As filed with the Securities and Exchange Commission on October 5, 1998.
Registration No. 333-20525
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AMENDMENT 2
XETAL, INC.
[Exact Name of Registrant As Specified In Its Charter]
Utah 1040 22-2223126
[State or Other Jurisdiction [Primary Standard [IRS Employer
of Incorporation or Industrial identification.
Organization] Classification] Number]
3590 Oceanside Road, Oceanside, New York 11572
[Principal Place of Business and Executive Offices]
Tel: (516)-594-0005
[Telephone Number]
Att.: Dr. Jan Stahl, Chief Executive Officer
Xetal, Inc.
3590 Oceanside Road
Oceanside, New York 11572
(516) 594-0005
[Name, Address and Telephone Number of Agent for Service]
Copies to: B. Bruce Freitag, Esq. Ronald J. Brescia, Esq.
39 Sackerman Avenue, Doros & Brescia, P.C.
North Haledon, New Jersey 07508 1140 Avenue of the Americas
Tel: (973) 238-1909 New York, New York 10036
Tel: (212) 921-0550
If any of the securities being registered on this Form are to be offered on a
delayed or continuing basis pursuant to Rule 415 of the Securities Act of
1933 check the following box. [X]
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
<S> <C> <C> <C>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Securities Amount Being Price Per Offering Registration
Being Registered Registered(9) Share/Warrant Price(1) Fee(2)(11)
Common Stock,
Par Value $0.001 540,000 Shs $5.00(2) $2,700,000 $ 931
Warrants 540,000 Wts $0.10 $ 54,000 $ 18
Common Stock
underlying Warrants 540,000 Shs $5.00 $2,700,000 $ 931
Underwriter's Warrants
(3) 54,000 Wts $0.0001 $ 5.40 $ 0
Common Stock
underlying Underwriter's
Warrants 54,000 Shs $8.25 $ 445,500 $ 154
Bridge Lender's
Common Stock (4) 100,000 Shs $5.00 $ 500,000 $ 172
Bridge Lender's
Warrants(5) 1,250,000 Wts $0.0001 $ 125 $ 0
Common Stock
Underlying Bridge
Lender's Warrants 1,250,000 Shs $5.00 $6,250,000 $2,156
Pre-Bridge Lender's
Warrants(6) 12,500 Wts $0.0001 $ 1.00 $ 0
Common Stock Under-
Lying Pre-Bridge
Lender's Warrants 12,500 Shs $5.00 $ 62,500 $ 21
Pre-Bridge Placement
Agent's Warrants(7) 6,250 Wts $0.0001 $ 0.62 $ 0
Shares underlying
Pre-Bridge Placement
Agent's Warrants 6,250 Shs $5.00 $ 31,250 $ 11
Consultant's Common
Stock (8) 10,000 Shs $5.00 $ 50,000 $ 17
Total $4,411
(11)
</TABLE>
(Notes to the Foregoing Table)
(1) Estimated solely for purposes of calculating the Registration Fee pursuant
to Rule 457.
(2) The actual per share offering price will be determined at the effective
date of this Registration Statement and shall be slightly below the closing bid
of the Company's common shares on such date.
(3) Represents warrants (the "Underwriter's Warrants") granted at a purchase
price of $0.0001 per Underwriter's Warrant to Morgan Grant Capital Corp. (the
"Underwriter") entitling the holder(s) to acquire an aggregate of 54,000 shares
of Common Stock exercisable for a period of four years commencing one year from
the date of this Prospectus, at an exercise price equal to 165% of the price of
the Common Stock to the public in this Offering (or $8.25 per share), subject
to adjustment in amount pro rata in the event all of the Common Stock is not
sold in this Offering.
(4) Represents shares of Common Stock being registered for the account of
certain lenders (the "Bridge Lenders") who loaned the Company funds (the
"Bridge Loan") and who received Common Stock (the "Selling Shareholders").
(5) Represents warrants (the "Bridge Lenders' Warrants") granted to the Bridge
Lenders to acquire an aggregate of 1,250,000 shares of Common Stock (after
adjustment for all reverse stock splits) at a price equal to 100% of the price
of the Common Stock to the public in this Offering ($5.00 per share).
(6) Represents warrants (the "Pre-Bridge Lender's Warrants") issued to the
Pre-Bridge Lenders to acquire an aggregate of 12,500 shares of Common stock
(after adjustment for all reverse stock splits) at an adjusted price of $5.00
per share.
(7) Warrants issued to Janssen-Meyers as placement agent for placement of Pre
Bridge Notes.
(8) Consists of 10,000 Shares of common stock (after adjustment) issued to
Ameristar Group Incorporated, a non-affiliated consultant for the Company with
respect to which the Company granted "piggy-back" registration rights (See
"Selling Shareholders").
(9) Pursuant to Rule 416, there is also being registered hereunder such
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions of all of the warrants being registered hereunder.
(10) The Company previously paid $9,402.52 in filing fees with the filing of
the original registration statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
XETAL, INC.
Cross Reference Sheet Showing Location in Prospectus of Part 1 Items
of Form SB-2 Registration Statement and the Prospectus
Registration Statement Items Heading In The
and Headings Prospectus
----------------------------------- ------------------------------
1. Forepart of Registration Statement
and Outside Front Cover Page of Facing Page; Cover Page
Prospectus of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Cover Pages
Pages of Prospectus, of the Prospectus
Additional Information
3. Summary Information and Risk Factors Prospectus Summary; Risk
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Cover Page of Prospectus and
Notes; Underwriting
9. Legal Proceedings Business of the Company; Legal
Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management; Principal
Shareholders
11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Underwriting
15. Information With Respect to Registrant Prospectus Summary; Risk Factors;
Dilution; Management; Business
of The Company; Description of
Securities; Executive
Compensation; Financial
Statements
16. Management's Discussion and Analysis
or Plan of Operations Management's Discussion and
Analysis of Financial Condition
and Results Operations.
17. Description of Property Property
18. Certain Relationships and Related
Transactions Certain Transactions
19. Market For Common Equity and Related
Stockholder Matters Cover Page of Prospectus;
Market For Common Stock and
Related Stockholder Matters
PRELIMINARY PROSPECTUS DATED OCTOBER 5, 1998 (SUBJECT TO COMPLETION)
A Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. 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.
PROSPECTUS
XETAL, INC.
540,000 Shares of Common Stock, $0.001 Par Value, at $5.00 per share and
540,000 Redeemable Common Stock Purchase Warrants, at $0.10 per Warrant.
Xetal, Inc., a Utah corporation (the "Company"), is hereby offering (the
"Offering"), through Morgan Grant Capital Corp. as underwriter (the
"Underwriter"), on a best efforts basis, up to 540,000 shares (the "Shares") of
its common stock, $0.001 par value (the "Common Stock"), and up to 540,000
Redeemable Common Stock Purchase Warrants (the "Warrants"). The shares of
Common Stock and the Warrants (which are collectively referred to as the
"Securities") are being offered separately and are separately tradable
immediately upon issuance. The minimum offering will consist of 300,000 shares
of Common Stock and 300,000 Warrants (the "Minimum Offering") and the maximum
offering will consist of 540,000 shares of Common Stock and 540,000 Warrants
(the "Maximum Offering"). Each Warrant expires on -----------,2003, five years
after the date of this Prospectus, and entitles the holder, commencing one year
after the date of this Prospectus, to purchase one share of Common Stock for
$5.00, the assumed initial public Offering price, subject to adjustment in
certain events pursuant to the anti-dilution provisions thereof. The initial
public Offering price of the Warrants will be $0.10 per Warrant. The Warrants
are redeemable by the Company at a price of $0.05 per Warrant commencing two
years after the date of this Prospectus and prior to their expiration provided
that (i) prior notice of not less than 30 days is given to the holders of the
Warrants and (ii) the closing sale price of the Common Stock as reported on
the OTC Electronic Bulletin Board (the "Bulletin Board") for 20 consecutive
trading days, ending on the tenth day prior to the date on which the Company
gives notice of redemption, has been at least $7.50, 150% of the initial public
Offering price of the Shares. The holders of the Warrants will have exercise
rights until the close of business preceding the date fixed for redemption.
See, "Description of Securities - Warrants."
In addition to the shares of Common Stock and Warrants being offered by
the Company, approximately 110,000 shares of Common Stock and 1,268,500
Warrants are being offered by Selling Shareholders. The Selling Shareholders
may be deemed to be "underwriters" under the federal securities laws.
The Company's Shares are traded in the over-the-counter market on the OTC
Electronic Bulletin Board (the "Bulletin Board"), an electronic quotation
system maintained by the NASD, under the symbol "XETX." On --------------,
, 1998, the closing bid and asked prices for a shares of the Company's Shares
were $----- and $-----, respectively. See "Market for the Company's Securities
and Related Matters."
THESE SECURITIES INVOLVE SUBSTANTIAL RISKS AND DILUTION AND SHOULD ONLY BE
PURCHASED ONLY BY THOSE WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS at Page 13" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Commissions(1) Company (2)
Per Share $5.00 $0.50 $ 4.50
Per Warrant $0.10 $0.01 $ 0.09
Total Minimum $1,530,000 $153,000 $1,377,000
Total Maximum $2,754,000 $275,400 $2,478,600
(footnotes on following page)
MORGAN GRANT CAPITAL CORP. INC.
The date of this Prospectus is , 1998
(footnotes from previous page)
(1) In addition, the Company has agreed to pay the Underwriter a
non-accountable expense allowance equal to 2% of the gross proceeds of the
Offering ($30,600 at the minimum Offering and $55,080 at the maximum Offering),
of which $25,000 has been paid as of the date of this Prospectus. The Company
has also agreed to: (i) sell to the Underwriter warrants (the "Underwriter's
Warrants") at a purchase price of $0.0001 per Underwriter's Warrant, to acquire
an aggregate of 54,000 shares of Common Stock, exercisable for a period of
four years commencing one year from the date of this Prospectus, at an exercise
price equal to 165% of the price of the Common Stock to the public in this
Offering ($8.25 per share), subject to adjustment in amount pro rata in the
event all of the Common Stock is not sold in this Offering and subject to the
adjustment pursuant to the anti-dilution provisions hereof; and (ii) indemnify
the Underwriter against certain liabilities under the Securities Act of 1933,
as amended (the "Act"). See "Description of Securities" and
"Underwriting."
(2) After deducting underwriting commissions but before payment of the
Underwriter's non-accountable expense allowance in the amount of $30,600 if the
Minimum Offering is sold or $55,080 if the Maximum Offering is sold and the
other expenses of the Offering (estimated at $150,000) payable by the Company.
See "Underwriting."
The Securities are offered through the Underwriter named herein when, as
and if received and accepted by it, subject to prior sale, withdrawal,
cancellation or modification of this Offering without notice, and approval of
certain legal matters by Doros and Brescia, P. C., counsel for the Underwriter,
and the Underwriter. The Underwriter reserves the right to reject any offer for
the Securities, in whole or in part.
The Securities are being offered on a "best efforts all or none" basis as
to the first 300,000 shares of Common Stock and 300,000 Warrants (the "Minimum
Offering") and on a "best efforts" basis as to an additional 240,000 shares of
Common Stock and 240,000 Warrants (together with the Minimum Offering, the
"Maximum Offering"), during an offering period commencing on the date hereof
and expiring on ----------, 1998, unless extended by the mutual consent of the
Company and the Underwriter for up to an additional thirty (30) days (such
period, as same may be extended, being hereinafter referred to as the "Offering
Period"). Pending the acceptance by the Company of the Minimum Offering, all
subscription proceeds will be deposited in a non-interest bearing account (the
"Escrow Account") at the Chase Manhattan Bank ("Escrow Agent").
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OF THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 (the "Registration Statement") under
the Act relating to the securities offered hereby has been filed by the Company
with the United States Securities and Exchange Commission (the "Commission") at
its regional office in New York, New York. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other documents filed as exhibits to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without
charge at the Commissions principal offices in Washington D. C., and copies of
all or any part thereof may be obtained from the Commission upon payment of
certain fees prescribed by the Commission.
Following this Offering, The Company will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will file periodic reports with the
Commission. Such reports, proxy statements and other information concerning
the Company may be inspected and copied at the public reference facilities
maintained by the Commission, Room 1024, 450 Fifth Street, N. W., Washington,
D. C. 20549, and at the Commission's New York Regional Office at 7 World Trade
Center, 13th Floor, New York, NY 10048. Copies of such material can be
obtained from the public reference Section at prescribed rates.
The Commission also maintains an Internet web site that contains reports,
proxy and information statements and other information regarding issuers that
file such documents electronically with the Commission. This and other useful
information will be available about the Company on the web site when this
registration is complete and the Company begins to file reports and other
required documentation. The Commission's web site address is:
http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent public accounting
firm and may, at its discretion, furnish quarterly reports containing unaudited
financial statements.
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. The term the "Company" refers to Xetal, Inc. and its wholly owned
subsidiaries APO Health, Inc., Universal Medical Distributors, Inc. and Dental
Alternatives, Inc., unless otherwise indicated. All numbers referring to the
Company's shares of common stock are stated after giving effect to a 1-for-10
reverse stock split effected in August 1996 and a 1-for-2 reverse split
authorized by the Board of Directors in August, 1998, respectively unless
specifically indicated to the contrary.
THE COMPANY
The Company was incorporated in May, 1969 under the laws of the State of
Utah under the name "Apache Silver Oil Co., Inc." and was previously engaged in
the oil and gas business. Thereafter, in February, 1985, the Company changed
its name to "Insurance Kingdom Agency, Inc." and engaged in the insurance
business until 1992 when it ceased doing business. In September, 1994, the
Company entered into an acquisition agreement with Xetal, Inc., a New York
corporation (for purposes herein referred as "APO Health"), pursuant to which
the stockholders of APO Health acquired approximately 83 % of the issued and
outstanding capital stock of the Company in exchange for all of the capital
stock of APO Health (the "Acquisition Agreement"). Prior to the acquisition,
Dr. Jan Stahl and Mr. Peter Steil owned 100% of the capital stock of APO Health
and served as its officers and directors. As a result of the consummation of
the transactions under the Acquisition Agreement, APO Health became a wholly
owned subsidiary of the Company and Dr. Jan Stahl and Mr. Peter Steil became
became principal shareholders of the Company and thereafter became officers and
directors of the Company. In August, 1998, 450,000 additional shares of Common
Stock were issued to Dr. Stahl and Mr, Steil (225,000 shares each) in
consideration of an outstanding debt to them of $162,038, so that presently
they hold 80.6% of the Company's outstanding Common Stock after giving effect
to all of the previously authorized reverse stock splits. The issuance of
these shares and cancellation of the debt is subject to the sale of the minimum
Offering. In January, 1995, the Company changed its name to "Xetal, Inc." and
APO Health thereafter changed its name to "APO Health, Inc." See "Certain
Transactions."
In March 1996, the Company acquired 100% of the outstanding capital stock
of Universal Medical Distributors, Inc. ("Universal"), a company principally
engaged in the business of distributing veterinary supplies. During July 1996,
the Company also acquired 100% of the outstanding capital stock of Dental
Alternatives, Inc. ("Alternatives"), a corporation owned by Dr. Jan Stahl, one
of the Company's principal shareholder, in exchange for 200,000 shares (after
adjustment) of the Company's Common Stock. Alternatives owned certain
marketing rights and trademarks to products developed by Dr. Stahl. See
"Certain Transactions."
The present operations of the Company's predecessor commenced about 1987
and presently, through its subsidiaries, the Company is a distributor, supplier
and manufacturer of disposable medical products principally to dental, medical
and veterinary professionals. These products include protective garments such
as isolation gowns, facemasks and gauze as well as other disposable items such
as latex gloves, needles, syringes, health and beauty aids and chemicals for
infection control.
Management has elected to concentrate the Company's efforts in specialized
markets for disposable dental, medical and veterinary products. The Company
currently distributes over 3,000 different products. Products are marketed and
sold primarily (i) to other distributors (accounting for approximately 79% of
revenues) (ii) directly to doctors, dentists and veterinarians (accounting for
approximately 18% of revenues) and (iii) to others, including direct consumers,
and through exporters to foreign countries (accounting for approximately 3% of
revenues). See "Business of the Company" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In addition, the Company has introduced a complete line of dental
emergency products and first aid kits which are being marketed under the name
"Dr. Stahl's Emergency Dental Kits" and "Dental Oral Care." These products are
designed for consumer use, for relief from common dental emergencies such as
toothaches, broken dentures, lost filings and loose crowns and bridges.
Management plans to expand marketing of this product line to include catalogs,
drug chains, hotel stores and television sales. In addition, the Company plans
to introduce a consumer medical line including Dr Stahl's band-aids, gauze,
toothbrushes and medical first aid kits. See "Business of the Company."
Universal, the Company's veterinary division, is a full service veterinary
supply company with sales in excess of $2 Million, generated through direct
marketing, trade shows and mail order. See "Business of the Company.
The Company maintains its principal executive offices at 3590 Oceanside
Avenue, Oceanside, New York 11572. The Company's telephone number is (516)
594-0005.
THE OFFERING
Securities Offered: 540,000 Shares of Common Stock, par value $0.001 and
540,000 Warrants.
Common Stock
outstanding prior to
the Offering: 914,131 shares of Common Stock after giving effect to
all of the reverse stock splits authorized by the Board of Directors and the
450,000 shares issued to Dr. Stahl And Mr. Steil.
Common Stock to be
outstanding after the
Offering(1)(2): 1,214,131 shares of Common Stock, if only the
minimum Offering is sold (after giving effect to all
reverse splits and the issuance of 450,000 additional
shares of Common Stock to Dr. Stahl and Mr. Steil)
if only the minimum Offering is sold and 1,454,131
shares if all of the shares offered are sold.
Exercise Terms
of the Warrants: Each Warrant is exercisable into one share of Common
Stock for a period of four years commencing one year
from the date of this Prospectus at an exercise price
of $5.00 per share, 100% of the initial public
Offering price.
Expiration Date of
Warrants: ------, 2003 (5 years from the date of this Prospectus)
Redemption of
Warrants: The Warrants are redeemable by the Company after
two years from the date of this Prospectus at a price
per Warrant of $0.05, upon not less than 30 days prior
written notice to the holders of such Warrants,
provided that the closing sale price of the Shares as
reported on The OTC Electronic Bulletin Board is at
least $7.50, 150% of the initial public Offering price
of the Shares, for twenty consecutive trading days
ending on the tenth day prior to the date on which the
Company gives notice of redemption. Warrant holders may
exercise the Warrants during such 30-day notice period.
Use of Proceeds: The proceeds of this Offering will be used by the
Company to repay two Bridge Financings in the
aggregate principal amount of $500,000, plus accrued
interest thereon, $250,000 of which was incurred by
the Company in anticipation of this Offering;
to acquire key-man life insurance to protect against
the loss of two officers; to provide for the
expansion of the Company's business through
acquisition of compatible existing business
entities; to fund the Company's operational and
administrative costs and expenses; and for working
capital. See "Use of Proceeds."
(1) Gives no effect to the possible exercise of the Warrants or to the
Underwriter's Warrants.
(2) Gives no effect to the possible exercise of the Pre-Bridge Warrants (as
that term is hereinafter defined) and Bridge Warrants previously issued to
certain Pre-Bridge Lenders (as that term is hereinafter defined) and Bridge
Lenders, respectively, which Warrants and underlying Common Shares are being
registered for future sale as part of this Offering.
SUMMARY FINANCIAL INFORMATION
The following summary financial data is qualified in its entirety by, and
should be read in conjunction with the Company's Financial Statements and the
Notes thereto included elsewhere in this Prospectus and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION"
hereinafter set forth in this Prospectus. The summary financial data presented
below as of September 30, 1997, and 1996 and for each of the two years then
ended, are derived from the Financial Statements of the Company audited by
independent certified public accountants, and are included elsewhere in this
Prospectus.
The data presented for each of the nine month periods ended June 30, 1998 and
1997 are derived from unaudited financial statements which, in the opinion of
management include all adjustments (which were of a normal and recurring
nature) necessary for a fair presentation of the information set forth therein.
The pro forma balance sheet reflects the conversion of loans payable to certain
shareholders into 450,000 shares of post split Common Stock.
Summary Balance Sheet Data:
Pro Forma
September 30, September 30, June 30, June 30,
1997 1996 1998 1998
Total Assets $4,089,332 $3,023,130 $4,414,578 $4,414,578
Total Current Assets 3,773,391 2,762,834 4,100,402 4,100,402
Total Liabilities 4,056,823 3,000,056 4,149,632 3,987,594
Retained Earnings (Deficit) (582,431) (566,766) (349,994) (349,994)
Stockholders' Equity 32,509 23,074 264,946 426,98
Summary Earnings Data:
Nine Months Nine Months
Year Ended Year Ended Ended Ended
September 30, September 30, June 30, June 30,
1997 1996 1998 1997
Revenues $23,500,981 $14,615,764 $24,693,703 $16,305,219
Cost of Revenues 21,027,226 12,595,353 22,280,389 14,509,242
Gross Profit 2,473,755 2,020,411 2,413,314 1,793,277
Selling Expenses 1,049,201 911,336 1,016,158 717,889
General and
Administrative Exp. 1,212,929 855,056 1,039,700 871,100
Income (Loss)
from operations 211,625 (133,107) 357,456 204,288
Net Income (Loss) (15,665) (308,390) 232,237 23,168
Earnings (Loss)
per Share $ (0.03) $ (1.56) $0.50 $0.06
Weighted Average
No. of Shares 458,615 197,400 464,131 430,798
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered carefully in evaluating the Company and an
investment in this Offering. An investment in the Securities offered hereby is
suitable only for those investors who can bear the risk of loss of their entire
investment.
1. Narrow Operating Margins.
Prior to its acquisition of APO Health in 1994, the Company was an
inactive publicly-owned corporation. All of the Company's present business
operations are conducted through its wholly-owned subsidiaries, APO Health
(which commenced operations in October, 1987), Universal (acquired in 1996) and
Alternatives (also acquired in 1996). The Company's sales are typically of low
profit margin items, with net operating margins averaging between 1% and 2% of
gross revenues. As such, any downturn in sales could adversely affect the
Company's ability to operate profitably and could result in operating losses in
the future. See, "Financial Statements" and "Business of the Company."
Although the Company's Common Stock is currently traded on the OTC
Bulletin Board there is presently no active public market for the Securities
being offered hereby and no assurance can be given that a market for such
Securities will develop subsequent to this Offering. Quotations for the
Company's Common Stock have been sporadic and in small volumes and, as a
result, purchases or sales of relatively small amounts of Common Stock can have
a significant impact upon the quoted prices. The Underwriter is not obligated
to make a market in any of the securities upon completion of this Offering and
the Underwriter is not approved by the NASD to make a market in securities.
3. Need for Additional Financing.
The Company's ability to implement its business plan is materially
dependent upon the availability of additional capital to the Company through
the successful completion of this Offering. In contemplation of this Offering,
the Company also obtained a total of $500,000 in "bridge financing" in two
transactions as follows:
In January, 1996, the Company issued $250,000 in promissory notes to
certain investors for interim capital prior to this Offering (hereinafter
called the "Pre-Bridge Notes"). After deducting expenses of the financing,
including commissions, legal fees and miscellaneous expenses, the net proceeds
of $190,000 were used for working capital. The Pre-Bridge Notes were issued at
an interest rate of ten percent (10%) and were due at the earlier of (a)
December 15, 1996 or (b) the consummation of this Offering. As an added
inducement to make the loan to the Company, the noteholders were issued
Warrants to purchase 12,500 shares of the Company's Common Stock (as adjusted
for two reverse splits of Common Stock) at an adjusted exercise price of $5 per
share, exercisable until January 3, 2003. The Company also granted Warrants to
purchase 6,250 shares of Common Stock under the same terms to Janssen-Meyers
Associates for placement of the Pre-Bridge Notes. All of the holders of the
Warrants were also granted certain registration rights and are included in this
Registration Statement as selling securityholders. The terms and conditions of
this transaction were made at arms-length between the parties.
