
during the period commencing one year after the Effective Date. No such fee
shall be payable in respect of the Underwriter's Warrants.
18. Designation of Advisors or Directors to the Board. The
Company will, upon completion of the proposed public offering contemplated
herein, for a period of no less than three years, engage our designee as advisor
(the "Advisor") to the Company's Board of Directors where such Advisor shall
attend meetings of the Board, receive all notices and other correspondence and
communication sent by the Company to members of its Board of Directors and
receive compensation equal to the entitlement of other non-officer Directors. In
addition, such Advisor shall be entitled to receive reimbursement for all costs
incurred in attending such meetings including, but not limited to, food, lodging
and transportation. The Company further agrees that, during said three-year
period, it shall schedule no less than four formal meetings (at least one of
which shall be "in person" and the others may be held telephonically) of its
Board of Directors in each such year at which meetings such Advisor shall be
permitted to attend (in person, for each meeting held "in person") as set forth
herein; said meetings shall be held quarterly each year and advance notice of
such meetings identical to the notice given to directors shall be given to the
Advisor. Further, during such three-year period, the Company and its principal
stockholders shall give us timely prior written notice of any proposed
acquisitions, mergers, reorganizations or other similar transactions. In lieu of
our right to designate an Advisor, we shall have the right during such
three-year period, in our sole discretion, to designate one person for election
as a Director of the Company and the Company will utilize its best efforts to
obtain the election of such person who shall be entitled to receive the same
compensation, expense reimbursements and other benefits set forth above.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 9
The Company agrees to indemnify and hold the Underwriter and
such Advisor or Director harmless against any and all claims, actions, damages,
costs and expenses, and judgments arising solely out of the attendance and
participation of our designee at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible, to include our
designee as an insured under such policy.
19. Indemnification. The Company shall indemnify us and hold
us harmless against any and all liabilities, claims and lawsuits, including any
and all awards and/or judgments to which we may become subject under the 1933
Act, the Securities Exchange Act of 1934 (the "1934 Act"), or any other federal
or state statute, at common law or otherwise, insofar as said liabilities,
claims and lawsuits (including awards and/or judgments) arise out of or are in
connection with the Registration Statement, Prospectus and related Exhibits
filed under the 1933 Act, except for any liabilities, claims and lawsuits
(including awards and/or judgments), arising out of our grossly negligent acts
or omissions. The foregoing shall be set forth as conditions within the
definitive underwriting agreement. In addition, the Company shall also indemnify
us and hold us harmless against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing.
We shall give the Company prompt notice of any such
liability, claim or lawsuit that we may contend is the subject matter of the
Company's indemnification and the Company thereupon shall be granted the right
to take any and all necessary and proper action, at its sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise and dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
We shall indemnify and hold the Company harmless against any
and all liabilities, claims and lawsuits, including any and all awards and/or
judgments to which it may become subject under the 1933 Act, the 1934 Act, or
any other federal or state statute, at common law or otherwise, insofar as said
liabilities, claims, and lawsuits (including awards and/or judgments) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact or omission of a material fact, which statement or omission was
made in reliance upon information furnished in writing to the Company by us or
on our behalf and shall also indemnify and hold the Company harmless against any
and all costs and expenses, including reasonable counsel fees, incurred or
relating to the foregoing.
The Company shall give us prompt notice of any such
liability, claim or lawsuit that the Company contends is the subject matter of
our indemnification and we thereupon shall be granted the right to take any and
all necessary and proper action, at our sole cost and expense, with respect to
such liability, claim and lawsuit, including the right to settle, compromise or
dispose of such liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 10
20. Adjustment of Underwriter's Compensation. We reserve the
right to lower any item of our compensation as specified herein in the event
that determination should be made by the NASD to the effect that the aggregate
compensation is excessive. Any such revisions shall not affect any other terms
or provisions of this Letter of Intent.
21. Certificates and CUSIP Number. Certificates representing
the Securities shall be first submitted to us for approval prior to printing.
The Company shall, as promptly as possible, after filing the Registration
Statement with the SEC, obtain a CUSIP number for the Securities.
22. Transfer Agent and Daily Trading and Transfer Sheets.
The Company agrees to use a transfer agent acceptable to us for the Company's
Securities. For a period of three years from the Effective Date, the Company, at
its expense, shall provide us with copies of the Company's daily trading sheets
from such transfer agent. The Company will also provide "DTC" or equivalent
transfer sheets to us, if requested, on up to four occasions per year, for such
three-year period.
23. After Market Blue Sky Memoranda. The Company shall
engage our counsel to provide us, at the closing of the Public Offering and
Quarterly and thereafter, with an opinion, setting forth those states in which
the Common Stock may be traded in non-issuer transactions under the Blue Sky
laws of the 50 states. The Company shall pay such counsel a one-time fee of
$7,500 at the closing for such opinions.
24. 1934 Act Registration, NASDAQ Listing, Annual Meetings
and Reports to Stockholders. The Company will prepare and file a registration
statement with the SEC pursuant to section 12(g) of the 1934 Act, and will use
its best efforts to have same declared effective by the SEC on an accelerated
basis on the day after the Effective Date but only if necessary to qualify the
Securities for listing on NASDAQ in the event we do not intend to commence
trading on the Effective Date. The Company understands that to register, it must
prepare and file with the SEC a General Form of Registration of Securities (Form
8-A or Form 10).
The Company agrees that for so long as the Securities are
registered under the 1934 Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
Rule 14a-3 under the 1934 Act and shall be included in an annual report pursuant
to the requirements of such Rule.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 11
25. Underwriting Group. We shall have the sole right to
determine which, if any, firms shall comprise the group of underwriters. Pending
completion of the financing contemplated herein, the Company agrees that it will
not negotiate with any other underwriter or other person relating to a possible
public offering of its securities until nine months after the date hereof if the
public offering contemplated by this letter of intent has not been consummated.
26. Underwriting Agreement and Conditions of Purchase. Our
purchase of the Securities will be subject to certain customary terms and
conditions contained within a definitive underwriting agreement to be signed
prior to the Effective Date which shall be satisfactory, in form and substance,
to the Underwriter and its legal counsel. The underwriting agreement shall not
be executed until we and our counsel have completed a satisfactory due diligence
review and market conditions for the offer and sale of the Securities are
satisfactory to us. The underwriting agreement shall include, but not be limited
to, the following conditions which if they are not satisfied (in our
determination) would permit our release and the release of the other
Underwriters from their respective obligations:
a. The Company's financial condition shall be as
represented and there shall be no material adverse changes in the Company's
business, business prospects, earnings, properties, condition or prospects,
financial or otherwise;
b. The market for securities in general, or the
Company's securities in particular, and general financial or economic
conditions, shall not have materially changed from those reasonably foreseeable
as of the date hereof as to render it impracticable in the Underwriter's
judgment to make a public offering of the Securities, and there shall not have
been a material adverse change in market levels for securities in general or
financial or economic conditions which render it inadvisable to proceed;
c. No action, suit or proceeding shall be threatened
or pending, at law or equity against the Company, or by any federal, state or
other commission, board or agency wherein any unfavorable result or decision
could materially adversely affect the business, property, financial condition or
income or earnings of the Company;
d. No war or Act of God or other calamity shall have
occurred which would have a substantial adverse effect or loss to the Company;
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 12
e. There shall be no qualification received or
provided by the Company's independent public accountants or attorneys to the
effect of either difficulties in furnishing certifications as to material items
including, without limitation, information contained within the footnotes to the
financial statements, or as affecting matters incident to the issuance and sale
of the Securities contemplated or as to corporate proceedings or other matters
(we acknowledge, however, that the report of the Company's independent public
accountants with respect to the Company's financial statements may be qualified
as to the ability of the Company to continue as a going concern);
f. Prior to the Effective Date, the Company will
have entered into an employment contract (acceptable to the Underwriter) with
such key officers as may be selected by the Underwriter on terms and conditions
reasonably satisfactory to the Underwriter and will have obtained key-person
life insurance in the minimum amount of $1,000,000 on such terms and conditions
reasonably satisfactory to the Underwriter, assuming such coverage is available
on commercially reasonable terms; and
g. The Company shall have qualified the Securities
for listing on the NASDAQ SmallCap Market and to use its best efforts to list
the securities on the Boston Stock Exchange on the Effective Date.