In October, 1996, the Company also sold an additional $250,000 in bridge
loan notes through the Underwriter herein to certain investors (hereinafter
called the "Bridge Notes") to be used for working capital. The terms of the
notes were made at arms-length through negotiation with the Underwriter and the
investors. The Bridge Notes were issued with eight percent (8%) interest and
were payable at the earlier of (a) twelve months from the date of issuance or
(b) the consummation of this Offering. After giving effect to two reverse stock
splits, the Company issued to the noteholders a total of 100,000 shares of
Common Stock and Warrants to purchase an aggregate of 1,250,000 shares of
Common Stock at an exercise price of $5.00 per share if this Offering is sold,
exercisable for a period of four (4) years commencing on October 1, 1997. In
addition, the Company paid to the Underwriter a placement fee of $25,000 in
connection with the placement of the Bridge Notes plus an unaccountable expense
allowance of $7,500 and granted to the Underwriter Warrants to purchase 125,000
shares of Common Stock (after adjustment) exercisable at $5.00, exercisable for
a period of four years commencing October 1, 1997. The Wearrants issued in
this transaction to the Underwriter were subsequently cancelled. The placement
fee and expense allowance paid to the Underwriter are in addition to the
compensation to be paid to the Underwriter for its services in the sale of
this Offering. Each of the shareholders and warrantholders were granted
certain registration rights and are included in this Registration Statement
as selling securityholders.
The Company is presently in default of both the Pre-Bridge and the
Bridge Notes in the total amount of $500,000 plus accrued interest. A
substantial portion of the proceeds from this Offering will be used to pay both
the Pre-Bridge and the Bridge Notes which will have the effect of reducing the
amount of proceeds available for the Company's growth and other purposes. Also
the issuance of the Common Stock and the Warrants to the holders of the Notes
will have a dilutive effect on this Offering. See "Certain Transactions,"
"Dilution" and "Risk Factor 16."
4. Reliance Upon Management.
The Company is principally dependent upon the personal efforts and
abilities of Dr. Jan Stahl and Mr. Peter Steil, its principal operating
officers. The loss of either of these individuals could have a materially
adverse effect upon the Company's ability to successfully carry on its
business. In addition, although APO Health intends to obtain "key man" life
insurance upon the lives of Dr. Stahl and Mr. Steil in the amount of not less
than $1,00,000 each (see "Use of Proceeds"), if the Company were to lose the
services of either Dr. Stahl or Mr. Steil, its business could be adversely
affected and there can be no assurance that the proceeds of such insurance
would be adequate to secure an adequate replacement or to fully compensate the
Company for such loss. Furthermore, as the Company expands its present
operations, it will require the services of additional skilled personnel. There
can be no assurance that it will be able to attract persons with the requisite
skills and training to meet future needs or, even if suitable persons are found
that they will be available on terms acceptable to the Company. Currently there
are employment agreements in place between the Company and each of Dr. Stahl
and Mr. Steil; however, they expire in December, 1998. See "Management" and
"Executive Compensation."
5. Potential Impact of Changing Economic Factors in the Health Care Markets.
The health care market accounts for most of the demand for non-woven
disposable products, with hospitals accounting for approximately two-thirds of
this demand. The health care industry has been typified in recent years by
strict cost containment measures imposed by federal and state governments,
private insurers and other "third party" payors of medical costs. In response
to these pressures, virtually all segments of the health care market have
become extremely cost sensitive and in many cases hospitals and other health
care providers have become affiliated with purchasing consortiums which are
charged with obtaining large quantities of needed products at the lowest
possible cost. These factors in combination have had an adverse impact upon
smaller suppliers and manufacturers, such as the Company, which are either
unable to supply the large quantities sought by the purchasing consortiums or
which are unable to respond to the need for lower product pricing. Although
management believes that its planned expansion program will enable it to meet
the demand for large quantity orders, and despite management's belief that the
dramatic increased demand for safety oriented products, such as the disposable
products offered by the Company, will offset these factors, there can be no
assurance that the Company will be able to overcome the negative impact of
these conditions in the health care marketplace.
6. Potential Adverse Impact of Environmental Concerns.
At present, most disposable products are manufactured from fabrics which
are comprised of non-biodegradable plastic fibers. In recent years concern has
grown over the effects of such products on the environment due to the country's
growing solid waste disposal "crisis," the declining landfill capacity in major
metropolitan areas able to handle such products and the much publicized hazards
of "medical wastes." These concerns have been highlighted by suppliers of
traditional reusable medical products in an attempt to overcome the growing
demand for disposable products. Although the degree to which disposable plastic
products are responsible for the country's waste disposal related problems is
the subject of serious debate at the present time, should it become the
consensus that the costs and problems for the disposal of such products
outweigh their benefits, such a development could have a materially adverse
impact upon the Company and the medical products industry in general, at least
until biodegradable, non-woven products become a feasible alternative to the
materials now being used.
7. Potential Impact of FDA and Governmental Regulation.
Some of the Company's products may be regulated as medical devices by the
federal Food and Drug Administration (the "FDA") pursuant to the federal Food
and Drug Cosmetic Act (the "ACT") and are, or may be, subject to regulation by
other federal and state governmental agencies. The FDA has comprehensive
authority to regulate the development, production, distribution and promotion
of medical devices. Furthermore, certain states impose additional requirements
on the distribution of medical devices. The FDA may require pre-market
approval of some of the Company's proposed products, requiring extensive
testing and a lengthy review process. The cost of complying with present and
future regulations may be significant. Furthermore, the regulatory approval
process and attendant costs may delay or prevent the marketing of products
developed by the Company in the future. The Mandatory Device Reporting ("MDR")
regulation obligates manufacturers including, in some cases, distributors such
as the Company, to provide information to the FDA on injuries alleged to have
been associated with the use of a product or certain product failures which
could cause injury. The FDA is empowered to take action against manufacturers
of regulated products including both civil and criminal remedies, and may also
prohibit or suspend the marketing of products if circumstances so warrant. Any
such action by the FDA could result in a disruption of the Company's operations
for an undetermined time.
8. Product Liability; Cost and Availability of Insurance.
Providers of medical products to hospitals and other health care institutions
may encounter liability for damages to patients in the event that their
products prove to be defective. Certain of the Company's products and proposed
products will be utilized in medical procedures where the Company could be
subject to claims for such injuries resulting from the use of its products.
Recent developments in the insurance industry have reduced the availability and
increased the cost of liability insurance coverage. At present the Company
maintains product liability insurance coverage in the amount of $1,000,000.
However, as a result of the continuing changes in insurance coverage and
premiums, no assurance can be given that such insurance will be adequate to
fully protect the Company in the future or that product liability insurance can
be maintained at a reasonable cost.
9. Lack of Patent Protection.
At present, the Company does not rely upon patent protection for any of its
products and such protection is not believed to be essential by management
because of the character of its products. Furthermore, there is little
likelihood that it will develop patentable products or processes in the
foreseeable future. In the absence of such protection, the Company will
primarily rely upon trade secrets and proprietary techniques, where applicable,
to attain or maintain any commercial advantage. There is no assurance that
competitors will not independently develop and market, or obtain patent
protection for, products similar to those designed or produced by the Company,
and thus negate any advantage of the Company with respect to any such products.
Even if patent protection becomes available to the Company, there can be no
assurance that such protection will be commercially beneficial.
10. Competition.
The dental, medical and veterinary products supply businesses are intensely
competitive. At present, the Company estimates that there are over 20
companies whose products compete with many of the Company's present and
proposed products. These companies range from major multinational companies to
enterprises which are smaller in size and financial ability than the Company.
The Company's present and prospective competitors also include the numerous
manufacturers and suppliers of reusable medical products and manufacturers of
raw materials used by the Company. Many of the Company's competitors have far
greater financial resources, larger staffs, and more established market
recognition in both the domestic and international markets than the Company.
See, "BUSINESS OF THE COMPANY - Competition."
11. Dependence Upon Third Party Manufacturers/Suppliers.
The Company does not directly manufacture any of the products it presently
sells. The products distributed by the Company are, for the most part,
manufactured by third parties in the United States, the Far East, Mexico and
Canada. In general, the Company does not have long-term contracts with its
manufacturers. Although the Company believes alternative sources for virtually
all of its products are readily available, there can be no assurance that the
available supply from such alternative sources would be adequate to meet the
increased demand for production that would most likely result from any
significant disruption in the Company's traditional manufacturers and suppliers
of its products. See, "Business of the Company - Manufacturing."
12. Foreign Manufacturing.
Foreign manufacturing is subject to a number of risks, including
transportation delays and interruptions, political and economic disruptions,
the imposition of tariffs and similar import/export controls and changes in
governmental policies. Although, to date, the Company has not experienced any
material adverse effects due to such risks, there can be no assurance that such
events will not occur in the future with the result of possible increases in
product costs and/or delays in product delivery which would, in all likelihood,
result in the loss of revenues and good will by the Company.
13. Potentially Adverse Effect of Agreement to Pay Commissions to Management.
Under their employment agreements with the Company, Mr. Steil, President,
and Dr. Stahl, Chief Executive Officer, beginning with the calendar year 1996,
each receive annual bonuses equal to one (1%) per cent of the Company's gross
revenues over an agreed base of $11 Million per annum in addition to their base
salaries. The bonuses are payable in cash within 30 days after completion of
the Company's audited annual financial statements (see "Management - Executive
Compensation"). The payment of such commissions will reduce any net profits of
the Company and, given the low profit margins experienced by the Company, could
have an adverse effect on future profitability. The bonus was waived for 1996
and partially waived for 1997 (i.e. each received a bonus of $6,375 or a total
of $12,750 for 1997) and Dr. Stahl and Mr. Steil waived any further balance
they were entitled to receive for 1997. From October 1, 1997 to June 30, 1998,
the sum of approximately $200,000 was accrued for the payment of bonuses, or
$100,000 each. Dr. Stahl and Mr. Steil have agreed to waive any further amounts
for 1998.
14. Related Party Transactions.
Since commencement of its new operations in 1994, the Company entered into
Three related party agreements. The first agreement was entered into in
September, 1994 between the Company and Dr. Jan Stahl and Peter Steil, Chairman
and President of the Company, respectively, pursuant to which the Company
acquired its present business by purchasing from Dr. Stahl and Mr. Steil all of
their shares of Common Stock in Xetal, Inc., ("Xetal, New York") a New York
corporation operating under the name of "APO Health," in exchange for
1,000,000 shares of the Company's Common Stock each. After adjustment for a
1-for-10 reverse stock split and the recently approved 1-for-2 reverse stock
split, the total number of shares issued to Dr. Stahl and Mr. Steil was reduced
to 50,000 shares of Common Stock of the Company each, or a total of 100,000
shares. Xetal, New York was principally owned by Dr. Stahl and Mr. Steil at
the time of the transaction. As a result of the exchange of shares with the
Company, Dr. Stahl and Mr. Steil received a control position in the Company or
approximately 83% of its total outstanding shares. In July, 1996, the Company
also acquired from Dr. Stahl and Mr. Steil their entire interest in Dental
Alternatives, Inc., a corporation which owned marketing rights and trademarks
to products developed by Dr. Stahl, in exchange for a total of 200,000 Shares
(100,000 Shares each) each) of the Company's Common Stock (after adjustment for
the 1-in-10 and the 1-for-2 reverse stock splits). Since the agreement with
Dental Alternatives was made with a Principal shareholder, it must be
considered that it was not made through arms-length negotiations and may not
have been structured in a manner favorable to the Company. Such transactions
also necessarily involve conflicts of interest between the Company and Dr.
Stahl and Mr. Steil. The Company has no policy with respect to transactions
with affiliates except that in the future all acquisitions entered into with
affiliates will be subject to an independent appraisal as to valuation.
Recently, the Company also entered into an agreement with Dr. Stahl and Mr.
Steil in which it was agreed that, subject to the completion of the Minimum
Offering, the Company's debt to them in the amount of $162,038 would be paid in
exchange for 450,000 shares of Common Stock. (See Note 8 to the Financial
Statements for the nine months ended June 30, 1998.) There are no further
transactions pre sently contemplated with any of the existing officers or
directors of the Company. See "Certain Transactions."
15. Continued Control of Present Management.
If this Offering is completed at the Minimum, officers and directors of
the Company will continue to own approximately 61.2% of the total number of
shares of Common Stock outstanding and, therefore, management will,
effectively, be in a position to continue to control the Company and institute
all of its policies. If the Offering is completed at the Maximum level (i.e.
if all 540,000 shares of Common Stock are sold) the officers and directors of
the Company will own 51.9% of the total outstanding number of shares of Common
Stock and will continue to be in a position to control the Company.
Furthermore, The Company's Articles of Incorporation do not provide for
cumulative voting. Accordingly, after completion of this Offering,
Subscribers may not be in a position to select any of the Company's directors,
appoint its officers and control its affairs and operations. The foregoing
percentage calculations were made on the basis of 964,131 shares outstanding
which gives effect to both of the Company's reverse stock splits, but no effect
was given to the exercise of outstanding warrants. See "Principal
Shareholders."
16. Dilution.
As of June 30, 1998, the net tangible book value of the Company's Shares
was $0.24 per share. If all the Securities being offered hereby are sold, the
net tangible book value of the Shares will be approximately $1.74 Consequently
the purchasers of the securities being offered hereby will suffer an immediate
dilution of approximately $3.26 per Share (approximately 65%). Conversely,
present Shareholders of the Company would receive an immediate benefit of
approximately $1.50 per Share if all the securities offered are sold. For
detailed information concerning dilution, see "Dilution."
17. No Dividends.
The Company has not paid any dividends on its Shares since its inception
and does not expect to declare or pay any cash dividends in the future. The
Company anticipates that any profits from operations will be reinvested in the
Company.
18. Authorization of Preferred Stock; Anti-takeover Provisions.
The Company's Articles of Incorporation authorize the issuance of
2,000,000 shares of Preferred Stock with such designation, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without obtaining shareholder
approval, to issue Preferred Stock with preferred dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Shares. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying, or preventing a change in the control of the Company.
See "Description of Securities."
19. Escrow of Investor's Funds.
Pending the completion of this Offering, all subscriber funds will be held
in a non-interest bearing escrow account (the "Escrow Account") with the Chase
Manhattan Bank (the "Escrow Agent") until the Minimum Offering is subscribed
for and cleared funds are available in the Escrow Account. As such, subscriber
funds could be held for up to sixty days, subject to extension for an
additional thirty days by the Company and the Underwriter. In the event the
Minimum Offering is not subscribed for during such period, all such amounts
will be returned without interest thereon or deduction therefrom. Therefore,
subscribers for the Securities offered hereby may not have the use of such
funds or receive interest thereon pending the completion of the Offering. See
"Underwriting."
20. No Commitment to Purchase Securities.
The Securities offered herein are offered on a "best efforts, all or none "
basis with respect to the first 300,000 shares of Common Stock and 300,000
Warrants and thereafter on a "best efforts" basis only with respect to the
remaining 240,000 shares of Common Stock and 240,000 Warrants, by the Company
through the Underwriter. No commitment exists by anyone to purchase all or any
portion of such Securities. Consequently, there can be no assurance as to how
many shares of Common Stock and Warrants over the Minimum Offering, if any,
will be sold by the Company in this Offering.
21. Potentially Adverse Effect of Agreement to Pay Warrant Solicitation Fee.
At present, the Company has an arrangement with the Underwriter to pay a
Warrant solicitation fee in connection with the possible exercise of the
Warrants being offered hereby. However, unless granted an exemption by the
Securities and Exchange Commission from the provisions of Regulation M
promulgated under the Securities Exchange Act of 1934, as amended, any
soliciting Broker/Dealers will be prohibited from engaging in any market-making
activities with regard to the Company's securities for the period from two (2)
business days prior to any solicitation of the exercise of Warrants until the
later of the termination of such solicitation activities or the termination (by
waiver or otherwise) of any right that the soliciting Broker/Dealers may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, soliciting Broker/Dealers may be unable to continue to provide a market
for the issuer's securities during periods while the Warrants are exercisable.
22. Possible Effects of SEC Rules on Market For Common Stock and Warrants.
Prior to this Offering the Company's Shares have been traded on the OTC
Electronic Bulletin Board. The Company intends to apply for approval to have
the securities offered hereby (the Warrants and Shares) approved for inclusion
on the Bulletin Board. The Company's securities must continue to be registered
under Section 12(g) of the Exchange Act. If the Company's securities are
traded for less than $5 per security, then unless the Company's net tangible
assets exceed $2,000,000 or the Company has average revenues of at least
$6,000,000 for the last three (3) years, the respective security (a "Low-Priced
Security") will be subject to SEC Rule 15g-9 concerning sales of low priced
securities or "penny stocks" unless the security is otherwise exempt from Rule
15g-9. Pursuant to Rule 15g-9, prior to concluding a sale, a broker-dealer must
make a special suitability determination for the purchaser and receive the
purchaser's written representations and agreement concerning the transaction.
In addition, Rule 15g-9 generally requires broker-dealers to provide customers
for whom they are effecting transactions in a Low-Priced Security, before the
transaction, with a standard risk disclosure document describing the customer's
right to disclosures of the (i) current bid and asked quotations, if any, (ii)
compensation of the broker-dealer and the salesperson in the transaction, and
(iii) monthly account statements showing the market value of the such stock
held in the customer's account. If the Common Stock or Warrants individually
trade for more than $5 per security, then these rules will not apply to the
transactions in the respective security trading for over $5. To the extent
that the respective security becomes a Low-Priced Security, these rules will
apply and would be expected to have a negative effect on the desire of brokers
to sell the Company's Securities; would be expected to have a negative effect
on the brokers' ability to do so; and also would be expected to have a negative
effect on the ability of purchasers in this Offering to sell the Company's
securities in the secondary market. The Underwriter, the Company and the
Selling Shareholders may also be subject to certain restrictions on bidding
for, purchasing or attempting to purchase the Company's stock and engaging in
certain stabilization activities, among other prohibitions imposed by
Regulation M.
23. Unregistered Securities.
The existing shares of Common Stock and Warrants, if any, and Common
Stock underlying the Warrants, if any, which are not being registered pursuant
to this Registration Statement are "restricted securities" as that term is
defined in the Act. Therefore, all such securities must be held indefinitely
unless subsequently registered under the Act or an exemption from registration
becomes available. One such exemption which may be available to the holders of
such securities in the future is Rule 144 adopted under the Act. Generally,
under Rule 144, any person holding restricted securities for at least one (1)
year may publicly sell, in ordinary unsolicited brokerage transactions, within
a three (3) month period, the greater of one (1%) percent of the total number
of the Company's Shares outstanding or the average weekly reported volume
during the four weeks preceding the sale, if certain conditions of Rule 144 are
satisfied by the Company and the seller. Furthermore, with respect to sellers
who are "non-affiliates" of the Company, as that term is defined in Rule 144,
Pursuant to Paragraph K of Rule 144, the volume sale limitation does not apply
after a two-year holding period and an unlimited number of shares may be sold
without restriction, provided the seller meets certain other conditions
enumerated in Rule 144. Sales under Rule 144 may have a depressive effect on
the market price of the Company's securities and could effect the sale of
Common Stock purchased in this Offering in the future. See "Restriction on
Resale." Dr. Stahl, Chairman, Mr. Steil, President and Mr. Levanthol, a
director, propose to sign lock-up agreements with the Underwriter, restricting
their sale of shares for a period of two years. The foregoing persons hold a
total of 755,000 shares of the Company's Common Stock. All other lock-up
agreements have or will shortly expire.
24. Underwriter's Warrants and Registration Rights.
The Company has agreed to sell to the Underwriter warrants (the
"Underwriter's Warrants) at a purchase price of $0.0001 per Underwriter's
Warrant to acquire an aggregate of 54,000 shares of Common Stock, entitling the
holder to purchase 54,000 shares of Common Stock exercisable for a period of
four years commencing one year from the date of this Prospectus, at an exercise
price equal to 165% of the price of the Common Stock to the public in this
Offering (i.e $8.25 per share), subject to adjustment in amount pro rata in the
event all of the shares of Common Stock and/or Warrants are not sold in this
Offering. The Underwriter's Warrants and Shares issuable upon exercise of the
Underwriter's Warrants are identical to those offered hereby, except that the
Underwriter's Warrants are exercisable at 165% of the public offering price for
the Common Stock. The Underwriter's Warrants are exercisable for a period of
four years commencing one year from the date of this Prospectus. The exercise
of the Underwriter's Warrants will dilute the value of the Shares and may
adversely affect the market price of the Shares. The Underwriter has been
granted (i) certain "piggy-back" registration rights for a period of seven
years from the date of this Prospectus and (ii) demand registration rights for
a period of five years from the date of the Prospectus with respect to the
registration under the Act of the Underwriter's Warrants and the Common Stock
issuable upon exercise of the Underwriter's Warrants.
25. Continuing Relationship with the Underwriter.
The Company has entered into an agreement with the Underwriter
providing for the Underwriter to designate a voting member to the Company's
Board of Directors. The existence of this agreement will cause the Company to
have a continuing relationship with the Underwriter at the expiration of the
Offering period.
26. Effect of Sales by Selling Shareholders.
To the extent that the Selling Shareholders effect sales of their
securities pursuant to this Offering at the same time as Company shares are
offered, the Company's ability to sell its Securities may be affected, the
result of which may be that the Offering will be delayed, postponed or
discontinued.
27. Effect of Warrants.
The holders of Warrants and the Underwriter's Warrants will have an
opportunity to benefit from a rise in the market price of the Shares. During
the life of the Warrants, the terms upon which the Company could obtain
additional capital may be adversely affected. Holders of Warrants might be
expected to exercise them at a time when the market price of the Shares is in
excess of the exercise price of the Warrants. The issuance of Shares upon the
exercise of the Warrants, therefore, may result in a dilution of the equity
represented by the then outstanding Shares held by other shareholders. At such
a time the Company might be able to obtain capital, if needed, on terms more
favorable than those provided by the Warrants. See "Dilution."
DILUTION
As of June 30, 1998, the net tangible book value of the Common Stock of
the Company was $0.24 per Share. Net tangible book value per share represents
the amount of the Company's tangible net worth (total tangible assets less
total liabilities) divided by the total number of Shares outstanding.
"Dilution" means the difference between the purchase price of the Shares paid
by an investor herein and the pro-forma net tangible book value of the Shares
after giving effect to this Offering. After giving effect to the sale of
shares offered hereby and receipt of the net proceeds thereof, the pro forma
net tangible book value of the Shares at June 30, 1998, would have been $1.21
per Share, if only the minimum Offering is sold, or $1.74 per Share, if the
maximum Offering is sold. This represents an immediate increase in net
tangible book value of $0.97 per Share, if the minimum Offering is sold and
$1.50 per Share if the maximum Offering is sold to existing holders of Shares
and an immediate dilution of $3.79 per Share or 76% (minimum) or $3.26 per
Share or 65% (maximum) of the initial public offering price to purchasers of
the Shares offered hereby. The following tables illustrate the dilution to the
purchasers of the Shares offered hereby both for the minimum and maximum
Offerings:
I. Assuming Only The Minimum Offering is Sold:
Public Offering price per share (1)(2): $ 5.00
Net tangible book value at June 30, 1998
(Before Offering): $ 0.24
Increase per share attributable to new investors: $ 0.97
Pro forma net tangible book value at June 30, 1998
(After Offering) (3): $ 1.21
Per share dilution to new investors: $ 3.79
II. Assuming The Maximum Offering is Sold:
Public Offering price per share (1)(2): $ 5.00
Net tangible book value at June 30, 1998
(Before Offering): $ 0.24
Increase per share attributable to new investors: $ 1.50
Pro forma net tangible book value at September 30, 1997
(After Offering)(3): $ 1.74
Per Share dilution to new investors $ 3.26
Assumes no value for the Warrants for the purpose of calculating dilution.
(1) Before deduction of Underwriter's commission and estimated
expenses of the Offering to be paid by the Company.
(2) Assumes no exercise of the Underwriter's Warrants.
(3) Is based upon 964,131 shares of Common Stock issued and outstanding at June
30, 1998, which reflects the pro forma number of shares outstanding after
certain shareholders conversion of $162,038 in Loans payable to them into
450,000 shares of Common Stock.
(4) The foregoing table assumes no value for the Warrants for the purposes of
computing dilution.
The following tables set forth, after giving effect to the assumed completion
of the Offering, at both the Minimum and Maximum Offering, the total
consideration paid and the average price per Share paid by existing
shareholders and by the public participating in this Offering:
III. Assuming Only The Minimum Offering is Sold:
Shares Owned Consideration Average Per
Number Percent Amount Percent Share Price
Present
Shareholders 914,131 75.9% $ 776,978 34.1% $ 0.85
New Investors 300,000 26.1% $1,500,000 65.9% $ 5.00
Total(1) 1,204,131 100.0% $2,276,978 100.0%
IV. Assuming The Maximum Offering is Sold:
Shares Owned Consideration Average Per
Number Percent Amount Percent Share Price
Present
Shareholders 914,131 62.9% $ 776,978 22.3% $ 0.85
New Investors 540,000 37.1% $2,700,000 77.7% $ 5.00
Total(1) 1,454,131 100.0% $3,476,978 100.0%
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(1) Does not give effect to (i) the exercise of any of the Warrants offered
hereby; (ii) the exercise of any of the Underwriter's Warrants; (iii) the
exercise of any of the Warrants included in the Underwriter's Warrants; or (iv)
the exercise of any of the Bridge or Pre Bridge Warrants also registered
herein.