27. Additional Representations. Prior to the Effective Date,
the Company will cause the Company's principal stockholders and each officer and
director of the Company to enter into a written agreement with us to the effect
that he/she will not sell any shares of the Company's Common Stock or preferred
stock owned directly, indirectly or beneficially (as defined by the 1934 Act) on
the Effective Date for an 18-month period from the Effective Date without our
prior written consent or such other agreement with respect to the sale of such
capital stock as may be required by state Blue Sky laws in order to qualify the
offering of the Securities in any such state.
28. Finder. The parties hereto represent to each other that no
person has acted as a finder in connection with the transactions contemplated
herein and the parties will indemnify each other with respect to any claim for
finder's fees in connection therewith.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 13
29. Due Diligence Investigation. The Company shall cooperate
and assist us and our counsel and representatives in our due diligence
investigation of the Company and its operational activities. The Company shall
(i) make available to us the operating and financial records, certified public
accountant's reports and letters, business plans inclusive of cash flows and
projections and corporate documents (e.g. articles of incorporation, by-laws,
minute books, partnership agreements, contracts, etc.); (ii) facilitate visits
by us with key management personnel; (iii) provide, at its expense, credit or
similar reports on such persons as we or our counsel shall reasonably request,
and (iv) afford access to facilities, all at times convenient to the Company and
to the extent that such activities do not impede the orderly conduct of the
Company's business.
The Company shall be duly organized and validly operating
under the laws of the state of its incorporation and duly qualified in any other
jurisdiction where so required by the laws thereof. The Company shall undertake
legal requirements in connection with its certificate of incorporation and
by-laws necessary and proper to effect the sale of the Securities.
In addition, the officers, directors and principal
shareholders of the Company will each complete, sign and return to our counsel,
the officers' and directors' and principal shareholder's questionnaire which
will be delivered to the Company by our counsel.
It is understood that we will not execute the definitive
underwriting agreement unless we, in our sole judgment, are satisfied with our
due diligence investigations.
30. Regulatory Agencies and Responsibilities. We will secure
approval by the NASD of the terms of the proposed offering of the Securities.
The Company shall file a Registration Statement covering the Securities referred
to herein and will take such further action as required including the filing of
amendments to cause the Registration Statement to be declared effective by the
SEC.
Through our counsel, we will commence proceedings to register
or qualify the Securities included in the "firm commitment" offering under the
securities or Blue Sky laws of those states in which we intend to offer and sell
such securities and will use our best efforts to effect such registration or to
obtain such qualifications.
31. Attorney's Fees. In the event of litigation between the
parties arising hereunder or under the definitive underwriting agreement, the
prevailing party shall be entitled to costs and reasonable attorneys' fees.
32. Compensation. The Company acknowledges and agrees that we
will not proceed to perform hereunder until it receives assurances, in form and
substance satisfactory to us and our counsel, that as of the Effective Date
there will be no claims or payments for services in the nature of a finder's fee
with respect to the proposed public offering or any other arrangements,
agreements, payments, issuances or understandings that may affect our
compensation, as determined by the NASD. We shall provide compensation to any of
our personnel who may have acted in such capacities as we shall determine.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 14
33. Public Relations Firm. The Company, by signing this letter
of intent, agrees that it will engage Corporate Builders L.P. or other financial
public relations firm mutually satisfactory to the Company and us no later than
the date of the initial filing of the Registration Statement contemplated
hereby. Such firm, or an acceptable substitute firm, shall be continuously
engaged from the filing referred to above to a date 12 months from the closing
of the proposed public offering. In addition, the Company shall retain a
transfer agent, counsel and financial printer, all reasonably acceptable to us.