(2) Gives effect to the two reverse stock splits authorized by the Board of
Directors.
USE OF PROCEEDS
The net proceeds from the sale of the Securities offered hereby, after
deducting underwriting commissions and other expenses of the Offering,
estimated in the aggregate at $261,000 if only the minimum number of shares of
Common Stock are sold, or $390,000 if all shares of Common Stock and Warrants
are sold, will be approximately $1,239,000 if the Minimum Offering is sold and
$2,310,000 if the Maximum Offering is sold. These proceeds are intended to be
applied approximately in the following manner:
Minimum Percentage(1) Maximum Percentage(1)
Amount Amount
Repayment of Bridge
Loan Financing(2) $ 603,750 48.7% $ 603,750 26.1%
Expansion of
Inventory(3) 100,000 8.1% 200,000 8.7%
Marketing(4) 50,000 4.0% 100,000 4.3%
Key-man Insurance(5) 25,000 2.0% 25,000 1.1%
Insurance(6) 20,000 1.6% 20,000 0.9%
Expansion and
Acquisition
Program(7) 200,000 16.1% 500,000 21.6%
Working Capital(8) 240,250 19.5% 861,250 37.3%
TOTALS $1,293,000 100.0% $2,310,000 100.0%
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(1) All percentages are rounded to the nearest tenth.
(2) Includes principal and estimated interest payments due on two previous
bridge financing transactions completed by the Company in anticipation of this
Offering.
(3) Includes an allocation for the expansion of the Company's existing
inventory in order to permit management to take advantage of available volume
discounts offered by suppliers and to establish initial inventories of new
products either developed by the Company or as to which distribution rights
have been negotiated.
(4) This allocation is intended to meet the anticipated costs of expanding the
Company's marketing and advertising program. Although the Company has not yet
finalized its long term marketing plans, management generally intends to (i)
investigate the feasibility of expanding its use of independent marketing
representatives and to promote its product lines, particularly its proprietary
products, to new markets, other than the traditional hospital and health care
markets, through the use of a combination of advertisements in specialized
trade magazines, attendance at trade shows and a direct mail program to
potential end-users; (ii) expand its use of print advertising (including the
expansion of current advertising in trade publications) and (iii) develop,
printing and distribute product brochures and literature, particularly for the
Company's proprietary products. This allocation is estimated to be adequate to
meet the cost of such activities for a period of at least one year following
the completion of this Offering even if only the minimum Offering is sold.
(5) This allocation is intended to be used by the Company for the purchase of
key-man life insurance on The lives of Dr. Stahl and Mr. Steil. Based upon
quotations received by management, this allocation is deemed adequate by
management to meet the first year's cost for such insurance for both Dr. Stahl
and Mr. Steil.
(6) This allocation is intended to meet the cost of (i) acquiring product
liability insurance in a minimum amount of $1 million and (ii) acquiring
officers and directors insurance following the completion of this Offering,
which management believes to be essential in order to attract new officers and
directors with the skills and experience required to fully realize the
Company's growth potential. Based upon an investigation by management, this
allocation is expected to be adequate to cover the first year premium for such
insurance.
(7) This allocation is intended to meet the cost of implementing the Company's
expansion program (see, "BUSINESS OF THE COMPANY") and is expected to be
adequate for a period of at least one year following the completion of this
Offering. However, there are no present plans, proposals, arrangements or
understandings to make any acquisitions or purchases of existing businesses.
(8) This allocation will be used as general "Working Capital" to pay various
routine administrative and operating expenses of the Company.
In connection with the application of funds for working capital as indicated
above, it should be noted that the proceeds from both the Bridge Loans and the
Pre Bridge Loans were applied for this purpose and were principally used to pay
current obligations of the Company and for inventory purchases. Proceeds from
this Offering applied to working capital will also be used primarily to pay for
current expenses of operations and to the extent necessary to supplement
additional inventory purchases.
The foregoing categories indicate the allocation of funds in the order of
priority and relative percentage of the total proceeds which is expected to be
used by the Company for the purposes indicated. The amounts set forth
represents the Company's best estimates of its required allocation of funds
based upon the current state of its business operations, its current plans, and
current economic and industry conditions. The actual expenditures may vary from
the estimates set forth in the table above, depending upon a number of factors
beyond the control of the Company. Future events, including the problems,
expenses, complications and delays frequently encountered by growing
businesses, as well as changes in economic conditions or the regulatory
environment or the Company's operations, may make changes in the allocation of
funds necessary or desirable. It is anticipated that a sufficient reserve has
been allocated to "Working Capital" to provide adequate additional funds,
without affecting the allocations set forth in other categories. To the extent
amounts received are inadequate in any particular area of expenditure,
supplemental amounts may be drawn from operating revenues, if any, or from the
allocation for "Working Capital." Conversely, in the event that actual
expenditures in any particular category are less than the amounts allocated,
any amounts not expended will be added to the reserve for "Working Capital."
It is possible that all or a portion of the funds received in this
Offering may not be utilized immediately, in which case the Company may invest
unused funds in interest bearing accounts or securities, within limitations,
until expenditure of such funds becomes necessary. It must be noted that all
funds in the Working Capital category may be used for any purpose deemed
appropriate by management without any restriction or say whatsoever by the
shareholders including purchasers of Securities herein.
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company as
of June 30, 1998 as adjusted to give effect to the sale of (i) the minimum and
maximum number of Securities offered hereby and (ii) the application of the
estimated net proceeds therefrom. This table should be read in conjunction
with the Company's Financial Statements included elsewhere in this Prospectus.
See "Financial Statements."
Adjusted For
Minimum Maximum
Actual Pro Forma(1) Offering(2)(4) Offering(3)(4)
Long term debt $162,038
Stockholders' Equity:
Preferred stock,
$0.10 par value,
no shares outstanding
Common Stock,
$0.001 par value,
20,000,000 shares
authorized; 464,131
shares issued and
outstanding; Pro Forma
914,131 shares issued
and outstanding (1);
1,214,131 shares to be
outstanding upon sale
of the minimum offering(2),
1,454,131 shares upon
sale of the maximum
Offering(3) 464 914 1,214 1,454
Additional paid-in
capital (3) 614,476 776,064 1,965,241 3,036,001
Retained Earnings
(Deficit) (349,994) (349,994) (349,994) (349,994)
Total stockholders'
equity 264,946 426,984 1,616,461 2,687,461
Total Capitalization $426,984 $426,984 $1,616,461 $2,750,461
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(1) Gives effect to the issuance of 450,000 shares to Dr. Stahl and Mr. Steil
consideration of the discharge of the Company's debt to them of $162,038. See
"Certain Transactions."
(2) As adjusted to reflect the sale of the Minimum number of Securities
offered hereby and the application of the proceeds by the Company.
(3) As adjusted to reflect the sale of the Maximum number of Securities offered
hereby and the application of the proceeds by the Company.
(4) Does not give effect to (i) the exercise of any of the Warrants offered
hereby; (ii) the exercise of any of the Underwriter's Warrants; (iii) the
exercise of any of the Warrants included in the Underwriter's Warrants;(iv) The
exercise of any of the Pre-Bridge or Bridge Warrants; or (v) the exercise of
any of the Underwriter's Bridge Warrants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The information described herein represents the financial condition and
results of operations of the Company's principal subsidiaries, since the
Company itself is and has been inactive for more than two years and the
acquisition of APO Health, Inc. ("APO") by the Company for accounting purposes
has been treated as a purchase by APO (i.e. a reverse acquisition) because of
the significance of the assets and operations of APO when compared to the
Company. Therefore the financial statements predominantly represent the
historical activities and assets of APO and the two other subsidiaries acquired
by the Company.
Business of the Company
The Company distributes medical, dental and veterinary supplies which are
manufactured by others. These products include protective garments such as
disposable isolation gowns, face masks and gauzes as well as other medical
disposable items including latex gloves, needles, syringes and health and
beauty aids. Products are marketed and sold primarily (i) on a wholesale basis
to other distributors (approximately 79% of total revenues); (ii) directly to
doctors, dentists and veterinarians (approximately 18% of total revenues);
(iii) to others including to consumers and through export to foreign countries
(approximately 3% of total revenues).
Plan of Operation for the Next Twelve Months
Since the Company has operated for the last nine years based on the
capital it has generated from operations and lending sources, it is anticipated
that the Company will continue for at least the next twelve months with the
financing and credit alternatives it now has available, assuming no further
capital is received and this Offering is not sold. The Company's growth and
expansion would be substantially affected by the lack of any new funds from
sources other than what is available to the Company presently and no new
acquisitions or expansion could be made in the foreseeable future; however, in
management's opinion, the Company could continue as previously without
additional capital during the next twelve months.
Assuming the success of this Offering, however, the Company does not
anticipate the need for any additional financing during the next year; unless,
a presently unforeseen event occurs such as a new acquisition opportunity not
now in contemplation, the addition of one or more new products requiring
additional marketing expense or other events not presently anticipated.
During the next twelve months, the Company does not plan to expend any
significant funds for research and development as it has been the Company's
policy to look at acquisitions of products which are already developed and are
ready for marketing. The Company has also in the past relied upon Dr. Stahl
for the introduction of new products which have not required great expenditures
of cash.
Presently, and at least for the next twelve months, the Company also does
not anticipate any principal expenditures for product development. The
significant part of the Company's products are ready for marketing as they are,
except, perhaps, for minor improvements, and the Company expects to expend most
of the proceeds of the offering for marketing of its products rather than
development, based on present foreseeability. The Company expects to allocate
approximately $50,000 to $100,000 of the proceeds from this Offering for
marketing its products and approximately $100,000 to $200,000 in inventory
expansion and other expansion activities such as improving product distribution
through increased contact with its present customers and through sales to new
customers. The Company believes that applying funds in this manner will
contribute to the greatest growth in product distribution, rather than having
the Company become entangled in expensive product development activities.
The Company is now in the process of carrying out its objectives for the
expanded marketing of its products. The extent to which the Company can move
in this direction will be determined by the funds it receives in the Offering.
The Company's marketing objective will be to establish the need for its
products by appropriate advertising and increased contact with customers. The
Company will also devote effort to controlling manufacturing costs and
determining profit margins as part of its marketing effort.
One of the Company's chief strategies for expanding the marketing of its
products is to provide a more diversified product line to be in a position to
offer a more complete line of items to its existing customers. In this manner,
the Company will be in a position to make ancillary sales of other products to
companies who are presently buying only a few items.
Management also generally expects to look into the feasibility of
expanding its use of independent marketing representatives to promote its
product lines, particularly its proprietary items, to new markets, other than
the traditional hospital and health care industries now served, through the use
of a combination of advertisements in trade magazines, attendance at trade
shows and a direct mail program to potential end-users. As part of its new
advertising effort, the Company will also expand its use of print advertising
(including the expansion of current advertising in trade publications). The
Company also expects to develop, print and distribute product brochures and
literature, particularly for the Company's proprietary products. The Company
will also establish a tele-marketing network to achieve greater market
penetration. As stated above, a portion of the proceeds of this Offering has
been allocated to meet the costs of the Company's expanded sales and marketing
program during the coming fiscal year.
The Company does not expect to expend any significant funds for plant
acquisitions or for the purchase of any machinery or equipment, based on
current projections for the next twelve months. This, of course, is subject to
the status of the Company remaining the same for that period of time and the
fact that the Company does not make any new acquisitions during the period of
the next twelve months.
Also, based on present contemplation, there is no future intention to
expand the number of employees to any significant degree during the next twelve
months.
In the marketing of its products, the Company will face intense
competition in the distribution of hospital supplies, medical and veterinary
products. There are a number of companies presently in direct competition with
the Company which range from major multinational companies to businesses which
are smaller than the Company. Many of the Company's competitors also include
its own suppliers of raw materials and manufactured products. Many also have
far greater resources, larger numbers of employees and much better market
recognition than the Company, making competition particularly intense.
The consumer health and personal care products marketed by the Company are
also highly competitive. Competition in these markets is based principally on
price, quality of products and customer service. Although the Company believes
that it currently competes favorably as to these factors, due to the high costs
associated with quality control and customer service, and the low profit
margins typical for these products, there is no assurance that the Company will
be able to sustain its competitive position in these markets.
Several of the consumer markets in which the Company competes are
dominated by nationally advertised brand name products marketed by established
consumer packaged goods companies. The Company seeks to provide private label
products with quality equivalent to nationally advertised brand name products
at substantial cost savings to consumers and increased profit potential to
retailers. The Company has attempted to soften this competition with the
introduction of its increased product line, and the Company believes that it
presently offers one of the broadest lines of private label products available
when compared to its private label competitors. In the opinion of management,
this expanded product line provides the Company with a competitive advantage by
offering the Company's customers the ease of administration resulting from a
single supplier for many of their product needs.
The Company's primary competition is in consumer retail products and is
generally product specific. Although some crossover does exist, the Company
faces a different set of primary competitors in each product line it offers.
The Company's position in the industry is insignificant and it competes based
primarily on the basis of service and price.
Financial Condition and Liquidity.
(a) Financial Condition.
Assets
Period from September 30, 1997 to June 30, 1998.
From September 30, 1997 to June 30, 1998 total assets increased by $325,246
(approximately 8%). Cash increased by $57,564 and accounts receivable
increased by $628,741 while inventory decreased by $247,148 and the "Due from
Officer's" account decreased by $97,948, reflecting the most significant
changes in assets for the period. The increase in accounts receivable is
directly related to the increase in monthly sales during the period.
Years ended September 30, 1997, 1996 and 1995.
Total assets of the Company increased by approximately thirty-five percent
(35%) in fiscal 1997 as compared with fiscal 1996 (i.e. total assets of
$4,089,332 for 1997 and $ 3,023,130 for 1996). The notable difference in these
periods occurs because of substantially increased accounts receivable in 1997
(i.e. $2,533,090 in 1997 as compared to $1,162,602 in 1996, an increase of
approximately 118%).
This increase was more than sufficient to offset declining cash balances
at September 30, 1997, reductions in inventory and other miscellaneous
reductions in other assets in 1997 as compared with 1996.
A comparison of certain significant tangible assets of the Company and
Stockholder's Equity for the years ended September 30, 1997, 1996 and 1995, and
for the nine months ended June 30, 1998(unaudited) is as follows:
September 30, September 30, September 30, June 30,
1997 1996 1995(1) 1998
(unaudited)
Cash $ 1,163 $ 129,250 $ 247,856 $ 109,899
Receivables 2,533,090 1,162,602 1,357,114 3,161,831
Inventory 1,001,219 1,288,278 772,722 754,071
Net Property
& Equipment 96,323 78,078 76,875 83,720
---------- -------- --------- ---------
Total $ 3,631,795 $ 2,658,208 $ 2,454,567 $4,109,521
Stockholders
Equity
(Deficit) $ 32,509(2) $ 23,074(3) $ 327,364(3) $ 264,946(2)
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(1) Represents results of operations and financial condition for the years
ended September 30, 1997, 1996 and 1995. Also see "Introduction" above.
(2) Does not include $162,038 in previously taxed profits due to the former
shareholders of APO in earnings from operations as a Subchapter S corporation
prior to the acquisition of APO by the Company. This amount was paid to the
former shareholders in August, 1998 by issuing 450,000 shares of Common Stock.
(3) Does not include $248,038 in previously taxed profits due to the former
shareholders of APO in retained earnings from operations as a Subchapter S
corporation prior to APO's acquisition by the Company.
This comparison reveals an increase in tangible assets for each of the
periods ended June 30, 1998, September 30, 1997, 1996 and 1995 and reflects the
growth of the Company's business in these periods in terms of tangible assets.
While the growth of the Company in terms of tangible assets is evident from
this comparison, there was a significant cash decline in the years ended 1995,
1996 and 1997 which has improved at June 30, 1998 due to increased business,
improved collection of receivables and cash flow since September 30, 1997. The
decline in prior years primarily resulted from increases in receivables, the
cost of operating at higher levels, underwriting expenses and the cost of
making two acquisitions during this two year period.
The Company utilized cash flow from operations of $486,347 in the year
ended September 30, 1997, compared with a cash utilization of $51,405 for the
year ended September 30, 1996. The Company had a net cash balance of $1,163 at
September 30, 1997 which was a decline of $128,087 from the previous period.
The Company also had a cash balance of $129,250 at September 30, 1996 which was
a decline of $118,605 compared to September 30, 1995.
At the same time, a comparison of Stockholder's Equity for the period
reveals the impact of net losses incurred by the Company for the years ended
September 30, 1996 and 1995; and, by comparison, the slight improvement in net
losses for 1997. Stockholder's equity substantially improved at June 30, 1998
compared to the year ended September 30, 1997 because of a return to
profitability during the nine month period ended June 30, 1998.
While management believes that the Company has sufficient liquidity and
resources for the next year, the Company's ability to implement its plan for
expansion, as described herein, is materially dependent upon the availability
of additional capital to the Company through the successful completion of this
Offering. It should also be remembered that in contemplation of this Offering,
the Company obtained a total of $500,000 in "bridge financing" in two
transactions as follows:
(i) In January, 1996, the Company issued $250,000 in promissory notes to
certain investors for interim capital prior to this Offering (hereinafter
called the "Pre-Bridge Notes"). After deducting expenses of the financing,
including commissions, legal fees and miscellaneous expenses, the net proceeds
of $190,000 were used for working capital. The Pre-Bridge Notes were issued at
an interest rate of ten percent (10%) and were due at the earlier of (a)
December 15, 1996 or (b) the consummation of this Offering. As an added
inducement to make the loan to the Company, the noteholders were issued
Warrants to purchase a total of 12,500 shares of the Company's Common Stock (as
adjusted for two reverse splits of Common Stock) at an adjusted exercise price
of $5.00 per share, exercisable until January 3, 2003. The Company also
granted Warrants to purchase 6,250 shares of Common Stock (after adjustment)
under the same terms to Janssen-Meyers Associates for placement of the
Pre-Bridge Notes. All of the holders of the Warrants were also granted certain
registration rights and are included in this Registration Statement as selling
securityholders. terms and conditions of this transaction were made at
arms-length between the parties.
(ii) In October, 1996, the Company also sold an additional $250,000 in
bridge loan notes through the Underwriter herein to certain investors
(hereinafter called the "Bridge Notes") to be used for working capital. The
terms of the notes were made at arms-length through negotiation with the
Underwriter and the investors. The Bridge Notes were issued with eight percent
(8%) interest and were payable at the earlier of (a) twelve months from the
date of issuance or (b) the consummation of this Offering. For each unit of
$25,000 in notes purchased, the Company granted to the noteholders 10,000
shares of Common Stock (or a total of 100,000 shares after giving effect to all
reverse stock splits) and warrants to purchase an aggregate of 125,000 shares
of Common Stock (or a total of 1,250,000 warrants after adjustment for reverse
stock splits) at an adjusted exercise price of $5.00 per share if this Offering
sold, exercisable for a period of four (4) years. In addition, the Company paid
to the Underwriter a placement fee of $25,000 in connection with the placement
of the Bridge Notes plus an unaccountable expense allowance of $7,500 and
granted to the Underwriter Warrants to purchase 125,000 shares of Common Stock
exercisable at $5.00 per share if this Offering is sold. The Warrants were
subsequently cancelled by mutual agreement between the Company and the
Underwriter. The placement fee, expense allowance and Warrants granted to the
Underwriter were in addition to the compensation to be paid to the Underwriter
for its services in the sale of this Offering. Each of the shareholders and
Warrantholders (including the Underwriter) were granted certain registration
rights and are included in this Registration Statement as selling
securityholders.
The Company is presently in default of both the Pre-Bridge Notes and the
Bridge Notes in the total principal amount of $500,000 plus accumulated
interest. A substantial portion of the proceeds from this Offering will be
used to pay the Pre-Bridge and the Bridge Notes which will have the effect of
reducing the amount of proceeds available for the Company's growth and other
purposes. Also the issuance of the Common Stock and the Warrants to the
holders and the Underwriter will have a dilutive effect on this Offering. See
"Certain Transactions," "Dilution" and "Risk Factor 16."
Liabilities
Period From September 30, 1997 to June 30, 1998
From September 30, 1997 to June 30, 1998 total liabilities increased by $92,809
(approximately 2%). Accounts payable increased by $366,469 and accrued
expenses increased by $150,045 while the amount borrowed on the Company's line
of credit decreased by $479,292, reflecting the most significant changes in
liabilities during the period. The decrease in the amount borrowed on the line
of credit during the period occurs because of increased profits for the period
plus the decrease in inventory while the increse in payables reflects the
increase in current monthly purchases.
Years ended September 30, 1997, 1996 and 1995
Liabilities for 1997 reflect an increase of $1,142,767 when compared to
1996, was incurred because of the increase in business which the Company did
during the 1997 fiscal year and to cover other costs as indicated above and
reductions in cash and liquidity during 1997. The Company's total credit line
at September 30, 1997 was $2,000,000 (one million dollars in cash and one
million dollars in banker's acceptances and letters of credit) and is primarily
for working capital and purchases of inventory. In addition, one of the
Company's subsidiaries, Universal Medical Distribution, Inc. ("Universal"), has
a credit line of approximately $50,000. The Company had available
approximately $560,112 (less amounts due on letters of credit) in its credit
line at September 30, 1997, taking into account the $50,000 availability of
Universal.
Similarly, reflecting the additional operating activity during the period,
accounts payable increased during 1997 by approximately $522,573 compared to
1996.
The "Loans Payable" account reflects the Company's recent borrowing to
meet increased cash needs in anticipation of this Offering. It is expected
that these loans will be repaid from the proceeds of the Offering. See "Use of
Proceeds."
Total liabilities of $4,056,823 in 1997 compares with $3,000,056 at
September 30, 1996 which management feels is consistent with the Company's
growth in the period and the acquisition of two companies during 1996. It
should also be remembered that total liabilities for 1997 and 1996 include
$162,038 and $248,038 respectively due to the former shareholders (i.e. the
shareholders prior to the acquisition of APO by the Company) which represents
undistributed income due to them as a result of APO's operations as a
Subchapter S corporation.
While there were changes in the components of assets and liabilities for
fiscal 1997 when compared with 1996 and 1995 as indicated above, management
believes that all of those changes are consistent with the Company's activity,
growth and performance in 1997.
See "Results of Operations" for additional information. For information
regarding liquidity, see Subparagraph (b) "Liquidity" below. For additional
information relating to the financial condition of the Company, also see
"Inflation" and "Trends Affecting Liquidity, Capital Resources and Operations."
(b) Liquidity
Working capital at June 30, 1998 was $112,808, an improvement of $234,202 from
September 30, 1997. The increase in working capital reflects the net income
for the period plus depreciation and amortization and amortization less the
increase in security deposits.
Although working capital at September 30, 1997 was a negative $121,394
(compared with working capital of $10,816 at September 30, 1996), the Company
had sufficient liquid assets to meet its obligations at the end of fiscal 1997.
Principal sources of working capital in 1997 were cash, accounts receivable
(i.e. $2,533,090,) and inventory ($1,001,219) and, it should be remembered,
that the Company still has other adequate alternative credit resources in its
bank credit line to meet any additional foreseeable requirements for current
payments.
Management believes that the decline in liquidity is consistent with its
expansion during 1997, the repayment of debt during the period, underwriting
costs and the cost of operating at a higher level in that year. In prior years
(particularly 1996) the decline was partially reduced and offset by bridge
loans made during the period. As previously stated, at September 30, 1997, the
Company had notes to individuals and others with an outstanding balance of
$500,000 at interest rates from 8% to 10%. These funds were used to acquire
Universal, additional inventory, interim working capital and to commence a
commercial program which is still in negotiation. The Company is in default of
such loans which are intended to be paid from the proceeds of this Offering.
See "Application of Proceeds."
The principal source of funds for the Company's operations during fiscal
1997 has been from the Company's credit line.
As of September 30, 1997, the Company also had a $2,000,000 credit
facility with a financial institution to be used for working capital and
purchase of inventory.
Considering the increased business of the Company during 1997 and the fact
that the decline in working capital was partially affected by non-recurring
items, management believes that once the assimilation of its different
operations are made, the Company will have adequate liquidity in fiscal 1998.
The Company will have a net loss carry forward of approximately $446,000.
In combination, management believes that the Company will have adequate
working capital and sufficient credit alternatives to fund the Company's
operations during the next fiscal year, including support for any planned
expansion of sales.
Results of Operations.
Nine months ended June 30, 1998 compared to nine months ended June 30, 1997
Revenue for the nine months ended June 30, 1998 was $24,693,703 compared to
$16,302,519 for the nine months ended June 30, 1997, an increase of $8,391,184
or 51%. The primary reason for this increase was the additional volume in the
Company's wholesale business.
The cost of revenue as a percentage of net revenues increased to 90.2% from 89%
for the nine months ended June 30, 1998 compared to the nine months ended ended
June 30, 1997. This reduced the gross profit margin from 11% to 9.8%. The
decrease in gross profit margin is due entirely to the increase in wholesale or
bulk sales of products which traditionally have a lower profit margin than
retail sales which the Company has made. Therefore, as the trend to greater
wholesale transactions increases, the volume of sales will be greater, but the
Company's profit margins will be smaller.
Total operating expenses for the nine months ended June 30, 1998 increased by
$466,869 from June 30, 1997 but as a percentage of sales decreased to 8.3%
versus 9.7%. Selling expenses were 4.1% for the nine months ended June 30,
1997. Included in the increase of $298,269 in selling expenses is the amount
of $325,000 in bonuses to the Company's two principal officers based on
revenues and as set forth in their employment agreements. Without these
bonuses selling expenses would have been 2.8% of sales.
General and administrative expenses decreased to 4.2% of sales for the nine
months ended June 30, 1998 from 5.3% for the nine months ended June 30, 1997.
Eventhough actual costs increased by $168,600 or 19.3% this was far less than
the 51% increase in sales. The reduction in operating costs reflects a greater
utilization of both personnel and facilities. Interest expenses for the nine
months ended June 30, 1998 was %125,219, a decrease of $55,901 for the nine
months ended June 30, 30, 1998. This is the result of a reduction in
outstanding credit lines including the line of credit and banker's acceptances.
Years ended September 30, 1997, 1996 and 1995
The Company's revenues include revenue from the distribution of medical,
dental and veterinary supplies. In fiscal 1997 the Company had net revenues of
$23,500,981, a substantial increase of $8,885,217 (or 61%) compared to
revenues of $14,615,764 for the year ended September 30, 1996.
While there were slight increases in prices for certain of the Company's
products during the year, which in management's opinion did not materially
account for the increase in revenues in 1997, the principal reason for this
increase results from a substantial increase in wholesale business during the
fiscal year ended September 30, 1997 and the Company's offering of additional
new products consistent with its plans to become a full-line supplier to the
industries served by the Company and, because of its acquisition of a new
subsidiary during 1996 whose results of operations are included in 1997 and
1996. Wholesale transactions tend to be larger than individual sales; however,
such sales also tend to increase the cost of sales. During the fiscal year
ended September 30, 1997, sales shifted in this mix to become predominantly
wholesale transactions.
The cost of revenues in 1997 was approximately 89.5% of total revenues
while at September 30, 1996, the cost of revenues was approximately 86.2% of
total revenues. This change is substantially due to the change in the type of
sale made. As has been said, it has been the Company's experience that the
type of sale made affects the cost of revenues. For instance, wholesale or
bulk sales result in higher costs than smaller or individual sales. Therefore,
in periods where the Company has more bulk sales than individual sales, a
higher cost of revenues would be expected.
Gross profit for 1997 was approximately 10.5% of revenues while gross
profit for 1996 was approximately 13.8% of revenues. This decrease is a result
of the higher cost of revenues resulting from the difference in product mix.
The income from operations for 1997 was approximately 0.9% of revenues (i.e.
$211,625) compared with a loss from operations in 1996 of $(133,107).
General and administrative costs decreased in 1997 as a percentage of
revenues . This occurred because the increase in sales was proportionately
greater than the increase in general and administrative costs. These costs
have generally leveled out since 1995; although, there have been slight
increases in management's compensation in January, 1997.
Other costs of operations either remained essentially the same or declined in
the period ended September 30, 1997 when compared with 1996.
However, selling expenses in 1997 were reduced to approximately 4.5% of
total revenues compared with 6.2% in 1996, due to more efficient operation of
the Company's sales force.
Total operating expenses decreased to approximately 10% in 1997 from
approximately 15% in 1996.
For information with respect to the possible effect of future trends on
operations, see the discussion under the caption "Trends Affecting Liquidity,
Capital Resources and Operations."
Capital Resources.
Property and equipment remained essentially the same at September 30, 1997
when compared with September 30, 1996 except for a slight increase of
approximately $33,500 in new acquisitions of computers and fixtures in 1997.
The Company also incurred approximately $49,500 in additional registration
costs. Additional costs are expected to be incurred in connection with the
Company's proposed registration statement. See "Plan of Distribution."
The Company has written off approximately $342,126 in registration costs
for prior years.
There were no material commitments for capital expenditures at the end of
fiscal 1997 and management does not foresee any increases in these requirements
during the next fiscal year.
Since the Company is not in the business of manufacturing the products it
sells, The Company does not presently anticipate the allocation of significant
resources for machinery and equipment purchases or plant acquisition. Any such
commitments in the future will be dependent on product demand, additional
inventory acquisition and the necessity for further control of delivery of
products under new or increased orders. If any change in capital purchase
requirements occur in the near future, the Company is likely to arrange
financing for such acquisitions from sources which will not require a
substantial outlay of cash and will be in proportion to its expansion program.
Inflation.
Management anticipates that inflation will not have a material effect on
the Company's operations in the future. This is principally due to two
factors. First, if orders increase due to inflation the Company will have
adequate capacity to support not only its present level of operations but, with
the addition of personnel, use of its credit line or the successful completion
of this financing, it will be able to support an increase in operating levels.
Second, although product pricing would be affected by inflation due to higher
costs, management believes that public health and safety concerns would
outweigh any negative impact of price increases and such increases would not
adversely affect the Company's projected sales. Additionally, the
pharmaceutical, hospital and health care markets have historically been best
able to pass on increased costs which are typically paid by insurance coverage.
Trends Affecting Liquidity, Capital Resources and Operations.
A number of factors are expected to impact upon the Company's liquidity,
capital resources and future operations. Included among these are (i)
environmental concerns; (ii) economic factors generally affecting the health
care industry; (iii) governmental regulation of the Company's products and (iv)
the growing concern in many industries about controlling the spread of
infectious disease.
Some products offered by the Company are made from plastic-based materials
which have raised concern among environmental groups over their proper
disposal. Although management believes that such concerns are, in many cases,
valid, it is also believed that these concerns must be balanced with safety
provided by these products against infectious diseases such as AIDS, hepatitis
and others. This belief has recently been reinforced by the comprehensive
safety regulations issued by the Occupational Safety and Health Administration
(OSHA) which require extensive new measures to combat the spread of infection
and disease in many industries which had not previously required such measures.
Most importantly, from the point of view of the Company, are the requirements
for protective apparel such as that distributed by the Company. Management
also believes that the regulations, which are now fully implemented, will
increase demand for the Company's products and significantly expand the
Company's markets. Based upon recent increased orders, management believes
that most significant among these new markets for its products will be the
industry looking to comply with the new OSHA regulations.
Nevertheless, the requirements relating to proper disposal of
plastic-based garments are still in question and the Company cannot predict the
outcome of any future regulations relating to these matters. Any changes in
manufacturing or disposal requirements could result in higher manufacturing
costs and less profitability for the Company or, perhaps, complete elimination,
which could have a substantially negative impact on liquidity and capital
resources in the future.
Management also believes that the most significant adverse impact upon its
liquidity, capital resources and future operations may result from economic
pressures to keep the costs of its products low. Spearheaded by health care
insurers and now the federal government, the entire health care industry in the
United States has come under increasing pressure and scrutiny to reduce
unnecessary and wasteful costs. To meet the criticism in recent years over the
higher cost of disposable products, the industry has introduced new lines of
limited reusable products. These products are designed to be washed and reused
from between 25 and 100 times before being replaced. Management believes that
such products will not only address the economic concerns but also the
environmental issues by reducing the amount of products which are being
discarded. However, as already mentioned, in situations where there is a high
risk of spreading infection, management believes that the disposable products
will continue to have strong appeal and demand in the marketplace.
Also, as new Company products are introduced, management believes that
sales revenues will increase and, over the long term, will result in higher
profit margins for the Company. In addition, the existence of the Occupational
Safety and Health Administration (OSHA) regulations are expected to have a
positive influence on the demand for the Company's products.
In short, the above factors may each have a significant impact upon the
Company's future operations. At present, management believes that safety
concerns over the spread of infectious diseases such as AIDS and hepatitis
will, at least for the foreseeable future, outweigh economic and environmental
concerns. Consequently, management does not anticipate any adverse impact upon
its future operations for the foreseeable future. Apart from these factors,
management knows of no trends or demands that would adversely affect the
financial condition of the Company.
BUSINESS OF THE COMPANY
General
The Company is a multi-faceted distributor of medical, dental and
veterinary supplies which are manufactured by others. These products include
protective garments such as disposable isolation gowns, face masks and gauzes
as well as other medical disposable items such as latex gloves, needles,
syringes and health and beauty aids. Products are marketed and sold primarily
(i) on a wholesale basis to other distributors (approximately 79% of total
revenues); (ii) directly to doctors, dentists and veterinarians (approximately
18% of total revenues) (iii) to others including to consumers and through
export to foreign countries (approximately 3% of total revenues).
Recently, the Company expanded its product lines in two important ways:
(i) Through the introduction of proprietary products designed and
produced according to the Company's specifications; and
(ii) Through expanded sales of additional third party products
marketed via tele-marketing and other methods of direct sales
to physicians, veterinarians, dentists and other wholesalers.
Significant Developments and the Company's Markets.
Perhaps the single most significant event affecting the disposable medical
apparel/products industry (i.e. materials which are designed for single use
only) occurred on December 6, 1991 when The Department of Labor, Occupational
Safety and Health Administration (OSHA), reported the passing of 29 CFR PART
1910.1030, "Occupational Exposure to Blood borne Pathogens; Final Rule." The
mandatory regulations have significantly expanded the requirements for
protective apparel not only in the traditional medical/dental fields but also
in many industries and organizations where there exists a risk of spreading of
infectious diseases such as AIDS and Hepatitis. Management believes that these
regulations have had a positive impact upon the Company's sales and earnings
and will continue to do so for the foreseeable future because the Company
offers products which comply with OSHA's requirements.
Management believes that since the inception of Xetal, Inc., competitive
pricing has been achieved due to opportunistic inventory purchases and a strong
sense of anticipating market demands by management. Management believes
further that the Company has the marketing strength necessary to increase its
sales internally, provided it has an increased availability of funds required
to support this growth. The Company's banking lines have grown consistently
since its inception; however, these lines are limited and no longer provide the
Company with the needed availability of funds to accommodate its potential
demand. Management also believes that the new OSHA regulations, which were
fully implemented as of May, 1992, will continue to increase demand for the
Company's products and expand the Company's potential new markets. Based upon
the most recent inquiries received by the Company, management is of the opinion
that most significant among these new markets for its products will be
hospitals, doctors' and dentists' offices, the emergency service industries,
including police, fire, ambulance services and mortician services, which
routinely are exposed to unusually high risk of infectious diseases. In
addition, its newly acquired veterinary division is expected to increase sales.
Business Strategy
The Company's primary business strategy is to attain a share of the
medical, dental and veterinary supply business for its merchandise while also
developing a new proprietary line of products which it will be able to produce
at a low cost. The Company seeks to implement its business strategy as follows:
Expand Product Distribution. Many of the Company's existing customers
purchase only a portion of its full line of products. Management seeks to
increase the number of its products sold to existing customers both by
displacing competitors and by encouraging the adoption by retailers of
additional product lines offered by the Company through increased solicitation
for related product sales. The Company attempts to offer retailers the cost
savings and ease of administration which results from dealing with one supplier
for many diverse products and believes that this approach enhances its
relationship with retailers by minimizing their costs. Additionally, the
Company seeks to expand its level of contract manufacturing for new proprietary
products, thereby providing management a greater level of control over pricing
of its products.
Introduction of New Products. The Company seeks to develop new
proprietary products which will either be comparable to newly introduced
nationally advertised "brand-name" products or which will be completely new to
the market. Management also plans to attempt to secure distribution rights to
new products introduced by other manufacturers. During fiscal 1995 the Company
introduced several new products including GobbleTM (an organic cleaner);
FloamTM (an APF fluoride treatment) and ZAP, a topical anaesthetic. Following
the acquisition of Dental Alternatives, Inc. from Dr. Stahl in July 1996 (see,
"Certain Transactions"), management has formulated plans to introduce during
the fourth quarter of fiscal 1997, two new proprietary products, the "DOC
Emergency Dental Kit" and "Dr. Stahl's Dental First Aid Center."
Pursue Strategic Acquisitions. Management believes that the medical,
dental and veterinary products distribution market, which is presently typified
by a large number of small distributors, suppliers and manufacturers, will
undergo additional consolidation as these companies are required to grow in
order to meet the demands of the marketplace for flexible manufacturing and
sales support services to what is already a consolidating retail market. Based
upon this belief, the Company seeks to acquire companies which can strengthen
its market share of existing products or which can add private label product
lines compatible with the Company's present distribution channels. One such
strategic acquisition was the Company's recent acquisition of Universal Medical
Distributors, Inc. which was completed in April, 1996. Management continues to
evaluate other potential acquisition candidates, although as of the date of
this Prospectus no additional viable acquisition candidates have been
identified by management. While a portion of the proceeds from this Offering
has been allocated as a future reserve for this purpose, management believes
that for the most part it will be able to utilize its own securities to make
acquisitions, either in whole or in part, in the future thereby preserving cash
for the expansion of its operations. There are no present plans, proposals,
arrangements or understandings to make any further acquisitions. At present
there are also no plans, controls or policies with respect to future
transactions with related parties and no such transactions are in
contemplation. See "Risk Factor Number 14" and "Certain Transactions."
The Company expects to remain in the same or similar type of business and
will primarily consider acquiring similar types of products and related
business operations in its planned expansion.
Emphasize Customer Service. The Company seeks to build and maintain
strong relationships with its customers by providing improved product pricing,
consistently high quality control and an improved responsiveness to customer
needs through the reliable, timely processing and shipment of orders. In
today's highly competitive market, customers demand quality products with
dependable and expeditious service at the lowest possible price. A portion of
the proceeds from this Offering has been allocated to the expansion of the
Company's inventory, including both existing products and new, proprietary
products. Management believes that by increasing inventories, it will be
better able to meet two key factors in satisfying customer demands in the
future. First, by being able to buy in quantity management believes it will be
able to take advantage of volume discounts from its suppliers thereby allowing
it to pass on a part of the savings in the form of lower prices to customers.
Second, by expanding inventories of fast moving items, management believes it
can improve shipping and delivery time by reducing, or possibly eliminating,
those occasions when popular items are out of stock and customers are forced to
endure delays while product stocks are replenished.
Ensure Product Quality. Management considers its commitment to quality
to be one of the most important factors in acquiring and maintaining customers.
For this reason management seeks to distribute products manufactured by
reliable and quality conscious manufacturers with proven safety and quality
control records. Furthermore, with respect to its own private label products,
management plans to establish a quality control and testing procedure utilizing
both internal controls and outside testing by independent laboratories in an
attempt to meet quality levels of nationally recognized products.
Products
Currently, the Company distributes approximately 3,000 different products
within the medical, dental and veterinary markets. Several of the principal
products are described below:
Dental: The Company markets and distributes protective gloves, needles,
prophy angles, barrier protection products, gowns, face masks, gauze products,
topical anesthetics and infection control chemicals to the dental industry.
Included among such products are the following proprietary products:
FloamTM: This product is a topical fluoride treatment in a foam format which
is offered in four flavors and is marketed as a dental hygiene product for
direct consumer use.
Prophy Jet Powder: This product, marketed and distributed to the dental
industry, is used primarily to prevent clogging and insure even flow through
prophy jet units.
GobbleTM: This product, also marketed and distributed to the dental industry,
is a bacterial product which forms a potent biofilm that adheres to evacuation
in dental equipment which causes organic waste to be reduced to carbon dioxide
and water.
Medical: The Company markets and distributes protective gloves, tapes,
syringes, needles, protective barrier gowns and gauze products to the medical
and health care industry.
Veterinarian: The Company markets and distributes protective gloves, needles,
gowns, tapes, and a full line of veterinary products to the veterinary
industry.
Dr. Stahl's Dental First Aid Center: This is a new proprietary product which
the Company plans to market and distribute for direct consumer use. This kit
is designed to allow the consumer to perform limited emergency dental functions
such as replacing lost fillings and repairing broken dentures.
In addition to the foregoing, which represent the most popular product
lines, the Company distributes a wide range of other medical, dental and
veterinary supplies and products. The Company obtains its products from third
party manufacturers and suppliers. At the present time, the Company does not
have any contractual arrangements with any of its suppliers or manufacturers.
Although the Company does not have any such contractual arrangements, the
Company believes that there are adequate alternative manufacturers which would
be able to provide adequate manufacturing capabilities in the event its present
manufacturers were unable, or unwilling, to continue to provide the Company
with manufacturing services.
Sales and Marketing.
The Company's products are sold directly by Company employees, through
mail order and by outside, independent sales representatives. The Company's
sales organization presently consists of two persons, including Dr. Stahl, the
Company's Chief Executive Officer, who oversees a combination of direct
salespersons and independent sales representatives. Typically, independent
sales representatives who have undertaken to sell the Company's products will
agree not to sell similar or competitive products during the time when they
represent the Company.
The Company has recently modified its marketing approach by attempting to
capitalize on its wide array of product lines in order to offer mass
merchandisers, buying consortiums, drug store and supermarket chains a
"package" approach to its private label program. This not only provides
customers with attractive and competitive pricing but, in management's opinion,
provides the Company with a competitive advantage by offering its customers the
ease of administration and cost savings which come with using a single supplier
for many of their product needs.
Although the Company has not yet finalized its long term marketing plans,
management generally plans to (i) investigate the feasibility of expanding its
use of independent sales marketing representatives and to promote its product
lines, particularly its proprietary products, to new markets, other than the
traditional hospital and health care markets, through the use of a combination
of advertisements in specialized trade magazines, attendance at trade shows and
a direct mail program to potential end-users; (ii) expand its use of print
advertising (including the expansion of current advertising in trade
publications); (iii) develop, print and distribute product brochures and
literature, particularly for the Company's proprietary products; and (iv)
establish a tele-marketing network to achieve greater market penetration. A
portion of the proceeds of this Offering has been allocated to meet the costs
of the Company's expanded sales and marketing program during the coming fiscal
year.
Government Regulation.
Approval from the Food and Drug Administration (the "FDA") is not required
for marketing or distribution of most of the Company's products. However,
certain of the products marketed or being developed and manufactured by the
Company are, or will be, subject to regulation as medical devices by the FDA,
which has comprehensive authority to regulate the development, production,
distribution and promotion of medical devices. Various states and foreign
countries in which the Company's products are, or in the future may be sold,
may also impose certain additional regulatory requirements. The Company is
registered with the FDA as a distributor of various medical devices.
Pursuant to the federal Food, Drug and Cosmetic Act, and the regulation
promulgated thereunder, a medical device is ultimately classified by the FDA as
either a Class I, Class II or Class III device. Class I devices are subject to
general controls which are applicable to all devices. Such controls include
regulations regarding FDA inspection of facilities, "Good Manufacturing
Practices," labeling, maintenance of records and filings with the FDA. Class
II devices must meet general performance standards established by the FDA
before they can be marketed and must adhere to such standards once on the
market. Each manufacturer of medical devices is required to register with the
FDA and also to file a "510(k) Notification" before initially marketing a new
device intended for humans. The manufacturer may not market such new device
until 90 days following the filing of such Notification unless the FDA permits
an early marketing date. The FDA, prior to the expiration of the 90-day
period, may notify the manufacturer that it objects to the marketing of the
proposed device and thereby may delay or preclude the manufacturer's ability to
market that device. The FDA may also require further data from, or testing by,
the manufacturer. The FDA permits the marketing of some medical devices,
subject to the general controls under the Act, if the devices are
"substantially equivalent" to devices marketed in interstate commerce before
May 28, 1976 (the effective date of the Medical Device Amendment to the Act).
Manufacturing and Distribution.
The Company does not manufacture any of the products it distributes. All
of the products distributed by the Company are either purchased from various
third-party manufacturers or suppliers as finished products, or are
manufactured for the Company according to its specifications directly by
various contract manufacturers.
Previously, the Company relied upon one major supplier, Johnson & Johnson
with whom the Company had a purchasing agreement. This agreement has since
been terminated and the Company now has several suppliers, the largest of which
are K & K, Inc.,, Alora Medical, Inc. Global Marketing, Inc. and Ultra Medics,
Inc. The Company believes that its sources of inventory, supplies and
materials are plentiful and it is not dependent on any one supplier for access
to the goods it sells and that the Company would be in a position to acquire
products from various other sources if any of the previously named suppliers
were not able to or would refuse to provide the Company with its required
inventory.
The Company stores its inventory of products at its own warehouse facility
in Oceanside New York and subsequently distributes them to its customers in
fulfillment of customer orders. The Company has no written contracts with any
of its manufacturers or suppliers.
Manufacturers are selected by the Company on the basis of price,
availability of payment terms, quality, reliability and the ability of a
particular manufacturer to meet the production and delivery requirements of the
Company. The utilization of third party manufacturers enables the Company to
avoid incurring fixed manufacturing costs and substantial capital expenditures
in order to establish in-house manufacturing facilities. However, such use of
third party manufacturers does reduce the Company's ability to control the
timing and quality of the manufacturing process. Delays in shipments to the
Company or defects in products shipped could result in a loss of sales, which
could have a materially adverse effect upon the Company's operating results.
Manufacturing services performed overseas are typically paid for by letter of
credit, with payment being made only upon the proper fulfillment of the express
terms of the letter of credit as established by the Company and proper
documentation relating thereto. To date, the Company has not experienced any
material delays in the delivery of its products or any material quality defect
in the products manufactured for it by third party manufacturers.
The Company's present facility provides the Company with adequate
warehousing and storage capacity for the foreseeable future. Although several
of the Company's customers take delivery of their products at the Company's
facility, typically, the Company will ship its products nationwide using either
independent contract carriers or common carriers.
As the Company continues to develop new proprietary products, management
expects that its reliance upon third party contract manufacturers may increase
substantially. However, to date the Company has not experienced any
difficulties in finding suitable contract manufacturers to meet its needs and
management does not expect to have any such difficulty in the future, even
considering its potentially increased needs.
Competition.
The hospital supply and medical products business is intensely
competitive. At present, the Company estimates that there are over 20
disposable product companies whose products compete with the Company's present
and proposed products. These companies range from major multinational
companies to enterprises which are smaller in size and financial strength than
the Company. The Company's present and prospective competitors also include
the numerous manufacturers and suppliers of reusable medical products. Many of
the Company's competitors have far greater financial resources, larger staffs,
and more established market recognition in both the domestic and international
markets than the Company.
The consumer health and personal care products markets are also highly
competitive. Competition in these markets is based principally on price,
quality of products and customer service. Although the Company believes that
it currently competes favorably as to these factors, due to the high costs
associated with quality control and customer service, and the low profit
margins typical for these products, no assurance can be given that the Company
will be able to sustain its competitive position in these markets.
Several of the consumer markets in which the Company competes are
dominated by nationally advertised brand name products marketed by established
consumer packaged goods companies. The Company seeks to provide private label
products with quality equivalent to nationally advertised brand name products
at substantial cost savings to consumers and increased profit potential to
retailers. The Company believes that it presently offers one of the broadest
lines of such private label products available when compared to its private
label competitors. In the opinion of management, this breadth of product line
provides the Company with a competitive advantage by offering the Company's
customers the ease of administration resulting from a single supplier for many
of their product needs.
The Company's primary competition in consumer retail products is generally
product specific. Although some crossover does exist, the Company faces a
different set of primary competitors in each product line it offers. The
Company's position in the industry is insignificant and it competes based
primarily on the basis of service and price.
Trademarks, Patents and Licenses.
At present, the Company does not rely upon any patent protection for any
of its products and such protection is not believed to be essential by
management because of the character of its products. Further, there is little
likelihood that the Company will develop patentable products or processes in
the foreseeable future. In the absence of such protection, the Company will
primarily rely upon trade secrets and proprietary techniques to attain or
maintain any commercial advantage. There is no assurance that competitors will
not independently develop and market, or obtain patent protection for products
similar to those designed or produced by the Company, and thus negate any
advantage of the Company with respect to any such products. Even if patent
protection should become available to the Company in the future, there is no
assurance that such protection will be commercially beneficial to the Company
because of the nature of the industry.