34. Formal Agreement Contemplated. Except as provided in the
following sentence, this letter of intent is a non-binding statement of intent
and each of the parties will proceed promptly and in good faith to finalize the
definitive arrangement with respect to the proposed public offering. Any legal
obligations between the parties shall be only as set forth in the duly executed
underwriting agreement except that the provisions of paragraphs 12, 14, 20 and
32 hereof shall be binding on the parties. In the event that the parties have
not entered into an underwriting agreement by August 1, 1996, this letter of
intent may be terminated by either party without further obligation to the other
party, except as otherwise provided herein. If we decide prior to August 1, 1996
not to go forward with the proposed public offering, we will agree to terminate
this agreement with the Company at such earlier time without further
obligations, except as otherwise provided herein.
35. Laws and Jurisdiction to Govern. This letter of intent
shall be construed and enforced in accordance with the laws of the State of New
York and the parties agree to submit themselves to the jurisdiction of the State
of New York and agree that the New York courts shall be the sole tribunal in
which any parties may institute and maintain a legal proceeding against the
other party arising from any dispute in this letter of intent. If either party
initiates a legal proceeding in a jurisdiction other than in the courts of the
State of New York, the other party may assert as a complete defense and as a
basis for dismissal of such legal proceeding that the legal proceeding was not
initiated and maintained in the courts of the State of New York in accordance
with the provisions of this paragraph.
36. Construction of Agreement. Should any provision or portion
of any provision of this letter of intent be invalidated for any reason, the
validity of the remaining provisions or of the other portion of the provision in
question shall not be affected thereby. This letter of intent supersedes any
prior letter, agreement or understanding concerning the subject matter herein.
<PAGE>
NUWave Engineering, Inc.
November 22, 1995 as amended May __, 1996
Page 15
If the foregoing is acceptable to you, please sign and return
two copies of this letter of intent, retaining the original for your records.
Very truly yours,
RICKEL & ASSOCIATES, INC.
By:
-----------------------------
Name:
Title:
APPROVED AND ACCEPTED:
NUWave ENGINEERING, INC.
By:
-------------------------------
Mr. Gerald Zarin,
President and Chief Executive Officer
<PAGE>
EXHIBIT 11
NUWAVE TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
From July 17, 1995 For the three
(inception) to months ended
December 31, 1995 March 31, 1996
------------------ --------------
(unaudited)
<S> <C> <C>
SAB 64 Computation
- ------------------
Net (loss) ................................................................. $ (910,591) $ (559,516)
---------- ----------
Common stock outstanding at:
December 31, 1995 ..................................................... 2,130,000
March 31, 1996 (unaudited) ............................................ 2,530,000
Add:
Common shares issued in March, 1996 in connection with the Private
Placement Offering .................................................. 400,000
Stock options issued in July, September, and November 1995, and March
1996 ................................................................ 253,500 253,500
Series A Convertible Preferred Stock issued in July and August, 1995 ... 600,000 600,000
---------- ----------
Weighted average number of common shares outstanding .................. 3,383,500 3,383,500
---------- ----------
Net loss per share .................................................... $ (.27) $ (.17)
========== ==========
Supplemental pro forma loss per share
Net (loss) ................................................................. $ 559,516
Add: Extraordinary loss due to early extinguishment of debt consisting
of as follows:
Deferred financing costs .............................................. 323,105
Unamortized debt discount ............................................. 728,375
----------
Supplemental pro forma loss ........................................... $1,610,996
----------
Weighted average number of common shares outstanding per SAB 64 ........ 3,383,500
Add: Issuance of 500,000 common shares at a net offering price of $4.00
per share needed to repay the Bridge Notes ............................... 500,000
----------
Supplemental pro forma weighted average number of shares ................... 3,883,500
----------
Supplemental pro forma loss per share ...................................... $ (.41)
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
From July 17, 1995 For the three
(inception) to months ended
December 31, 1995 March 31, 1996
------------------ ----------------
(unaudited)
<S> <C> <C>
Historical loss per share
Net (loss) ........................................................... $(910,591) $ (559,516)
--------- ----------
Computations of weighted average shares outstanding from July 17,
1995 (inception) to December 31, 1995.
</TABLE>
<TABLE>
<CAPTION>
No. of Shares Date # of Days Common Stock Common Stock
Issued Issued Outstanding Equivalents % Equivalents
- ------------- ---------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
2,060,000 7-17-95 167 100% 2,060,000
70,000 12-15-95 16 9.58% 6,706
--------- ---------
2,130,000 2,066,706
--------- ----------
Weighted average shares outstanding from
July 17, 1995 (inception) to December 31, 1995 2,066,706
---------
Computation of weighted average shares outstanding for the three
months ending March 31, 1996 (unaudited).
</TABLE>
<TABLE>
<CAPTION>
No. of Shares Date # of Days Common Stock Common Stock
Issued Issued Outstanding Equivalents % Equivalents
- ------------ --------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
2,130,000 Common shares 91 100% 2,130,000
outstanding @
December 31, 1995
250,000 3-01-96 31 34.06% 85,150
150,000 3-27-96 4 4.39% 6,585
--------- ---------
2,530,000 2,221,735
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
From July 17, 1995 For the three
(inception) to months ended
December 31, 1995 March 31, 1996
------------------ ----------------
(unaudited)
<S> <C> <C>
Weighted average shares oustanding for the three months
ending March 31, 1996 (unaudited) ............................ 2,221,735
---------
Net loss per share ............................................. $ (.44) $ (.25)
========= ===========
Supplemental loss per share
- ---------------------------
Net (loss) .......................................................... $(910,591) $ (559,516)
Computation of weighted average shares outstanding from July 17,
1995 (inception) to December 31, 1995
</TABLE>
<TABLE>
<CAPTION>
No. of Shares Date # of Days Common Stock Common Stock
Issued Issued Outstanding Equivalents % Equivalents
- ------------ --------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
2,060,000 7-17-95 167 100% 2,060,000
70,000 12-15-95 16 9.58% 6,706
347,094 7-31-95 153 91.61% 317,973
66,666 7-31-95 153 91.61% 61,073
20,000 8-11-95 148 85.02% 17,004
35,000 8-11-95 142 85.02% 29,757
30,000 8-17-95 136 81.43% 24,429
90,760 8-23-95 130 77.84% 70,648
10,480 8-30-95 123 73.65% 7,719
--------- ---------
2,730,000 2,595,309
--------- ---------
Weighted average shares outstanding from July 17, 1995
(inception) to December 31, 1995 ..................................... 2,595,309
---------
</TABLE>
<PAGE>
Computation of weighted average shares outstanding for the
three months ended March 31, 1996 (unaudited)
<TABLE>
<CAPTION>
From July 17, 1995 For the three
No. of Shares Date # of Days Common Stock Common Stock (inception) to months ended
Issued Issued Outstanding Equivalents % Equivalents December 31, 1995 March 31, 1996
- ------------ --------- ------------- -------------- ------------- ------------------ ----------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
2,130,000 Common shares 91 100% 2,130,000
outstanding @
December 31, 1995
250,000 3-01-96 31 34.06% 85,150
150,000 3-27-96 4 4.39% 6,585
600,000 Series A 91 100% 600,000
Convertible Preferred
shares outstanding
December 31, 1995
--------- ---------
3,130,000 2,821,735
--------- ---------
Weighted average shares oustanding for the three months
ended March 31, 1996 (unaudited) ....................................... 2,821,735
---------
Net loss per share ...................................................... $ (.35) $ (.20)
========= ==========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
Amendment No.1 (File No. 333-3110) of our report dated February 20, 1996 except
for Note 10, as to which the date is March 27, 1996 on our audit of the
financial statemnets of Nuwave Technologies, Inc. as of December 31, 1995 and
for the period from July 17, 1995 (inception) to December 31, 1995. We also
consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
----------------------------------
Coopers & Lybrand LLP
New York, New York
May 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001009802
<NAME> NUWAVE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 999
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,050
<PP&E> 15
<DEPRECIATION> 2
<TOTAL-ASSETS> 1,392
<CURRENT-LIABILITIES> 217
<BONDS> 0
6
0
<COMMON> 25
<OTHER-SE> (128)
<TOTAL-LIABILITY-AND-EQUITY> 1,392
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> (560)
<INCOME-TAX> 0
<INCOME-CONTINUING> (560)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (560)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