In connection with the Company's recent acquisition of Dental
Alternatives, Inc. from Dr. Jan Stahl, the Company's Chief Executive Officer,
the Company also acquired the exclusive right to use the registered trademark
"EDKTM" in connection with the marketing of its planned emergency dental kit.
See, "Certain Transactions."
Credit Line.
APO Health, one of the Company's wholly owned subsidiaries, has secured
an inventory and accounts receivable credit line from Marine Midland Bank which
allows it to borrow up to $2 Million, subject to bank approval. Borrowings are
repayable at "prime plus 1 1/2%" on a revolving basis. The bank may terminate
the credit line at any time and may refuse to authorize additional borrowing at
its discretion. The line of credit is secured by personal guarantees of Dr.
Jan Stahl and Peter Steil, officers and directors of the Company. Additionally,
the Company has granted Marine Midland Bank a first priority security interest
in all of its accounts receivable and inventory.
Customer Base.
The Company current has approximately 7,000 customers nationwide. Two
customers represent approximately 15% of the Company's gross sales. Management
does not believe that the loss of any particular customer would have any
measurable impact upon the Company's overall revenues or profits from
operations.
Employees
The Company, including its two subsidiaries APO Health and Universal,
currently employs a total of 13 persons, of which four (4) persons are
executive personnel; two (2) persons are sales persons; four (4) persons are
clerical/administrative and three (3) persons are warehousemen. The Company
believes its relations with its employees are excellent. None of its employees
are members of a labor union.
Facilities
The Company's offices are located at 3590 Oceanside Avenue, Oceanside New
York. The premises contain approximately 9800 square feet under a five year
lease (the "Lease") which expires in December 31, 1999 (the "Lease Term").
These premises are occupied under a Lease between the landlord, who is an
unaffiliated third party, and an affiliated company PJS Trading Inc., a New
York corporation ("PJS") owned by Dr. Stahl and Mr. Steil, which was originally
formed by them for the express purpose of entering into this Lease agreement.
The Company occupies these premises under an oral agreement with PJS and Dr.
Stahl and Mr. Steil whereby the Company has agreed to discharge all of the
Lease obligations with the landlord. Management believe that the terms and
provisions of this lease agreement, including the rental payments due, are fair
and reasonable for similar lease agreements within the same geographic area for
similar space. The annual lease payment was approximately $45,080 for the
period ended May 1997 and approximately $51,450 per year thereafter. Neither
PJS nor Dr. Stahl nor Mr. Steil derive any profit from the Lease nor will they
during the balance of the Lease Term. Management of the Company believes the
current facility is adequate for its current operations.
MANAGEMENT
The officers and directors of the Company, and further information
concerning them, are as follows:
Name Age Position
Dr. Jan Stahl 50 Chairman, Chief Executive Officer,
Secretary, Director
Peter Steil 50 President, Chief Financial Officer,
Director
Kenneth Levanthal 43 Director
Dr. Stahl and Mr. Steil may be deemed to be "Parents" and organizers of the
Company, as that term is defined in the Securities Act of 1933. There are no
committees of the Board of Directors. The Board of Directors meets once each
year following its shareholder's meeting and at other times at the call of the
President. Each of the Directors has been present at all of the Company's
meetings during the past year.
Profile of Officers and Directors:
DR. JAN STAHL is a New York State licensed dentist. Dr. Stahl founded APO
Health, the Company's wholly owned subsidiary, in 1987 and has been its
Chairman, Chief Executive Officer, Secretary and a Director since such time.
Dr. Stahl's primary responsibilities for the Company are in the area of sales
and marketing. Prior to founding the Company, Dr. Stahl was a practicing
dentist in the state of New York. Dr. Stahl received his DDS Degree from New
York University in 1974.
PETER STEIL co-founded the Company along with Dr. Stahl in 1987 and has
been its President and Chief Financial Officer since such time. From 1981 to
1987 Mr. Steil was President of LBS Interdent, Inc. a company engaged in dental
product sales. From 1974 to 1981 Mr. Steil was employed as Director of
International Technical Support and Sales by Degussa, a European based
manufacturer and distributor of dental and medical supplies. Subsequently (from
1984 to 1986) he was employed by Orbident International, the international
sales division of Darby Drugs. Mr. Steil's training is in mechanical
engineering having received his Technical Degree from Tuebingen University,
Germany, in 1974.
KENNETH LEVANTHAL founded Universal Medical Distributors, Inc.
("Universal"), in 1985 and has served as its president since such time.
Universal is a recently acquired subsidiary of the Company. Prior to founding
Universal, Mr. Levanthal had been employed as Executive Vice President of
Medarco Corp., a division of Omnicare, Inc., having been employed by Medarco
Corp. since 1977, prior to and following its acquisition by W.R. Grace & Co.
(the parent company of Omnicare Inc.). Omnicare consisted of various health
care companies, with Medarco specializing in the sale of veterinary products as
part of its Veratex Group which sold medical products to physicians, dentists
and veterinarians. Mr. Levanthal graduated from Boston University in 1977
receiving his Bachelors Degree.
EXECUTIVE COMPENSATION
The following table sets forth information relating to remuneration
received by officers and directors as of September 30, 1997, the end of the
Company's most recent fiscal year compared with the previous year, as well as
indicating the compensation agreements made for each of them.
Annual Compensation(1) Long Term Compensation
Name and Principal Restricted All Other
Position Year Salary Bonus Stock Awards Compensation
Jan Stahl, CEO(1)(2) 1997 $125,000 $6,375 (4) -0- -0-
(5) 1996 $96,200 Waived -0- -0-
1995 $90,700 Waived -0- -0-
Peter Steil,
President(1)(2)(5) 1997 $100,000 $6,375(4) -0- -0-
1996 $70,200 Waived -0- -0-
1995 $70,200 Waived -0- -0-
Kenneth
Levanthal(2)(3)(5) 1997 $78,000 n/a -0- -0-
1996 $45,000 n/a -0- -0-
- -----------------------------------------------------------
(1) The Company has written compensation arrangements with each of Dr. Stahl
and Mr. Steil as more particularly described below. It should be noted that
the figures listed as "salary" include both base salary and earned commissions,
but do not included annual bonus amounts, if any, which are listed separately
under the "bonus" column.
(2) Dr. Stahl's compensation was increased to $125,000 on January 1, 1997 and
Mr. Steil's compensation was increased to $100,000 on January 1, 1997. Kenneth
Levanthal's salary was also increased to $78,000 on January 1, 1997.
(3) Mr. Levanthal was not employed by the Company prior to fiscal 1996.
(4) Any balance for bonus compensation above the $6,375 amount was waived by
Dr. Stahl and Mr. Steil for 1997. The entire bonus compensation for 1996 was
waived.
(5) For the nine months ended June 30, 1998, Dr. Stahl received $104,650 in
salary and Mr. Steil was paid $89,150 in salary. In August of 1998, Dr. Stahl
and Mr. Steil received a total of $162,500 in bonus compensation for the year
ended September 30, 1998. Both Dr. Stahl and Mr. Steil have agreed to waive
any bonus in excess of $200,000 to which they may be entitled for 1998. Mr.
Levanthal received $58,500 in salary for the period and no bonus compensation.
(6) None of the foregoing named persons received any restricted stock awards or
other compensation for 1998.
In January, 1996, the Company entered into employment agreements with Dr.
Stahl and Mr. Steil. The agreements provide that each will be employed by the
Company for a three-year term expiring December 31, 1998. Each shall receive
an annual base salary of $125,000, subject to increases tied to changes in the
consumer price index, and car lease and expense allowances totaling $600 per
month and health and medical benefits. In addition, under the terms of the
employment agreements, each of Dr. Stahl and Mr. Steil will receive a bonus
equivalent to 1% of gross revenues of the Company in excess of $11,000,000 in
any given fiscal year period. As previously stated above, Dr. Stahl and Mr.
Steil have waived any additional compensation regarding salary or bonuses for
the year ended September 30, 1996 and have partially waived bonus income for
the years ended September 30, 1997 and 1998.
Except as herein above described, the Company has no other employment
contracts, or any retirement, pension, profit sharing or insurance plan
covering its officers or directors.
CERTAIN TRANSACTIONS
1. In September, 1994, the Company entered into an agreement with Xetal,
Inc. a New York corporation operating under the name "APO Health" pursuant to
which the Company acquired all of the capital stock of APO Health in a
stock-for-stock exchange. As a result, APO Health became a subsidiary of the
Company and management of APO Health became principal shareholders of the
Company. In connection with the transaction, the Company changed its name from
"Insurance Kingdom Agency, Inc." to its present name. Thereafter, APO Health
formally changed its name to APO Health, Inc. Prior to its acquisition, APO
Health was a privately owned company all of whose capital stock was owned by
Dr. Jan Stahl and Peter Steil. In consideration for their shares of APO
Health, the Company issued to each of Dr. Stahl and Mr. Steil 50,000 shares of
its Common Stock (or a total of 100,000 shares), as adjusted for the Company's
two reverse stock splits. Dr. Stahl and Mr. Steil then became officers and
directors of the Company.
2. In January, 1996 the Company issued an aggregate of $250,000 principal
amount of promissory notes (the "Pre-Bridge Notes') to certain investors (the
"Pre-Bridge Lenders") who provided interim financing (the "Pre-Bridge
Financing") for the Company and who are selling security holders in this
Offering. The net proceeds of the Pre-Bridge financing, after deducting
commissions, legal and miscellaneous expenses (including legal, accounting and
printing expenses) of the Pre-Bridge Financing were $190,000, all of which was
used for working capital. The Pre-Bridge Notes bear interest at 10% per annum
and are due and payable, upon the earlier of (i) December 15, 1996 or (ii) the
consummation of this Offering. Interest on the Pre-Bridge Notes is payable
semi-annually on June 15,1996 and December 15, 1996. Payment of the principal
amount of the Pre-Bridge Notes and accrued interest for the December 15, 1996
semi-annual period are presently in default. From the proceeds of this
Offering, $250,000 plus accrued interest thereon will be used to repay the
Pre-Bridge Notes. Additionally, the Pre-Bridge Lenders received warrants (the
"Pre-Bridge Lenders Warrants") to purchase an aggregate of 12,500 shares (as
adjusted for two reverse stock splits) of Common Stock of the Company at an
adjusted exercise price of $5.00 per share. The Pre-Bridge Lenders Warrants
are exercisable for a period of seven (7) years ending January 3, 2003. The
Company also granted the Pre-Bridge Lenders certain demand and "piggy-back"
registration rights with respect to the shares of Common Stock underlying the
Pre-Bridge Lenders Warrants. Under the terms of the Pre-Bridge Lenders
Warrants, the underlying shares of Common Stock are deemed to be part of the
same class of securities as the Shares offered in this Offering.
3. In connection with the Pre-Bridge financing, the Company issued to
Janssen-Meyers Associates, L.P. ("Janssen-Meyers"), for its services as
placement agent in the Pre-Bridge financing, warrants to purchase 6,250 shares
of Common Stock (as adjusted for two reverse stock splits), also at an adjusted
exercise price of $5.00 per share. The warrants are exercisable for a period
of seven (7) years ending January 3, 2003. The Company also granted
Janssen-Meyers certain demand and "piggy-back" registration rights similar to
those granted to the Pre-Bridge Lenders with respect to the shares of common
Stock underlying the Warrants.
4. In October, 1996 the Company, through the Underwriter herein, offered
an aggregate of $250,000 principal amount of promissory notes (the "Bridge
Notes') to certain investors (the "Bridge Lenders") who, through the purchase
of such securities provided interim financing (the "Bridge Financing") for the
Company and who are selling security holders in this Offering. The net
proceeds of the Bridge Financing, after deducting commissions and miscellaneous
expenses (including legal, accounting and printing expenses) of the Bridge
Financing were $207,500, all of which was used for working capital. The Bridge
Notes bear interest at 8% per annum and are due and payable, upon the earlier
of (i) twelve months from the date of their issuance or (ii) the consummation
of this Offering. Interest on the Bridge Notes is payable monthly commencing
one month from the date of their issuance. From the proceeds of this Offering,
$250,000 will be used to repay the Bridge Notes, plus accrued interest thereon.
Additionally the Bridge Lenders received (a) a total of 100,000 Shares of
Common Stock plus (b) warrants (the "Bridge Lenders Warrants") to purchase an
aggregate of 1,125,000 Shares of Common Stock at an exercise price of $5.00 per
share (after adjustment for all reverse splits). The Bridge Lenders Warrants
are exercisable for a period of four (4) years commencing one year from the
date of their issuance. The Company also granted the Bridge Lenders certain
demand and "piggy-back" registration rights with respect to the Shares, the
Bridge Lenders Warrants and the Shares underlying the Bridge Lenders Warrants.
Under the terms of the Bridge Lenders Warrants, the underlying shares of Common
Stock are deemed to be part of the same class of securities as the Shares
offered in this Offering. In connection with the sale of the Bridge Notes, the
Underwriter received a commission with respect thereto equal to ten (10%) per
cent of the total amount raised, or $25,000. In addition, the Underwriter also
received an unaccountable expense allowance equal to three (3%) per cent of the
total amount raised, or $7,500. Also, in connection with the Bridge Financing,
the Company issued to Morgan Grant Capital Corp. (the " Underwriter") for its
services as placement agent in the Bridge Financing, warrants (the
"Underwriter's Bridge Warrants") to purchase 125,000 shares of Common Stock
(after adjustment) at a price of $5.00 per share. The Underwriter's Bridge
Warrants are exercisable for a period of four (4) years commencing one year
from the date of their issuance. The Company also granted to the Underwriter
certain demand and "piggy-back" registration rights with respect to the
Underwriter's Bridge Warrants and Shares underlying the Underwriter's Bridge
Warrants. Subsequently, by mutual agreement between the Company and the
Underwriter, the Underwriter's Bridge Warrants were cancelled.
5. In July 1996, the Company entered into an agreement with Dental
Alternatives, Inc., a New York corporation wholly owned by Dr. Stahl and Mr.
Steil, pursuant to which the Company acquired all of the capital stock of
Dental Alternatives, Inc. in a stock for stock exchange. As a result, Dental
Alternatives Inc. became a subsidiary of the Company. In consideration for
their shares of Dental Alternatives, Inc., the Company issued to Dr. Stahl and
Mr. Steil 200,000 Shares (100,000 Shares each), as adjusted for both of the
Company's reverse stock splits.
6. In March 1994 the Company entered into a Consulting Agreement (the
"Agreement") with Ameristar Group Incorporated ("Ameristar") whereby Ameristar
was engaged to assist the Company and its management in finding and evaluating
potential business projects and generally to assist in the implementation of
its business and financial plan. This Agreement has been ongoing and subject
to termination upon 30 days prior notice by either party. In addition to
monthly fees payable to Ameristar for its services, by an amendment to the
Agreement dated September 23, 1994 Ameristar was issued 10,000 shares of Common
Stock, as adjusted for both of the Company's reverse stock splits. Ameristar
was also granted certain "piggy-back" and demand registration rights with
respect to these shares and, by reason thereof, Ameristar's shares have been
included herein and Ameristar is a Selling Shareholder as listed in this
Prospectus. The principals of Ameristar are Joseph Messina and Martin
Saposnic, neither of whom are affiliates of the Company.
7. The Company has agreed to issue a total of 450,000 shares of Common Stock
to Dr. Stahl (225,000 Shares) and Mr. Steil (225,000 Shares) in consideration
of their agreement to release the Company from a debt to them of $162,038. The
debt represents the accumulated profits from operations of one of the Company's
predecessors which was earned when it was a Subchapter S corporation and prior
to the time that the Company acquired it as a subsidiary, reversing the
Subchapter S. status of that Company. The accumulated profits were not
previously paid to Dr. Stahl and Mr. Steil at the time the Subchapter S status
was changed. The price range during the time of the issuance of the shares was
between a high bid of $0.625 per share and a low bid of $0.53125. per share.
The number of shares issuable in Items 1, 3, 5, 6 and 7 above were
determined arbitrarily and were influenced by management's best determination
of the value of the property being acquired or the services rendered.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Shares of the Company's common stock commenced trading on February 28,
1995. The principal market on which the Company's securities are traded is the
over-the-counter market on the OTC Electronic "Bulletin Board" and is currently
traded under the symbol "XETX." Since trading commenced, the Shares "bid"
price has ranged from a low bid price of $ 0.53125 to a high bid price of $1.5
as reflected in the following table which indicates the range of high and low
bid quotations for the Company's Common Stock which were listed for the
Company's Common Stock for the periods indicated:
High Bid Low Bid
1997
First Quarter 1.5 1.25
Second Quarter 1.5 0.75
Third Quarter 0.75 0.75
Fourth Quarter 0.75 0.75
1998
First Quarter 0.75 0.625
Second Quarter 0.625 0.53125
Third Quarter 0.625 0.53125
- ---------------
There were no inside quotes on the OTC Bulletin Board prior to the first
quarter of 1997.
The above quotations, reported by the National Quotation Bureau, represent
prices between dealers and do not include retail mark-ups, mark-downs or
commissions. such quotations do not necessarily represent actual transactions.
Prior to this Offering there has been only a limited public market for the
Common Shares. Quotations for the Common Shares have been by dealers appearing
as market makers on the OTC Bulletin Board, and such quotations have generally
been by inquiry. Furthermore, trading of the Common Shares has been sporadic
and in relatively small volumes and, as a result, purchases or sales of
relatively small amounts of Common Shares can significantly impact quoted
prices. The Company believe that the actual Bulletin Board quotations as set
forth above are not reflective of an established market for the shares of the
Company's Common Stock in which such shares of Common Stock trade freely.
On -----------,1998 the reported bid price for the shares of the
Company's Common Stock was $------ per share; there were ----- record holders
of the Company's common Stock; and there were -------- (--) market makers for
the Company's securities.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus certain
information regarding the beneficial ownership of the Company's Common Stock by
(i) each person who is known by the Company to own beneficially 10% of the
Company's outstanding Common Stock; (ii) each of the Company's officers and
directors; and (iii) all directors and officers of the Company as a group.
Number Percent Percent
of Shares Owned Before Owned After
Owned Offering Offering(1)(2)(3)
Name (1)(2)(3) Minimum Maximum
Dr. Jan Stahl
3141 Ann Street
Baldwin, NY 11510 375,000 41% 30.9% 25.8%
Peter Steil
430 East Olive
Long Beach, NY 1156 362,500 40.6% 29.9% 24.9%
Kenneth Levanthal
24 Meadowbrook Road
Huntington Station
New York 11725 5,000 0.6% 0.4% 0.3%
All Directors and
Officers as a Group
(3 Persons) 755,000 82.6% 61.2% 51.9%
(1) Based upon 914,131 Shares being issued and outstanding as of the date of
this Prospectus as adjusted for the Company's 1-for-10 reverse split and its
recent 1-for-2 reverse split. The number of shares shown in this table
includes 450,000 shares of Common Stock recently authorized by the Board of
Directors for Dr. Stahl (225,000 shares of Common Stock) and Mr. Steil (225,000
shares) in consideration of their release of an indebtedness to them of
$162,038 from the Company.
(2) Does not give effect to the possible exercise of any of the Warrants
included in the Securities offered hereby.
(3) Does not give effect to the possible exercise of any of the Underwriter's
Warrants or the Pre-Bridge and Bridge Warrants.
See "Certain Transactions" for additional information with respect to the
holdings of selling security holders.
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
In addition to the Securities being sold by the Company hereunder, 110,000
shares of Common Stock will also be sold by the Selling Shareholders set forth
below ("Selling Shareholders"). Also being registered hereby are 1,250,000
Bridge Warrants and 1,250,000 Bridge Shares underlying the Bridge Warrants and
12,500 Warrants and 12,500 underlying shares held by the Pre-Bridge Lenders.
The Shares being sold by the Selling Shareholders are not part of the offering
by the Company and the Company will not receive any proceeds from the sale of
the Shares by the Selling Shareholders. These Shares were originally issued by
the Company in transactions not involving any public offering. All purchasers
of the Shares and Bridge and Pre-Bridge Lenders'Warrants were accredited
investors as that term is defined in Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
register these securities under the Act concurrently with this Offering and to
pay the expenses in connection therewith (exclusive of commissions and the fees
and expenses of counsel for Selling Shareholders). The Shares, Bridge Lenders'
and Pre-Bridge Lenders' Warrants and Shares underlying the Warrants to be
offered by the Selling Shareholders are identical to the Shares and Warrants
offered herein by the Company and have been included in the Registration
Statement of which this Prospectus forms a part. None of the Selling
Shareholders (or Warrantholders) have any material relationship with the
Company. Certain of the holders of the Bridge Shares and Bridge Warrants
previously entered into a lock-up agreement whereby each of them agreed not to
sell, assign or transfer their Bridge Shares or Bridge Warrants for a period of
twenty-four months from the date of issuance. Each of the lock-up agreements
will expire at the end of September, 1998 and will have no effect thereafter.
Approximate Percentage(2)
Shares Warrants Before After Offering
Name and Address Owned(1) Owned(1) Offering Minimum Maximum
Glen Nortman
88 Foxwood Drive
Jericho, NY 11753 5,000 63,750(3) 3.10% 2.72% 2.48%
Gary Lyle Brustein
201 Brookville Road
Brookville, NY 11545 10,000 126,250(3) 6.19% 5.44% 4.96%
Ameristar Group
Incorporated
Suite 1710
444 Madison Avenue
New York, NY 10022 10,000 - 0.46% 0.40% 0.37%
Capital Planning
Holding Corp.
3 Asccot Ridge
Great Neck, NY 11021 5,000 62,500 3.10% 2.72% 2.48%
Jano and Jano Builders,
Ltd.
155 Westwood Drive
Westbury, NY 11590 10,000 125,000 6.19% 5.44% 4.96%
Jay G. Goldman
745 Fifth Avenue
New York, NY 10151 5,000 62,500 3.10% 2.72% 2.48%
Jay Goldman,
Master Limited
Partnership
745 Fifth Avenue
New York, NY 10151 5,000 62,500 3.10% 2.72% 2.48%
Christopher Mackie
50 Pummick Street
Bluepoint, NY 11715 5,000 62,500 3.10% 2.72% 2.48%
Wainscott Capital, Ltd
Seaton House
Suite 2
17-19 Seaton Place,
St. Healier, Jersey
Channel Islands 20,000 250,000 12.38% 10.89% 9.92%
Neil Jeffrey Weissman
3 Piper Drive
Searington, NY 11507 15,000 187,500 9.26% 8.14% 7.43%
Harry Zarin
73-79 Park Drive East
Flushing, NY 11367 10,000 125,000 6.19% 5.44% 4.96%
Robert Zarin
9 Stewart Lane
Kings Point, NY 11024 10,000 125,000 6.19% 5.44% 4.96%
Joseph Perri
10 Whalewell Place
Staten Island, NY 10304 - 5,000 0.22% 0.20% 0.18%
Ernest Milchman
25 Rockledge Avenue
White Plains, NY 10601 - 2,500 0.11% 0.10% 0.09%
Jeffrey Nortman
72 Eagle Chase
Woodbury, NY 11797 - 1,250 0.06% 0.05% 0.05%
Daniel Horowitz
12 Rodeo Circle
Syosset, NY 11791 - 1,250 0.06% 0.05% 0.05%
Janssen-Meyers
Associates, L.P.
17 State Street
New York, NY 10004 - 6,250 0.28% 0.25% 0.23%
- --------------------------------------
(1) Represents the total number of shares of Common Stock and Warrants owned
by the Selling Shareholders which are being registered hereunder for sale to
the public. Except for Ameristar Group, Incorporated and Janssen-Meyers, L.P.,
the Selling Shareholders are primarily the Bridge Lenders and Pre-Bridge
Lenders. See "Certain Transactions."
(2) In determining the percentages represented by the holding of each Selling
Shareholder, it has been assumed that all warrants listed in the above table
have been exercised, but that none of the Warrants which are being offered
hereby, or any of the Underwriter's Warrants, have been exercised.
Consequently, the above stated percentages are based upon a total assumed
capitalization equal to 914,131 Shares presently issued and outstanding, plus
1,262,500 Shares to be issued upon exercise of the Bridge Warrants and
Pre-Bridge Warrants and 6,250 Shares to be issued upon the exercise of the
Warrants issued to Janssen-Meyers. Consequently, it is assumed for purposes of
the above table that the number of Shares outstanding prior to this Offering
was 2,182,881; the number of Shares to be outstanding following the minimum
Offering herein will be 2,482,631; and the number of Shares to be outstanding
following the maximum Offering herein will be 2,722,881.
(3) Includes 1,250 Pre-Bridge Warrants. In the event that any of the Selling
Shareholders are released from their lock-up agreements, the NASD has required
that any NASD member acquiring released shares from the Selling Stockholders
must notify the NASD of the lock-up release and disclose the purchase price and
other material terms of the sale of such released shares. The Selling
Shareholders may be deemed to be "underwriters" under the federal securities
laws and may also be subject to certain restrictions imposed by Regulation M
which prohibits selling shareholders from bidding for, purchasing or attempting
to bid for or purchase a covered security during an applicable restricted
period, unless an exemption permits the activity, among other things.
The sale of Common Stock by the Selling Shareholders at the same time as
the Offering by the Company could have adverse effects on the sale of stock by
the Company which could result in a delay of the Offering, postponement or
abandonment. See "Risk Factor 26."
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to this Registration Statement, the
Company is offering a minimum of 300,000 shares of Common Stock and 300,000
Warrants for a total Offering price of $1,530,000 (the "Minimum Offering), and
a maximum of 540,000 shares of Common Stock and 540,000 Warrants for a total
Offering price of $2,754,000 (the "Maximum Offering), at a purchase price of
$5.00 per share of Common Stock and $0.10 per Warrant. Each Warrant entitles
the holder to purchase one share of Common Stock at an exercise price of $5.00
per share and is exercisable for a period of four years commencing one year
from the date of this Prospectus. The Company has agreed to pay Morgan Grant
Capital Corp. (the "Underwriter") a commission of ten (10%) per cent of the
gross sale price of all Securities sold in this Offering ($153,000 if only the
Minimum Offering is sold and $275,400 if the Maximum Offering is sold). The
Underwriter has made no commitment to sell any of the Securities offered hereby
and no assurance is given that any of the Securities will be sold. The
Underwriter has agreed to use its "best efforts" to sell the Securities.
The Underwriter has the option to engage other broker-dealers who are
members of the National Association of Securities Dealers, Inc. (the "Selected
Participating Dealers") to assist in the sale of these Securities. At the
date hereof, the Underwriter has not reached any agreement with any Selected
Participating Dealers to conduct selling efforts with respect to the Company's
Securities offered hereby. In the event that any agreement is reached between
the Underwriter and any Selected Participating Dealers, the Underwriter intends
to reallow to such participating broker-dealers up to ---% of the full 10%
underwriting commission.
The proceeds from the sale of the Securities offered hereby will be held
in an escrow account at the Chase Manhattan Bank, New York, New York (the
"Escrow Account"), until a minimum of 300,000 shares of Common Stock and
300,000 Warrants have been sold and $1,530,000 is deposited in the Escrow
Account. If at least 300,000 shares of Common Stock and 300,000 Warrants are
not sold by 60 days from the date of this Prospectus, which date may be
extended for an additional period of 30 days by the Company and the
Underwriter, the proceeds received from investors will be promptly refunded to
the investors in full without interest thereon and or deduction of any kind
therefrom. There is no minimum sale required for the Warrants offered hereby.
Until the proceeds from the sale of at least 300,000 shares of Common Stock and
300,000 Warrants are deposited in escrow, investors will not be securities
holders nor able to demand the return of their subscription proceeds.
All purchasers' checks should be made payable to "Xetal, Inc. Escrow
Account." Certificates evidencing the Shares and Warrants will be issued to
purchasers only if the proceeds from the sale of at least 300,000 shares of
Common Stock and 300,000 Warrants are actually deposited in the Escrow Account
and released to the Company pursuant to the Escrow Agreement. Until such time
as the proceeds are actually received by the Company and the certificates
delivered to the purchasers thereof, such purchasers will be deemed subscribers
and not security holders of the Company. During the selling period, purchasers
will have no right to demand the return of their subscription proceeds and no
interest will be paid on amounts on deposit. If the minimum proceeds are
successfully obtained, the Offering will continue until completed, until the
maximum period of the Offering has elapsed or until the Offering is terminated
by the Company and the Underwriter, whichever occurs first.
The Company has also agreed to sell to the Underwriter warrants (the
"Underwriter's Warrants) at a purchase price of $0.0001 per Underwriter's
Warrant to acquire an aggregate of 54,000 shares of Common Stock exercisable
for a period of four years commencing one year from the date of this
Prospectus, at an exercise price equal to 165% of the price of the Common Stock
to the public in this Offering (or $8.25 per share), subject to adjustment in
amount pro rata in the event all of the Common Stock and/or Warrants are not
sold in this Offering. The Underwriter's Warrants grant to the holder thereof
certain demand and "piggy-back" registration rights for a period of five years
from the date of this Prospectus with respect to the registration under the Act
of the securities issuable upon the exercise of the Underwriter's Warrants.
See, "Description of Securities - Underwriter's Warrants."
In accordance with the Underwriting Agreement, the Underwriter has been
granted the option of designating an individual to serve on the Company's Board
of Directors for a period of at least three years after completion of this
Offering. The Underwriter has not advised the Company whether it will exercise
such Option, or, if so, who it will designate.
The Underwriting Agreement also provides that the Company will pay a
non-accountable expense allowance equal to two percent (2%) of the gross
proceeds of this Offering to the Underwriter ($30,600 if only the Minimum
Offering is sold or $55,080 if the Maximum Offering is sold) of which $25,000
has been paid as of the date of this Prospectus. The Company has also agreed
to pay all expenses in connection with qualifying the Securities offered hereby
for sale under the laws of such states as the Underwriter may designate,
including fees and expenses of counsel retained for such purposes, certain
costs of investigatory searches of the Company's executive officers and other
expenses in connection with the Offering.
The Underwriter has informed the Company that it does not intend to
confirm sales to any accounts over which it exercises discretionary authority.
All of the Company's officers and directors, constituting in the aggregate
755,000 shares of Common Stock in the aggregate), have agreed not to sell their
shares without the consent of the Underwriter for a period of 24 months from
the date of this Prospectus. The Underwriting Agreement provides that the
Company will not offer any shares of Common Stock, preferred stock, options to
purchase Common Stock, warrants or any other securities convertible into shares
of Common Stock within three years after the date this Prospectus without the
consent of Underwriter, except that the Company may issue up to 100,000 shares
of Common Stock in connection with an employee stock option plan. The
Underwriting Agreement provides that the Underwriter will have a right of first
refusal for any sale of securities to be made by the Company for a period of
five years after the date of this Prospectus.
The Underwriter proposes to negotiate with the Selling Shareholders with
respect to the sale of their Shares; however, as of the date hereof, no such
agreements, plans or understandings have been agreed to for the Sale of the
Selling Stockholder's Shares. Previously the Bridge noteholders were subject
to lock-up agreements with respect to the sale of their Shares but such
agreements will expire at the end of September, 1998.
In the event that any of the Selling Shareholders are released from their
lock-up agreements, the NASD has required that any NASD member acquiring
released shares from the Selling Shareholders must notify the NASD of the
lock-up release and disclose the purchase price and other material terms of the
sale of such released shares.
The Underwriting Agreement provides that the Company will neither solicit
the exercise of the Warrants being offered hereby, nor authorize any dealer to
engage in such solicitation without the consent of the Underwriter. Upon the
exercise of the Warrants, the Company has agreed to pay to the Underwriter a
commission equal to seven (7%) per cent of the aggregate exercise price. The
commission will be payable only if (i) the Warrant is exercised at least 12
months after the date of this Prospectus; (ii) the market price of the Common
Stock on the date that the Warrant is exercised is greater than the exercise
price of the Warrants; (iii) the exercise of the Warrant was solicited by a
member of the National Association of Securities Dealers, Inc.; (iv) the
Warrant is not held in a discretionary account; (v) disclosure of the
compensation arrangement is made at the time of the exercise of the Warrant;
(vi) the holder of the Warrant has stated in writing that the exercise was
solicited and designated in writing the soliciting broker/dealer; and (vii)
solicitation and exercise of the Warrant was not in violation of Regulation M
promulgated under the Exchange Act. However, no fee will be payable to the
Underwriter in connection with the Warrants voluntarily exercised without
solicitation by the Underwriter.
The Underwriting Agreement also provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Act. To the extent that the Underwriting Agreement may purport to provide
exculpation from possible liabilities arising under the federal securities
laws, it is the opinion of the Commission that such indemnification is contrary
to public policy and unenforceable.
The Underwriter may elect not to proceed with the Offering at anytime
without penalty if, in its sole discretion and acting in good faith, it
believes that no favorable public market exists for the sale of the Securities.
The Underwriting Agreement may also be terminated by the Underwriter if, among
other things, at any time prior to the closing of this Offering, there shall
have occurred a material adverse change in the conditions or obligations of the
Company or which change, in the sole judgement of the Underwriter, will have
adversely affected the marketability of the securities offered hereby and will
have made it impracticable or inadvisable to proceed with this Offering.
The foregoing does not purport to be a complete statement of the terms and
conditions of the amended Underwriting Agreement, copies of which are on file
at the offices of the Underwriter and the Company and which are filed as an
exhibit to the Registration Statement. See "Additional Information."
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$.001 par value per share, of which 914,131 shares are presently issued and
outstanding (after adjustments), including 100,000 shares of Common Stock in
the aggregate issued to the Bridge Lenders. Each outstanding share of Common
Stock is entitled to one vote, either in person or by proxy, on all matters
that may be voted upon by the owners thereof at meetings of the stockholders.
The holders of Common Stock (i) have equal ratable rights to dividends
from funds legally available therefore, when, and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company;
(iii) do not have preemptive, subscription or conversion rights, or redemption
or sinking fund provisions applicable thereto; and (iv) are entitled to one
non-cumulative vote per share on all matters on which stockholders may vote at
all meetings of stockholders.
All Shares which are the subject of this Offering, when issued, will be
fully paid for and non-assessable, with no personal liability attaching to the
ownership thereof. The holders of shares of Common Stock of the Company do not
have cumulative voting rights, which means that the holders of more than 50% of
such outstanding shares, voting for the election of directors, can elect all
directors of the Company if they so choose and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
Even if all Shares offered are subscribed for, present management will continue
to own over 50% of the Company's issued and outstanding shares and will,
therefore, be able to elect all of the Company's Directors, appoint all of its
officers and control its operations.
Common Stock Purchase Warrants
The Common Stock Purchase Warrants ("Warrants") will be issued in
registered form under and subject to the terms of a warrant agreement dated as
of the date of this Prospectus (the "Warrant Agreement"). The following
statements are a brief summary of certain provisions of the warrant agreement
and are subject to the detailed provisions thereof, to which reference is made
for a complete statement of such provisions. Copies of the Warrant Agreement
may be obtained from the Company and have been filed with the Securities and
Exchange Commission as an Exhibit to the Registration Statement of which this
Prospectus is a part.
The Warrants are offered separately and each Warrant entitles the holder
thereof to purchase one additional share of Common Stock during the four (4)
year period commencing one year after the date of this Prospectus, as herein
defined, at a price of $5.00. The initial Offering price of the Warrants will
be $0.10 per Warrant. See "General Terms Applicable to Warrants, Pre-Bridge
Warrants and Bridge Warrants" for additional information.
Pre-Bridge and Bridge Warrants
There are issued and outstanding an aggregate of 1,250,000 Bridge Lenders'
Warrants and 12,500 Pre-Bridge Warrants (after adjustment) entitling the
holders thereof to purchase an aggregate of 1,262,500 shares of Common Stock.
In the event that this Offering is not consummated at $5.00 per Share, then the
Bridge Lenders' Warrant exercise price will be 100% of whatever the public
Offering price of the Common Stock is in this Offering. The Pre-Bridge
Lender's Warrants will also be exercisable at an a price of $5.00 per share.
Pursuant to the terms of the Bridge Lenders' and Pre-Bridge Lender's Warrants,
the holders thereof were granted certain demand and "piggy-back" registration
rights with respect to the Shares underlying the Warrants. Consequently, all
of the Warrants held by the Bridge and Pre-Bridge lenders and the underlying
Common Stock have been included in the Registration Statement of which this
Prospectus forms a part and, following the closing date of this Offering, may
be sold publicly, subject to the conditions set forth in this Prospectus and
subject to an agreement whereby the Bridge Lenders agreed not to sell, assign
or transfer the Common Stock, Bridge Lenders' Warrants or Common Stock
underlying the Bridge Lenders' Warrants without the prior consent of the
Underwriter for a period of 24 months from the date of their issuance or 18
months from the effective date of the Registration Statement of which this
Prospectus is a part, whichever is earlier. See "General Terms Applicable to
Warrants, Pre-Bridge Warrants and Bridge Warrants" for additional information.
General Terms Applicable to Warrants, Pre-Bridge Warrants and Bridge Warrants
Holders of the Warrants and Bridge Lenders' Warrants will not have any
rights, privileges or liabilities as Stockholders of the company prior to the
exercise thereof. The Warrants and Bridge Lenders' Warrants contain certain
provisions that protect the holders thereof against dilution. The exercise
price of, and the number of Shares issuable upon exercise of the Warrants and
Bridge Lenders' Warrants will be subject to adjustment in certain circumstances
including, but not limited to, stock dividends, stock splits, mergers,
acquisitions and re-capitalization. Upon such an adjustment, the Company shall
cause to be promptly mailed by first class mail, postage prepaid to each
Warrant and Bridge Lenders' Warrant Holder notice of such adjustment.
The Warrants and Bridge Lenders' Warrants may be exercised upon the
surrender of the warrant certificate on or prior to the expiration date at the
office of the Company, 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 check payable to the Company) for the number
of warrants being exercised.
The Warrants and Bridge Lenders' Warrants are redeemable by the Company at
any time after two years after the date of this Prospectus and prior to their
expiration at a price of $0.05 per Warrant, upon 30 days prior written notice,
provided that the closing sale price of the Common Stock on the Bulletin Board
shall have been at least 150% of the initial Offering price of the Shares
herein on each of the 20 consecutive trading days ending on the tenth day prior
to the day on which the notice of redemption is given. The Warrants and Bridge
Lenders' Warrants may be exercised during the 30 day redemption notice. In
determining whether to redeem either of the warrants, management of the Company
will take into consideration the market price of the Shares and the Company's
ability to raise capital other than through the exercise of the warrants. The
Company may elect to redeem either the Warrants or Bridge Warrants or both in
its sole discretion.
Noone of the Warrants will be exercised unless at the time of exercise the
Company has filed with the Securities and Exchange Commission a current
prospectus covering the Shares issuable upon exercise of such warrants and such
Shares have been registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder of such warrants. The
Company will use its best efforts to have all warrants so registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until expiration of the warrants. Further, a current
prospectus covering the Shares issuable upon exercise of the warrants must be
in effect before the Company may accept warrant exercises. There can be no
assurance that the Company will be able to have a prospectus in effect when
this Prospectus is no longer current, notwithstanding the Company's commitment
to use its best efforts to do so.
No fractional Shares will be issued upon exercise of the Warrants or
Bridge Lenders' Warrants. However, if a warrant holder exercises all warrants
then owned of record by him, in lieu of the issuance of any fractional Share
which is otherwise issuable, an amount in cash based upon the market value of
the Shares on the last trading day prior to the exercise date.
Warrants are generally more speculative than shares of Common Stock which
are purchased upon the exercise thereof. Historically, the percentage increase
or decrease in the market price of a warrant has tended to be greater than the
percentage increase or decrease in the market price of the underlying common
stock. A warrant may become valueless, or of reduced value, if the market
price o the common stock decreases, or increases only modestly, over the term
of the warrant.
Underwriter's Warrants
Upon the completion of this Offering, the Company has agreed to sell to
the Underwriter for a nominal consideration, Underwriter's Warrants to acquire
54,000 shares of Common Stock (after adjustment) identical to the Common Stock
being offered hereby, on the basis of one Warrant for each ten (10) shares of
Common Stock sold in this Offering. The Underwriter's Warrants are exercisable
at a price of $8.25 per share for a period of four years commencing one year
from the date of this Prospectus.
The Underwriter's Warrants may not be sold, hypothecated, exercised,
assigned, or transferred, except to individuals who are officers of partners of
the members of the Underwriter or participating selected dealers who are
members of the National Association of Securities Dealers, Inc., or pursuant to
the laws of descent and distribution, for a period of twelve months from the
effective date of this Prospectus, and, in no event will such Underwriter's
Warrants (or the underlying securities issuable upon exercise thereof) be
offered or sold except in compliance with the Act. Any profits realized by the
Underwriter upon the sale of the Underwriter's Warrants or the underlying
securities may be deemed to be additional compensation.
The Company has agreed that it will, upon request of the Underwriter or
its specific duly authorized designee, or at the request of the holders of not
less than 50% of the Underwriter's Warrants and/or underlying securities, with
the consent of the Underwriter or its duly authorized designee, within the
period commencing one year from the effective date of this Offering, and for a
period of four years thereafter, on one occasion at the sole expense of the
Company cause the Underwriter's Warrants and/or underlying securities issuable
upon exercise of the Underwriter's Warrants to be the subject of a post
effective amendment or a new registration statement so as to enable the
Underwriter and its assigns to offer publicly the Underwriter's Warrants and/or
underlying securities. In addition if during the five year period commencing
one year from the effective date of this Offering, the Company shall register
any of its securities for sale pursuant to a registration statement under the
Act, the Company shall be required to offer the holders of the Underwriter's
Warrant and/or underlying securities the opportunity to register such
underlying securities, without cost to the holders thereof. The registration
requirement shall not apply to Registration Statements filed by the Company
pursuant to Form S-8 or Form S-4 or similar forms.
The Underwriter's Warrants contain anti-dilution provisions regarding
certain events, including but not limited to stock dividends, split-ups, and
reclassification. Holders of the Underwriter's Warrants will have no voting
power and will not be entitled to any dividends. In the event of any
dissolution or winding up of the Company, the holders of the Underwriter's
Warrants will not be entitled to participate in a distribution of the Company's
assets.
For the life of the Underwriter's Warrants, the Underwriter is given, at a
nominal cost, the opportunity to profit from a resulting dilution in the
interest of existing security holders. The terms upon which the Company could
obtain additional capital during that period may be adversely affected. The
Underwriter might be expected to exercise the Underwriter's Warrants at a time
when the Company would, in all likelihood, be able to obtain any needed capital
by a new offering of securities on terms more favorable than those provided for
by the Underwriter's Warrants.
Dividend Policy
The Company has not paid any dividends and there are presently no plans to
pay any such dividends in the foreseeable future. The declaration and payment
of dividends in the future will be determined by the Board of Directors in
light of conditions then existing, including earning, financial condition,
capital requirements and other factors. There are no contractual restrictions
on the Company's present or future ability to pay dividends. Further, there are
no restrictions on any of the Company's subsidiaries which would, in the
future, adversely affect the Company's ability to pay dividends to its
shareholders.
Transfer Agent
The Transfer Agent for the Company's Common Stock is American Stock
Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
LEGAL PROCEEDINGS
Neither the Company nor any of its officers or directors, in their
capacity as such, are presently a party to any litigation. To the knowledge of
management and the Company there is no litigation threatened against the
Company which may materially affect its assets or business operations. However,
as mentioned above, the Company is currently in default with respect to its
obligation to pay the principal and accrued interest pursuant to the terms of
the Pre-Bridge Notes. Such default could, at the option of the Pre-Bridge Note
holders result in litigation against the Company. No agreement has been
reached with the Pre-Bridge Note holders to extend the time of payment thereof
or to otherwise refrain from instituting litigation against the Company in
connection therewith.
LEGAL MATTERS
The validity of the Shares and Warrants offered hereby as part of the
Units will be passed upon for the Company by B. Bruce Freitag, Esq., 39
Sackerman Avenue, North Haledon, New Jersey 07508. Certain legal matters in
connection with this Offering will be passed upon for the Underwriter by Doros
& Brescia, P.C.
EXPERTS
The financial statements of the Company as of September 30, 1997 and for
the years ended September 30, 1997 and 1996 included in this Prospectus, have
been audited by Linder & Linder, Certified Public Accountants, Dix Hills, New
York 11746, as stated in their opinion and upon the authority of that firm as
experts in accounting and auditing.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders
Xetal, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Xetal, Inc. and
Subsidiaries as of September 30, 1997 and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years
ended September 30, 1997 and 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Xetal, Inc. and
Subsidiaries at September 30, 1997 and the results of their operations and
their cash flows for the years ended September 30, 1997 and 1996 in conformity
with generally accepted accounting principles.
Linder & Linder
Certified Public Accountants
Dix Hills, New York
December 12, 1997
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
Auditors' Report
Consolidated Financial Statements
Balance Sheet
Statements of Operations
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1997
ASSETS
Current Assets
Cash $ 1,163
Cash - accrued salaries 51,172
Accounts receivable, less allowance
for doubtful accounts of $57,820 2,533,090
Inventory 1,001,219
Advances to joint venture, less allowance
for doubtful accounts of $84,140 23,800
Due from officers 97,948
Prepaid and other receivables 64,999
---------
Total Current Assets 3,773,391
Property and Equipment - at cost,
less accumulated depreciation of $66,014 96,323
Other Assets
Goodwill, less accumulated amortization
of $18,201 165,138
Registration costs 49,523
Security deposits 4,957
------
Total Other Assets 219,618
Total Assets $ 4,089,332
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash overdraft $ 46,194
Line of credit - bank 964,292
Note payable, current portion 1,042
Bankers acceptances 475,596
Accounts payable 1,587,164
Accrued expenses 320,497
Loans payable 500,000
---------
Total Current Liabilities 3,894,785
Loans Payable - former shareholders 162,038
Stockholders' Equity
Preferred stock, $.01 par value,
2,000,000 shares authorized,
-0- shares issued -
Common stock, $.001 par value,
20,000,000 shares authorized,
928,263 and 728,363 issued and
outstanding 928
Additional paid in capital 614,012
Retained earnings (deficit) (582,431)
Total Stockholders' Equity 32,509
---------
Total Liabilities and Stockholders' Equity $ 4,089,332
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
September 30,
1997 1996
Revenues $ 23,500,981 $ 14,615,764
Cost of Revenues 21,027,226 12,595,353
Gross Profit 2,473,755 2,020,411
Operating Expenses
Selling expenses 1,049,201 911,336
General and
administrative
expenses 1,212,929 855,056
Consulting and
business acquisition
costs - 387,126
Total Operating Expenses 2,262,130 2,153,518
Income (Loss) from Operations 211,625 (133,107)
Other Expenses
Interest expense - net 227,290 175,283
Net Loss $ (15,665) $ (308,390)
Earnings Per Common Share $ (0.02) $ (0.78)
Weighted Average Number of
Shares Outstanding 913,630 394,800
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Additional
Common Stock Paid In Retained
Shares Amount Capital Earnings
Balance, September 30, 1995 318,263 $ 318 $ 585,522 $ (258,376)
Acquisition of Universal
Medical Distributors, Inc. 10,000 10 90 -
Acquisition of Dental
Alternatives, Inc. 400,000 400 3,600 -
Net loss - year ended - - - (308,390)
Balance, September 30, 1996 728,263 728 589,212 (566,766)
Issuance of stock in
conjunction with bridge
loan 200,000 200 24,800 -
Net loss - year ended - - - (15,665)
Balance, September 30, 1997 928,263 $ 928 $ 614,012 $ (582,431)
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30,
1997 1996
Cash Flows From Operating Activities
Net loss $ (15,665) $ (308,390)
Adjustment to reconcile net loss to net
cash flows from operating activities
Depreciation 15,284 11,661
Amortization 12,123 8,141
Bad debts 16,820 84,140
Adjustment to registration fees - 278,386
Common stock issued with notes payable 25,000 -
Write-off of joint venture 3,047 -
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable (1,387,208) 194,512
Inventories 287,059 (515,556)
Prepaids 23,579 (58,318)
Increase (decrease) in liabilities
Accounts payable 522,573 138,203
Accrued expenses 11,041 115,816
Cash Flows Used By Operating
Activities (486,347) (51,405)
Cash Flows From Investing Activities
Payments from joint venture 1,200 145,185
Acquisition of property (33,529) (12,863)
Acquisition of goodwill - (156,300)
Acquisition of registration costs (49,523) -
Due from officers (31,869) (52,579)
Cash Flows Used By Investing
Activities (113,721) (76,557)
Cash Flows From Financing Activities
Accrued Salaries - net of cash 7,678 -
Bank overdraft 46,194 -
Borrowings under line of credit - net (85,371) 234,663
Borrowings from acceptances payable - net 350,938 (447,807)
Payment of note payable (11,458) (50,000)
Payment of loan payable - former shareholders (86,000) -
Registration costs - 10,000
Loans payable 250,000 262,500
Cash Flows Provided By
Financing Activities 471,981 9,356
Net (Decrease) Increase In Cash (128,087) (118,606)
Cash, Beginning 129,250 247,856
Cash, Ending $ 1,163 $ 129,250
Supplemental Disclosure:
Cash paid during the year for:
Interest $ 155,405 $ 155,954
Taxes - -
Non-cash investing and financing transactions
Acquisition and registration costs
accrued as current liabilities - 71,010
Issuance of common stock to acquire
subsidiaries - 4,100
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
Insurance Kingdom Agency, Inc. ("IKA"), an inactive company, was organized
under the laws of the State of Utah. Effective September, 1994, IKA acquired
Xetal, Inc. ("APO Health"), an operating company. IKA changed its name to
Xetal, Inc., a Utah Corporation, (collectively the "Company"). APO Health is a
wholesale distributor of medical supplies and sells predominantly to medical
distributors, dentists and doctors throughout the United States. Approximately
80% of the Company's sales are to distributors of medical supplies.
The acquisition has been accounted for by the purchase method under business
combinations and treated as a reverse acquisition. Such transaction treats the
acquisition as if APO Health acquired IKA and reflects the fair market value of
IKA's net assets on the date of acquisition.
Effective to the acquisition, previously taxed profits, amounting to $248,038,
due to the former shareholders of APO Health, and included in retained
earnings, were transferred to loans payable to former shareholders. The loans
are non-interest bearing and are without terms for repayment. During fiscal
1997, the former shareholders of APO Health were repaid $106,000.
Effective January 1, 1995, Xetal, Inc., the operating company, changed its name
to APO Health, Inc. In addition, APO Health changed its year end to September
30th.
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. Intercompany transactions
and balances have been eliminated in consolidation.
Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for on the
straight-line method over the estimated useful life.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results may differ from those estimates.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
The Company and its subsidiaries file consolidated tax returns.
Intangibles
Customer lists acquired were amortized over a three year period and have been
fully amortized. Registration costs are deferred and are offset against the
proceeds received from successful public offerings. Registration costs for
unsuccessful offerings are charged as period costs. Costs associated with the
companies acquired are capitalized and included in the purchase price of such
acquisition. Costs associated with unsuccessful acquisitions are expensed.
Goodwill represents the excess of the cost of companies acquired over the fair
value of their net assets at the date of acquisition and is being amortized on
the straight line method over 15 years.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of shares
outstanding. The assumed conversion of warrants do not result in material
dilution.
Reclassification
Certain items in the 1996 statement of operations have been reclassified
to conform with the 1997 presentation.
NOTE 2 - Advances to Joint Venture
APO Health advanced Trans Medical International Corporation, ("Trans Medical"),
cash and merchandise to be distributed by Trans Medical to South America. As
collateral for this advance, APO Health received 25% of Trans Medical's common
stock. The advance is recorded at cost and during the year ended September 30,
1996, APO Health has provided an allowance of $84,140 on such advance. In
January 1997, APO Health received a judgement in settlement of their claims in
the amount of $25,000.
NOTE 3 - Business Combinations
Universal Medical Distributors, Inc.
On March 31, 1996, IKA acquired Universal Medical Distributors, Inc.,
("Universal"), in a business combination accounted for as a purchase. Universal
is primarily engaged in the business of distributing veterinary supplies. The
results of operations of Universal is included in the accompanying financial
statements since the date of acquisition. The total cost of the acquisition,
which included cash of $65,000, issuance of 10,000 post stock split shares of
the Company's common stock and the assumption of the net liabilities of
Universal exceeded the fair value of the net asset of Universal by $179,339.
Dental Alternatives, Inc.
During July, 1996, IKA acquired Dental Alternatives, Inc., ("Alternatives"), an
inactive company owned by a major shareholder of IKA. The acquisition was
accounted for in a business combination of entities under common control which
has been accounted for in a manner similar to a pooling of interests. IKA
acquired trademarks and marketing rights of products developed by Alternatives
through the exchange of 400,000 post stock shares of the Company's common stock
for all of the outstanding stock of Alternatives.
NOTE 4 - Loans Payable
In conjunction with financing a private placement or public offering, APO
Health borrowed $50,000 from two individuals. Such borrowing is non-interest
bearing and will be repaid from the proceeds of the placement or offering.
In January, 1996, IKA issued an aggregate of $250,000 principal amount of
promissory notes to certain investors to provide interim working capital to the
Company and repaid $50,000 borrowed from the two individuals. The notes bear
interest at 10% per annum and are due and payable, upon the earlier of (i)
December 15, 1996 or (ii) the consummation of an offering. IKA has not repaid
the promissory notes and is currently negotiating with the investors to extend
the maturity date of the notes. Interest on the notes has been accrued since
inception.
In connection with the financing, IKA retained the services of an underwriter
to obtain additional financing through a public offering. Effective May 10,
1996, IKA and the underwriter terminated their agreement. As part of the
termination agreement, the underwriter was issued warrants to purchase an
aggregate of 12,500 post split shares of common stock at a price of $7.50
exercisable through January 3, 2003.
The financial statements for the year ended September 30, 1996, have been
restated to give effect for registration costs associated with the public
offering which were originally deferred. Costs in the amount of $342,126 have
been expensed and are included in consulting and business acquisition costs.
In June, 1996, IKA retained the services of a new underwriter to facilitate
the public offering to provide the Company with working capital.
During the period from November, 1997 through January 1997, IKA issued an
aggregate of $250,000 principal amount of 8% promissory notes to certain
investors to provide the Company with interim working capital. The promissory
notes mature upon the earlier of (i) 12 months from the date of issuance or
(ii) the consummation of an offering. Interest payable monthly commences one
month from the date of the issuance of the notes and has been accrued since
inception. In addition, the investors received 20,000 shares of common stock
and a warrant for each $25,000 unit acquired. Each warrant entitles the
investor to purchase up to 250,000 shares of the IKA's common stock at a price
equal to 100% of the public offering price or $5.00 per share if the offering
is not consummated.
NOTE 5 - Credit Facility
In July 1997, APO Health renegotiated its credit facility with the financial
institution. The facility is for working capital and the purchase of
inventory. The credit facility provides for a $2,000,000 secured working
capital facility for letters of credit and bankers acceptances with a sub-limit
of $1,000,000 for own note borrowings. Interest is payable monthly, at the
bank's prime rate plus 1 and 1/2%.
The credit facility is scheduled to mature on March 31, 1998. At such time,
the bank will review the credit basis of APO Health to determine whether to
extend the facility. The facility is secured by substantially all of the
Company's assets and personally guaranteed by its stockholders. In addition,
the obligation due to the former shareholders in the amount of $162,000 is
subordinated to the bank's borrowing.
Universal has a line of credit with a bank in the amount of $50,000. Borrowings
against this line bear interest, at the prime rate plus 2.75% and are
collateralized by a lien on substantially all assets and are guaranteed by the
stockholders.
As of September 30, 1997, the Company has lines of credit outstanding of
$964,292.
NOTE 6 - Income Taxes
Deferred income taxes arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. The primary sources of temporary differences are the use of
the allowance method for bad debts for financial accounting and direct
write-off method for tax purposes and the availability of net operating loss
carryovers.
The components of deferred taxes as of September 30, 1997 are as follows:
1997
Allowance for doubtful accounts $ 55,000
Net operating loss carryover 173,000
228,000
Valuation allowance (228,000)
Net deferred assets $ -
=======
For the years ended September 30, 1997 and 1996, the provision for income taxes
(benefits) consist of the following:
1997 1996
Current $ - $ 14,000
Utilization of a net operating
loss carryover - (14,000)
Valuation allowance 5,000 125,000
Deferred (5,000) (125,000)
Provision for taxes $ - $ -
The Company has provided for a valuation allowance amounting to the deferred
tax asset since it can not be determined whether it can more likely than not be
utilized. The Company has a net operating loss carryover of approximately
$446,000 that can be used to offset future taxable income through the year
2011.
NOTE 7 - Common Stock
During fiscal 1997, the Company issued 200,000 shares of its common stock to
certain investors, pursuant to the bridge financing. (See Note 4)
On August 5, 1996, the Board of Directors authorized an 1-for-10 stock split of
the Company's $0.001 par value common stock. As a result of the split,
existing shares outstanding was reduced by 6,544,067, and additional paid in
capital was increased by $6,544. All references in the accompanying financial
statements to the number of common shares and per-share amounts for 1995 have
been restated to reflect the reverse stock split.
In July 1996, the Company issued 400,000 post stock split shares of common
stock to acquire Alternatives, an inactive company. (Note 3). The transaction
was recorded at the legal capitalization of the shares issued.
On March 31, 1996, the Company issued 10,000 post stock split shares of common
stock to acquire Universal. (Note 3). The transaction was recorded at the
legal capitalization of the shares issued.
On August 4, 1995, the Company issued 58,200 post stock split shares of the
Company's common stock for the forgiveness of services rendered in the amount
of $654,189. The transaction was recorded at the value of the services
rendered.
NOTE 8 - Commitments and Contingency
Defined Contribution Pension Plan
January, 1993, APO Health established a profit sharing plan. All full time
employees, as defined in the plan, are eligible. Contributions to the plan are
discretionary. Pension expense for the years ended September 30, 1997 and 1996
were $-0-.
Leases
Effective November 15, 1994, an affiliated company, whose shareholders are the
officers of the Company, entered into a 5 year agreement to lease a 9800 square
foot facility to house its operations. Under the terms of the new lease, the
Company will pay for all real estate tax increases and any repairs to the
property. The Company has a month to month lease with similar terms with this
affiliate.
Future minimum rental payments are as follows: Year Ending September 30,
1998 $51,450
1999 51,450
For the years ended September 30, 1997 and 1995, rent expense was $50,212 and
$45,392, respectively.
Concentration of Credit Risk
APO Health maintains bank accounts in several financial institutions. Each
financial institution is insured up to $100,000 by the Federal Depository
Insurance Corporation.
Employment Agreements
The Company has entered into employment agreements with its principal officers
through December 31, 1998. The agree-ments will automatically be renewed and
extended for up to five consecutive one year periods. The terms provide for a
minimum annual salary of $125,000 with adjustments for cost-of-living changes
and incentives based on gross revenues and development of new products. In
addition, the agreement provides for warrants to be issued based on the
incentives. At September 30, 1997 and 1996, the officers waived certain terms
of their agreement for additional compensation based on salary and incentives.
Letters of Credit
The Company has letters of credit outstanding of $158,142 for purchases to be
delivered after September 30, 1997.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
June 30, September 30,
1998 1977
(Unaudited)
Current Assets:
Cash $ 109,899 $ 52,335
Accounts receivable, less allowance
for doubtful accounts of $57,820
and $57,820 3,161,831 2,533,090
Inventory 754,071 1,001,219
Advances to joint venture - 23,800
Due from Officers - 97,948
Prepaid and other receivables 74,601 64,999
Total Current Assets 4,100,402 3,773,391
Property and Equipment - at cost,
less accumulated depreciation of $78,617
and $66,014 83,720 96,323
Other Assets:
Goodwill, less accumulated amortization
of $24,309 and $18,201 155,976 165,138
Registration Costs 49,523 49,523
Security Deposits 24,957 4,957
Total Other Assets 230,456 219,618
Total Assets $ 4,414,578 $ 4,089,332
The accompanying notes are an integral part of these Financial Statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1998 September 30,
(Unaudited) 1997
Current Liabilities:
Cash Overdraft $ 118,596 $ 46,194
Line of Credit - Bank 485,000 964,292
Note Payable, Current Portion - 1,042
Bankers Acceptances 459,823 475,596
Accounts Payable 1,953,633 1,587,164
Accrued Expenses 345,542 320,497
Loans Payable 500,000 500,000
Total Current Liabilities 3,862,594 3,894,785
Loans Payable - Former Shareholders 162,038 162,038
Stockholders' Equity:
Preferred stock, $.01 par value
2,000,000 shares authorized
- 0 - shares issued - -
Common stock, $.001 par value
20,000,000 shares authorized
928,263 issued and outstanding 928 928
Additional Paid-in Capital 614,012 614,012
Retained Earnings (Deficit) (224,994) (582,431)
Total Stockholders' Equity 389,946 32,509
Total Liabilities and Stockholders'
Equity $ 4,414,578 $ 4,089,332
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
(Unaudited) (Unaudited)
Revenue $24,693,703 $ 16,302,519
Cost of Revenue 22,280,389 14,509,242
Gross Profit 2,413,314 1,793,277
Operating Expenses:
Selling Expenses 891,158 717,889
General and
Administrative Expenses 1,039,700 871,100
Total Operating Expenses 1,930,858 1,588,989
Income from Operations 482,456 204,288
Other Expenses - Interest 125,219 181,120
Net Income $ 357,237 $ 23,168
Earning Per Common Share $ .38 $ .03
Weighted Average Number of
Shares Outstanding 928,263 861,596
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net Income (Loss) $ 357,237 $ 23,168
Adjustment to reconcile net income
(loss) to net cash flows from
operating activities
Depreciation 12,603 10,750
Amortization 9,162 28,217
Allowance for doubtful accounts 23,800 32,067
Changes in operating assets
and liabilities:
Accounts Receivable (628,741) (654,750)
Inventory 247,148 (65,697)
Security Deposits (20,000) -
Prepaid Expenses (9,602) 5,805
Accounts Payable 366,469 455,075
Accrued Expenses 25,245 (91,781)
Net Cash Flow from Operating Activities 383,321 (257,146)
Cash Flows from Investing Activities:
Acquisition of Property - (19,228)
Due from Officers 97,948 (1,668)
Net Cash Flow from Investing Activities 97,948 (20,896)
Cash Flow from Financing Activities:
Cash-Overdraft 72,402 30,699
Borrowing under line of credit - net (479,292) (160,000)
Borrowing from acceptances payable - net (15,773) 254,842
Payment of Note Payable (1,042) (9,375)
Registration Cost - (24,523)
Loans Payable - 250,000
Prepayment Loans - Former Shareholders - (50,000)
Net Cash Flow from Financing Activities (423,705) 291,643
Net Increase (decrease) in Cash 57,564 13,601
Cash, Beginning 52,335 129,250
Cash, Ending $ 109,899 $ 142,851
Supplemental Information:
Cash Payments for Interest $ 91,469 $ 152,995
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Presentation These interim Financial Statements are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which the management
of the Company considers necessary for a fair presentation of the results of
operations for the periods indicated. The results of operations for the nine
months ended June 30, 1998, are not necessarily indicative of the results to be
expected for the entire fiscal year ending September 30, 1998.
Nature of Business
Insurance Kingdom Agency, Inc. ("IKA), an inactive company, was organized under
the laws of the State of Utah. Effective September, 1994, IKA acquired Xetal,
Inc. ("APO Health"), an operating company. IKA changed its name to Xetal, Inc.,
a Utah Corporation, (collectively the "Company"). APO Health is a wholesale
distributor of medical supplies and sells predominantly to medical
distributors, dentists and doctors throughout the United States. Approximately
80% of the Company's sales are to distributors of medical supplies.
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for on the
straight-line method over the estimated useful life.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results may differ from those estimates.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rats applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
The Company and its subsidiaries file consolidated tax returns.
Intangibles
Registration costs are deferred and are offset against the proceeds received
from successful public offerings. Registration costs for unsuccessful offerings
are charged as period costs. Costs associated with the companies acquired are
capitalized and included in the purchase price of such acquisition. Costs
associated with unsuccessful acquisitions are expensed. Goodwill represents the
excess of the cost of companies acquired over the fair value of their net
assets at the date of acquisition and is being amortized on the straight line
method over 15 years.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of shares
outstanding. The assumed conversion of warrants do not result in material
dilution.
Note 2 - Advances to Joint Venture
APO Health advanced Trans Medical International Corporation, ("Trans Medical"),
cash and merchandise to be distributed by Trans Medical to South America. As
collateral for this advance, APO Health received 25% of Trans Medical's common
stock. The advance was recorded at cost. In January, 1997, the Company received
a judgment in settlement of their claims in the amount of $25,000. In December,
1997, after receiving three payments of $1,200, the Company set up a reserve of
$23,800 for the remaining balance.
Note 3 - Loans Payable
In January, 1996, the Company issued an aggregate of $250,000 principal amount
of promissory notes to certain investors to provide interim working capital to
the Company and repaid $50,000 borrowed from the two individuals. The notes
bear interest at 10% per annum and are due and payable, upon the earlier of
(a) December 15, 1996, or (b) the consummation of an offering. The Company has
not repaid the promissory notes and is currently negotiating with the investors
to extend the maturity date of the notes. Interest on the notes has been
accrued since inception.
In connection with the financing, the Company retained the services of an
underwriter to obtain additional financing through a public offering. Effective
May 10, 1996, the Company and the underwriter terminated their agreement. As
part of the termination agreement, the underwriter was issued warrants to
purchase an aggregate of 12,500 post split shares of common stock at a price of
$7.50 exercisable through January 3, 2003.
In June, 1996, the Company retained the services of a new underwriter to
facilitate the public offering to provide the Company with working capital.
During the period from November, 1996, through January, 1997, the Company
issued an aggregate of $250,000 principal amount of 8% promissory notes to
certain investors to provide the Company with interim working capital. The
promissory notes mature upon the earlier of ( a ) 12 months from the date of
issuance, or ( b ) the consummation of an offering. Interest payable monthly
commences one month from the date of the issuance of the notes, and has been
accrued since inception. In addition, the investors received 20,000 shares of
common stock and a warrant for each $25,000 unit acquired. Each warrant
entitles the investor to purchase up to 250,000 shares of the Company's common
stock at a price equal to 100% of the public offering price or $5.00 per share
if the offering is not consummated.
Note 4 - Credit Facility
In June, 1998, APO Health renegotiated its credit facility with the financial
institution. The facility is for working capital and the purchase of inventory.
The credit facility provides for a $2,000,000 secured working capital facility
for letters of credit and bankers acceptances with a sub-limit of $1,000,000
for own note borrowings. Interest is payable monthly, at the bank's prime rate
plus 1 and 1/2%. The credit facility is scheduled to mature on March 31, 1999.
At such time, the bank will review the credit basis of APO Health to determine
whether to extend the facility. The facility is secured by substantially all of
the Company's assets and personally guaranteed by its stockholders. In
addition, the obligation due to the former shareholders in the amount of
$162,000 is subordinated to the bank's borrowing.
As of June 30, 1998, the Company has lines of credit outstanding of $485,000
and bankers acceptances of $459,823.
Note 5 - Income Taxes
Deferred income taxes arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. The primary sources of temporary differences are the use of
the allowance method for bad debts for financial accounting and direct
write-off method for tax purposes and the availability of net operating loss
carryovers.
The components of deferred taxes as of June 30, 1998, are as follows:
1998 1997
Allowance for doubtful accounts $ 32,000 $ 23,000
Net operating loss carryover 8,000 140,000
------ ------
40,000 163,000
Valuation allowance (40,000) (163,000)
Net deferred assets $ - $ -
For the nine months ended June 30, 1998 and 1997, the provision for income
taxes (benefits) consists of the following:
1998 1997
Current $ 140,000 $ 7,500
Utilization of a net operating loss
carryover (140,000) (7,500)
Valuation allowance (40,000) (7,500)
Deferred 40,000 7,500
Provision for taxes $ - $ -
The Company has provided for a valuation allowance amounting to the deferred
tax asset since it can not be determined whether it can more likely than not be
utilized. The Company has a net operating loss carryover of approximately
$120,000 that can be used to offset future taxable income through the year
2012.
Note 6 - Common Stock
During November and December 1996, the Company issued 200,000 shares of its
common stock to certain investors, pursuant to the bridge financing. (See Note
3.)
Note 7 - Commitments and Contingency
Defined Contribution Pension Plan
January, 1993, APO Health established a profit sharing plan. All full time
employees, as defined in the plan, are eligible. Contributions to the plan are
discretionary. Pension expense for the periods ended June 30, 1998, and 1997,
were $-0-.
Leases
Effective November 15, 1994, an affiliated company, whose shareholders are the
officers of the Company, entered into a 5 year agreement to lease a 9800 square
foot facility to house its operations. Under the terms of the new lease, the
Company will pay for all real estate tax increases and any repairs to the
property. The Company has a month to month lease with similar terms with this
affiliate.
Future minimum rental payments are as follows:
Period Ending
September 30,
1998 $12,863
1999 51,450
For the nine months ended June 30, 1998, and 1997, rent expense was $46,860
and $44,300.
Note 7 - Commitments and Contingency (Continued)
Employment Agreements
The Company has entered into employment agreements with its principal officers
through December 31, 1998. The agreements will automatically be renewed and
extended for up to five consecutive one year periods. The terms provide for a
minimum annual salary of $125,000 with adjustments for cost-of-living changes
and incentives based on gross revenues and development of new products. In
addition, the agreement provides for warrants to be issued based on the
incentives. At June 30, 1997, the officers waived certain terms of their
agreement for additional compensation based on salary and incentives.
Letters of Credit
The Company has letters of credit outstanding of $5,270, for purchases to be
delivered after June 30, 1998.
Note 8 - Subsequent Events
In August, 1998, the Board of Directors authorized a 1 for 2 stock split of the
Company's $.001 par value common stock, reducing the number of outstanding
shares of common stock to 464,131.
In August, 1998, Loans Payable - Former Shareholders, in the amount of
$162,038, was converted into 450,000 shares of post 1 for 2 stock split shares
of the Company's $.001 par value common stock, increasing the number of
post-split shares to 914,131. The issuance of these shares and cancellation of
the debt is subject to the sale of the minimum shares in the Company's public
stock offering.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant has no provisions in its Articles of Incorporation or By-Laws
providing for indemnification of its officers and directors except for the
general provisions of the laws of the State of Utah. Additionally, management
is investigating the possibility of officers and directors liability insurance,
and anticipates that a policy of insurance covering the acts of officers and
directors in their capacity as such will be acquired shortly after the
conclusion of this Offering provided adequate funds are available.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the " Act") may be permitted to directors, officers or
persons controlling the registrant, the registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 25. Other Expenses of Issuance and Distribution.
Estimated expenses payable by Registrant, other than underwriting commissions
payable to the Underwriter, in connection with the registration and
distribution of the Common Stock and Warrants registered hereby are as follows:
Registration Fee: $ 9,402
NASD Filing Fees: 770
Cost of Printing 10,000*
Accountants' Services and Expenses 12,500*
Legal Services and Expenses 75,000*
Blue Sky Fees and Expenses 30,000*
Miscellaneous 12,328*
Total Expenses $ 150,000*
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
No securities of the registrant under the Securities Act of 1933 have been
issued or sold by the registrant during the past three years except as follows:
a) Sales of Common Stock in which no underwriter participated:
Common Stock of Registrant Issued in Exchange for Common Stock of Universal
Medical Distributors, Inc. :
Name Of Purchaser Number Of Shares Consideration
Kenneth Levanthal 10,000 Exchange of Universal Shares
Common Stock of Registrant Issued in Exchange for Common Stock of
Dental Alternatives Inc. :
Name Of Purchaser Number Of Shares Consideration
Dr. Jan Stahl 415,000 Exchange of Dental
Alternative Shares
Common Stock Issued For Past Services and Services Rendered Pursuant to Private
Placement of Registrants Securities on August, 1995:
Name Of Purchaser Number Of Shares Consideration
Jeff R. Pearlman 5,700 Services valued at $64,125
Sachs Mortgage Group, Inc. 7,500 Services valued at $84,375
Wilmont Holding Corp. 8,750 Services valued at $98,437
Remsen Group Ltd. 8,750 Services valued at $98,437
Neal Weisman 11,250 Services valued at $126,562
Susan Ferro 11,250 Services valued at $126,562
Vincent J. Fallica 2,500 Services valued at $28,125
Steve Thomas 2,500 Services valued at $28,125
Common Stock, Notes and Warrants Issued to Pre-Bridge Lenders by Registrant in
January, 1996:
Name Of Purchaser Securities Purchased Consideration
Ernest Milchman $50,000 of Notes and $ 50,000
Warrants to purchase
5,000 Shares
Glen Nortman* $25,000 of Notes and $ 25,000
Warrants to purchase
2,500 Shares
Jeffrey Nortman $25,000 of Notes and $ 25,000
Warrants to purchase
2,500 Shares
Daniel Horowitz $25,000 of Notes and $ 25,000
Warrants to purchase
2,500 Shares
Joseph Perri $100,000 of Notes and $100,000
Warrants to purchase
10,000 Shares
Gary Brustein* $25,000 of Notes and $ 25,000
Warrants to purchase
2,500 Shares
Common Stock, Notes and Warrants Issued to Bridge Lenders by Registrant in
October, 1996:
Name Of Purchaser Amount of Securities Consideration
Gary Brustein* $25,000 of Notes and $ 25,000
Warrants to purchase
250,000 Shares
Capital Planning
Holding Corp. $12,500 of Notes and $ 12,500
Warrants to purchase
250,000 Shares
Elull Development $25,000 of Notes and $ 25,000
Warrants to purchase
250,000 Shares
Abbey S. Freiberg $25,000 of Notes and $ 25,000
Warrants to purchase
250,000 Shares
Jay G. Goldman $12,500 of Notes and $ 12,500
Warrants to purchase
125,000 Shares
Jay Goldman,
Master Limited
Partnership $12,500 of Notes and $ 12,500
Warrants to purchase
125,000 Shares
Glen Nortman* $12,00 of Notes and $ 12,500
Warrants to purchase
125,000 Shares
Christopher Machie $12,500 of Notes and $ 12,500
Warrants to purchase
125,000 Shares
Wainscott Capital, Ltd. $50,000 of Notes and $ 50,000
Warrants to purchase
500,000 Shares
Neil Jeffrey Weisman $12,500 of Notes and $ 12,500
Warrants to purchase
125,000 Shares
Harry Zarin $25,000 of Notes and $ 25,000
Warrants to purchase
250,000 Shares
Robert Zarin $25,000 of Notes and $ 25,000
Warrants to purchase
250,000 Shares
- -------------------------------
* Denotes same Purchaser named in more than one transaction.
The above transactions were exempt from registration pursuant to Section 4(2)
and Rule 504 and 505 of Regulation D promulgated under the Securities Act of
1933, as amended. All of the securities sold by Registrant sold was acquired
for investment only and not with a view to distribution, and the sale thereof
did not constitute a public offering. Each of the purchasers were sophisticated
investors or were otherwise represented by purchaser representatives who were
capable of understanding the nature of the offering.
See, Prospectus- "CERTAIN TRANSACTIONS."
(b) Common Stock in which underwriters participated: NONE
Item 27. Financial Statements and Exhibits.
(a) Financial Statements included in the Prospectus:
1. Auditors Report of Linder & Linder dated December 11, 1997 together with;
2. Consolidated Balance Sheet as at September 30, 1997 and at June 30, 1998;
3. Consolidated Statement of Operations for the Periods Ended September 30,
1997, September 30, 1996 and for the nine months ended June 30, 1998;
4. Consolidated Statement of Changes in Stockholders' Equity for the Periods
Ended September 30, 1997, September 30, 1996 and June 30, 1998;
5. Consolidated Statement of Cash Flows for the Periods Ended September 30,
1997, September 30, 1996 and June 30, 1998;
6. Notes to Consolidated Financial Statements.
(b) Exhibits:
1(i). Form of Underwriting Agreement;
1(ii). Form of Selected Dealer Agreement;
1(iii). Form of Underwriter's Warrant;
1(iv). Form of Amended Underwriting Agreement **
1(v). Form of Underwriter's Warrant Agreement and Amended Underwriter's
Warrrant Certificate **
1(vi) Escrow Agreement with the Chase Manhattan Bank **
3. Certificate of Incorporation and By-Laws,
with all Amendments thereto.
4(i). (a) Specimen Certificate of Common Stock; *
(b) Specimen Certificate of Warrant. See Item 10(vi)
and 10(viii).
5. Opinion of B. Bruce Freitag, Esq.**
10(i) Acquisition Agreement between Insurance Kingdom Agency, Inc. and
Xetal, Inc. dated April 27, 1994;
10(ii) Agreement and Plan of Reorganization between Xetal, Inc. and
Universal Medical Distributors, Inc. dated April 1, 1996;
10(iii) Agreement and Plan of Reorganization between Xetal, Inc. and Dental
Alternatives, Inc. dated July 26, 1996;
10(iv) Employment Agreement between Xetal, Inc. and Dr. Jan Stahl dated as
of January 1, 1996;
10(v) Employment Agreement between Xetal, Inc. and Mr. Peter Steil dated as
of January 1, 1996;
10(vi) Warrant Agreement between the Company and American Stock Transfer and
Trust Company as Warrant Agent;
10(vii) Consulting Agreement between the Company and Worthington Capital
Group, Inc.
10(viii) Form of Amended Warrant Agreement and Warrant Certificate **
10(ix) Agreement canceling Underwriter's Bridge Warrants **
10(x) Agreement canceling Underwriter's Consulting Agreement **
23(1) Consent of B. Bruce Freitag, Esq. (included in the opinion to be
filed);**
23(ii) Consent of Linder & Linder, Certified Public Accountants. **
* To be filed.
** Filed with this Amendment
Item 27. Undertakings.
Subject to the terms and conditions of Section 15(d) of the Securities Act of
1934, the undersigned Registrant hereby undertakes to file with the Securities
and Exchange Commission (the Commission) such supplemental and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission hereto, or hereafter duly adopted pursuant to
authority conferred in that section. 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.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers of sales are being made, a
post-effective amendment to this Registration Statement:
I. To include any prospectus required by Section 10(a)(3) of the Act;
ii. To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
2. That, for the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities registered which remain unsold at the termination of the
offering.
SIGNATURES
Pursuant to 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 for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oceanside and State of New York, on the day of
September, 1998.
XETAL, INC.
By /s/Dr. Jan Stahl
Dr. Jan Stahl;
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacity and
on the date stated:
/s/Dr. Jan Stahl Chief Executive Officer,
Dr. Jan Stahl Director
September , 1998
/s/Peter Steil President, Director
Peter Steil Chief Financial Officer
September ,1998
/s/Kenneth Levanthal Director
Kenneth Levanthal
September , 1998
SIGNATURES
Pursuant to 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 for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oceanside and State of New York, on the day of
September, 1998.
XETAL, INC.
By --------------------
Dr. Jan Stahl;
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacity and
on the date stated:
----------------- Chief Executive Officer,
Dr. Jan Stahl Director
September , 1998
----------------- President, Director
Peter Steil Chief Financial Officer
September ,1998
----------------- Director
Kenneth Levanthal
September , 1998
Form of Amended Underwriting Agreement 1(iv)
XETAL, INC.
UNDERWRITING AGREEMENT
New York, New York
______________, 1998
Dear Xetal, Inc.,
Xetal, Inc., a Utah corporation (the Company), confirms its agreement with
Morgan Grant Capital Corp. (formerly Worthington Capital Group, Inc. (you, the
Underwriter or Morgan Grant) as follows: The Company retains Morgan Grant as
its exclusive agent to sell (the Offering), on a best efforts basis, a minimum
of 300,000 shares (the Shares) of the Companys common stock, $0.001 par value
per share (the Common Stock) and 300,000 redeemable common stock purchase
warrants (the Public Warrants) and a maximum of 540,000 shares of Common Stock
and 540,000 Public Warrants, at a price to the public of $5.00 per share of
Common Stock and $0.10 per Public Warrant, each such Public Warrant entitling
the holder to purchase one (1) share of Common Stock during an offering period
commencing on the date hereof and expiring on _______________________, 1998,
unless extended by the mutual consent of the Company and the Underwriter for up
to an additional thirty (30) days (such period, as same may be extended, being
hereinafter referred to as the Offering Period). The shares of Common Stock
and the Public Warrants are being offered separately and are separately
transferable immediately upon issuance. Each Public Warrant is exercisable for
a period of four years from _____________, 1999 until _____________, 2003 and
entitles the holder to purchase one (1) share of Common Stock at an initial
exercise price of $5.00, subject to prior redemption by the Company as more
fully described in the Registration Statement and Prospectus referred to below.
Such 540,000 shares of Common Stock and 540,000 Public Warrants are hereinafter
collectively referred to as the Securities. The Company also proposes to issue
and sell to you warrants (the Underwriters Warrants) at a purchase price of
$0.0001 per Underwriters Warrant pursuant to the Underwriters Warrant Agreement
entitling the holder to purchase an aggregate of 54,000 shares of Common Stock
exercisable for a period o f four years from ______________, 1999 until
___________________, 2003 at an initial exercise price of $8.25, subject to
adjustment in amount pro rata in the event all of the Common Stock and/or
Warrants are not sold in the Offering. The securities issuable upon exercise
of the Underwriters Warrants are hereinafter referred to as the Underwriters
Securities. The shares of Common Stock issuable upon exercise of the Public
Warrants are hereinafter sometimes referred to as the Warrant Shares. The
Securities, the Common Stock, the Public Warrants, the Underwriters Warrants,
the Underwriters Securities and the Warrant Shares are more fully described in
the Registration Statement and the Prospectus referred to below.
1. Representations and Warranties. (a) The Company, a Utah corporation, which
has three wholly-owned subsidiaries, APO Health, Inc., a New York corporation,
Dental Alternatives, Inc., a New York corporation and Universal Medical
Distributors, Inc., a ____________ corporation (individually a Subsidiary and
collectively the Subsidiaries), represents and warrants to, and agrees with,
the Underwriter as of the date hereof, and as of the Closing Date (hereinafter
defined) and the Option Closing Date (hereinafter defined), if any, as follows:
(i)The Company has prepared and filed with the Securities and Exchange
Commission (the Commission) a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-20525), including any related
preliminary prospectus (Preliminary Prospectus), for the registration of the
Securities, the shares of Common Stock, the Public Warrants, the Underwriters
Warrants, the Underwriters Securities and the Warrant Shares under the
Securities Act of 1933, as amended (the Act), which registration statement
and amendment or amendments have been prepared by the Company in conformity
with the requirements of the Act, and the Rules and Regulations of the
Commission thereunder. The Company will promptly file a further amendment to
said registration statement in the form heretofore delivered to the Underwriter
and will not file any other amendment thereto to which the Underwriter shall
have objected in writing after having been furnished with a copy thereof.
Except as the co ntext may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the Prospectus, financial statements, schedules,
exhibits and all other documents or information incorporated by reference
therein and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430(A) of the rules and regulations), is
hereinafter called the Registration Statement, and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the rules
and regulations, is hereinafter called the Prospectus. For purposes hereof,
Rules and Regulations mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the Exchange Act), as applicable.
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Companys securities have been instituted or are
pending or threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed with the
requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectuses, the Registration Statement or Prospectus at the time
of filing thereof contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein and necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus or any amendment or supplement thereto.
(iii) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (hereinafter defined) and each
Option Closing Date (hereinafter defined), if any, and during such longer
period as the Prospectus may be required to be delivered in connection with
sales by the Underwriter or a dealer, the Registration Statement and the
Prospectus will contain all statements which are required to be stated therein
in accordance with the Act and the Rules and Regulations, and will conform to
the requirements of the Act and the Rules and Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, contains or will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information furnished to the Company in writing by
or on behalf of the Underwriter (as set forth in paragraph 1(a)(ii) hereof)
expressly for use in the Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(iv) Each of the Subsidiaries are wholly-owned subsidiaries of the
Company. Each of the Company and the Subsidiaries has been duly organized and
is validly existing as a corporation in good standing under the laws of the
state of its incorporation. Except as set forth in the Prospectus, neither the
Company nor the Subsidiaries own an equity interest in any corporation,
partnership, trust, joint venture or other business entity. Each of the
Company and the Subsidiaries is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership
or leasing of any properties or the character of its operations require such
qualification or licensing except where the failure(s) to be so qualified,
licensed and in good standing, individually or in the aggregate, would not
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, position, prospects, value, operation, properties,
busine ss or results of operations of the Company and the Subsidiaries. Each
of the Company and the Subsidiaries has all requisite power and authority
(corporate and other), and has obtained any and all authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), necessary to
own or lease its properties and conduct its business as described in the
Prospectus, or is subject to no material liability or disability by reason of
the failure to obtain such authorizations, approvals, orders, licenses,
certificates, franchises and permits; each of the Company and the Subsidiaries
is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
federal, state, local and foreign laws, rules and regulations and neither the
Company nor the S ubsidiaries have received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would materially
and adversely affect the condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operations, properties, business,
or results of operations of the Company and the Subsidiaries. The disclosures
in the Registration Statement concerning the effects of federal, state, local,
and foreign laws, rules and regulations on the business of the Company and the
Subsidiaries as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact necessary to make
the statements contained therein not misleading in light of the circumstances
in which they were made.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and will have the adjusted
capitalization set forth therein on the Closing Date (hereinafter defined) and
the Option Closing Date(hereinafter defined), if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement and as described in the Prospectus. The Securities, the Common
Stock, the Public Warrants, the Underwriters Warrants, the Underwriters
Securities and the Warrant Shares (collectively, hereinafter sometimes
referred to as the IPO Securities) and all other securities issued or
issuable by the Company conform or, when issued and paid for, will conform, in
all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company and its Subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or the Subsidiaries or similar contractual rights
granted by the Company or the Subsidiaries. The IPO Securities are not and
will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof, will be validly issued, fully paid and
non-assessable and will conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action requ ired to be taken for the authorization,
issue and sale of the IPO Securities has been duly and validly taken; and the
certificates representing the IPO Securities are in due and proper form. Upon
the issuance and delivery pursuant to the terms hereof of the IPO Securities to
be sold by the Underwriter hereunder, the purchasers of the IPO Securities,
will acquire good and marketable title to such IPO Securities free and clear of
any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever.
(vi) The financial statements of the Company together with the
related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, income, changes in cash flow, changes in stockholders equity and the
results of operations of the Company and the Subsidiaries at the respective
dates and for the respective periods to which they apply and the pro forma
financial information included in the Registration Statement, each Preliminary
Prospectus and the Prospectus presents fairly on a basis consistent with that
of the audited financial statements included therein, the Companys and the
Subsidiaries pro forma net income or loss per share, as the case may be, pro
forma net tangible book value, and the pro forma capitalization and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied thro
ughout the periods involved. There has been no material adverse change or
development involving a material change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operation of the Company or the
Subsidiaries whether or not arising in the ordinary course of business, since
the date of the financial statements included in the Registration Statement and
the Prospectus, and the outstanding debt, the property, both tangible and
intangible, and the business of the Company and the Subsidiaries conforms in
all material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(vii) The Company and each of its Subsidiaries (A) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the Code), and has
furnished all information returns it is required to furnish pursuant to the
Code, (B) has established adequate reserves for such taxes which are not due
and payable, and (C) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the purchasers of the IPO Securities in connection with (A) the
purchase of and the issuance and transfer by the Company of the IPO Securities
and (B) the consummation by the Company of any of its obligations under this
Agreement.
(ix) The Company and each of its Subsidiaries maintains insurance policies,
including, but not limited to, general liability, product liability if
applicable and property insurance, which insures the Company and its
Subsidiaries and their employees, against such losses and risks generally
insured against by comparable businesses. The Company and its Subsidiaries (A)
have not failed to give notice or present any insurance claim with respect to
any matter, including but not limited to the Companys or the Subsidiaries
business, property or employees, under the insurance policy or surety bond in a
due and timely manner, (B) does not have any disputes or claims against any
underwriter of such insurance policies or surety bonds or has not failed to pay
any premiums due and payable thereunder, and (C) has not failed to comply with
all conditions contained in such insurance policies and surety bonds. To the
Companys knowledge there are no facts or circumstances under any such
insurance po licy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company and/or its
Subsidiaries.
(x) There is no action, suit, proceeding, inquiry, arbitration, investigation,
litigation or governmental proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of the Company or its
Subsidiaries which (A) questions the validity of the capital stock of the
Company, its Subsidiaries or this Agreement, the Underwriters Warrant
Agreement, the Warrant Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, the Underwriters
Warrant Agreement, or the Warrant Agreement, (B) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
material respects), or (C) if adversely determined, might materially and
adversely aff ect the condition, financial or otherwise, or the business
affairs or business prospects, earnings, liabilities, prospects, stockholders
equity, value, properties, business or assets of the Company and its
Subsidiaries.
(xi) The Company has full legal right, power and authority to authorize, issue,
deliver and sell the IPO Securities, enter into this Agreement, the
Underwriters Warrant Agreement and the Warrant Agreement and to consummate the
transactions provided for herein and therein; and each of this Agreement, the
Underwriters Warrant Agreement and the Warrant Agreement have been duly and
properly authorized, executed and delivered by the Company. This Agreement,
the Underwriters Warrant Agreement and the Warrant Agreement each constitute a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, and neither the Companys issue and sale
of the IPO Securities or execution or delivery of this Agreement, the
Underwriters Warrant Agreement and the Warrant Agreement or its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, or the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company or its Subsidiaries pursuant to the
terms of, (A) the certificate of incorporation or by-laws of the Company or its
Subsidiaries (B) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit agreement
or any other agreement or instrument to which the Company or its Subsidiaries
is a party or by which it is or may be bound or by which its properties or
assets (tangible or intangible) are or may be subject, or any indebtedness, or
(C) any s tatute, judgment, decree, order, rule or regulation applicable to the
Company or its Subsidiaries by any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or its Subsidiaries
or any of their activities or properties, in each case except as described in
the Prospectuses and except for conflicts, breaches, violations, defaults,
creations or impositions which do not and would not have a material adverse
effect on the condition, financial or otherwise, or the earnings, business
affairs, position, shareholders equity, value, operation, properties, business
or results of operations of the Company and its Subsidiaries.
(xii) No consent, approval, authorization or order of, and no filing with, any
court, regulatory body, government agency or other body, domestic or foreign
which has not theretofore been obtained, is required for the issuance of the
IPO Securities pursuant to the Prospectus and the Registration Statement, the
issuance of the Underwriters Warrants, the execution, delivery or performance
of this Agreement, the Underwriters Warrant Agreement and the Warrant
Agreement, and the transactions contemplated hereby and thereby, including,
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the IPO
Securities, except such as have been or may be obtained under the Act or may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the IPO Securities and the Underwriters purchase
of the Underwriters Warrants to be sold by the Company hereunder and
thereunder.
(xiii) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company and/or its Subsidiaries is a party
or by which it may be bound or to which its assets, properties or business may
be subject have been duly and validly authorized, executed and delivered by the
Company and/or its Subsidiaries and constitute the legal, valid and binding
agreement of the Company and its Subsidiaries, enforceable against the Company
and its Subsidiaries, in accordance with its terms. The descriptions in the
Registration Statement of agreements, contracts and other documents and
statutes and regulations are accurate and fairly present the information
required to be shown with respect thereto by Form SB-2, and there are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which a re not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(xiv) Subsequent to the respective dates as of which information is set forth
in the Registration Statement and Prospectus, and except as may otherwise be
indicated or contemplated herein or therein, the Company nor any of its
Subsidiaries have (A) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (B) entered into any
transaction other than in the ordinary course of business, or (C) declared or
paid any dividend or made any other distribution on or in respect of its
capital stock of any class, and there has not been any change in the capital
stock, or any change in the debt (long or short term) or liabilities or
material change in or affecting the business affairs or prospects, management,
stockholders equity, properties, business, financial operations or assets of
the Company and its Subsidiaries.
(xv) Except as described in the final Prospectus no default exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other material agreement
or instrument evidencing an obligation for borrowed money, or any other
material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries may
be bound or to which the property or assets (tangible or intangible) of the
Company or any of its Subsidiaries is subject or affected, which default would
have a material adverse effect on the condition, financial or otherwise,
earnings, business affairs, position, stockholders equity, value, operation,
properties, business or results of operations of the Company and the
Subsidiaries.
(xvi) Each of the Company and its Subsidiaries has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state, local, and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of the Subsidiaries by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or
any Subsidiary pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or any Subsidiary, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees
of the Company or any Subsidiary and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or its
Subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or its
Subsidiaries. No labor dispute with the employees of the Company or its
Subsidiaries exists, or, to the knowledge of the Company is imminent.
(xvii) Except as described in the Prospectus, each of the Company and its
Subsidiaries does not maintain, sponsor or contribute to any program or
arrangement that is an employee pension benefit plan, an employee welfare
benefit plan or a multi employer plan as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended (ERISA) (ERISA Plans). The Company and/or each
Subsidiary does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a prohibited transaction within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company or the Subsidiaries to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is
in compliance with all material reporting, disclosure and other requirements of
the Code and ERISA as they relate to any such ERISA Plan. Determination
letters have been received from the Internal Revenue Service with respect to
each ERISA Plan which is intended to comply with Code Section 401(a), stating
that such ERISA Plan and the attendant trust are qualified thereunder. Neither
the Company or any Subsidiary has never completely or partially withdrawn from
a multi employer plan.
(xviii) The Company and its Subsidiaries have not taken and will not take,
directly or indirectly and the Company and its Subsidiaries will use their best
efforts to ensure that any of their employees, directors, stockholders or
affiliates (within the meaning of the Rules and Regulations) of any of the
foregoing has not taken or will not take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the IPO Securities or otherwise.
(xix) None of the patents, patent applications, trademarks, service marks,
trade names and copyrights, and licenses and rights to the foregoing presently
owned or held by the Company or any of its Subsidiaries are in dispute, to the
Companys knowledge, or are in any conflict with the right of any other person
or entity. The Company and its Subsidiaries (i) own or have the license or
other right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of their business as now conducted or proposed to be
conducted without infringing upon or otherwise acting adversely to the right or
claimed right of any person, corporation or other entity under or with respect
to any of the foregoing, except as set forth in the Prospectuses and
(ii) except as set forth in the Prospectus, are not obligated or under any
liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, tradename, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of their business or otherwise.
(xx) Neither the Company nor any of its Subsidiaries have received any notice
of infringement of or conflict with asserted rights of others with respect to
any trademark, service mark, trade name or copyright or other intangible asset
used or held for use by it in connection with the conduct of its business
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a material adverse effect on the condition,
financial or otherwise, or the business affairs, position, properties, results
of operations or net worth of the Company and its Subsidiaries.
(xxi) The Company and its Subsidiaries have good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus, to be owned or leased by it free and clear
of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and
payable.
(xxii) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of its officers, directors or any
person or entity deemed to be an affiliate of the Company and any stockholders
of the Company has agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any securities issued by the Company (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of
any beneficial interest therein for a period of not less than 24 months
following the effective date of the Registration Statement without the prior
written consent of the Underwriter except that only with respect to 10,000
common shares held by certain trusts and no more, the period is 6 months and
not 24 months, and that for a period of 5 years following the Effective Date of
the Registration Statement any such security which has been issued and is
outsta nding on the effective date of the Registration Statement and is to be
sold or otherwise disposed of pursuant to such Rule 144 with the consent of the
Underwriter shall only be sold or otherwise disposed of through the
Underwriter. The Company will cause the Transfer Agent, as defined below, to
mark an appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Companys stock
ledgers.
(xxiii) The Company has caused to be duly executed binding and enforceable
agreements with respect to all of the outstanding loans made to the Company
from time to time wherein the Company and each lender has agreed that the
Company will not make payment of principal or accumulated interest thereon for
an eighteen (18) month period from the completion of the Offering except that
Pre-Bridge Notes in the principal amount of $250,000 and Bridge Notes in the
principal amount of $250,000 plus interest thereon are being paid from the
proceeds of the Offering.
(xxiv) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finders or origination fee with respect to the sale of the IPO Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company, the Subsidiaries or any of their
officers, directors, stockholders, partners, employees or affiliates that may
affect the Underwriters compensation, as determined by the National
Association of Securities Dealers, Inc. (NASD), except for the sum of $25,000
previously paid by the Company to the Underwriter and the Company is aware that
the Underwriter shall compensate any of its personnel who may have acted in
such capacities as they shall determine in their sole discretion.
(xxv) The Common Stock and the Public Warrants have been approved for quotation
on the National Association of Securities Dealers, Inc. Electronic Bulletin
Board and upon notice of issuance, listing on the Boston Stock Exchange
(BSE).
(xxvi) Neither the Company, the Subsidiaries nor any of their respective
officers, employees, agents or any other person acting on behalf of the Company
or the Subsidiaries has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any governmental
agency (domestic or foreign) or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or foreign)
or other person who was, is, or may be in a position to help or hinder the
business of the Company or the Subsidiaries (or assist the Company or the
Subsidiaries in connection with any actual or proposed transaction) which (A)
might subject the Company or the Subsidiaries, or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or proc
eeding (domestic or foreign), (B) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
or the Subsidiaries, or (C) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the Company or the
Subsidiaries. The Companys and the Subsidiaries internal accounting controls
are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(xxvii) Except as set forth in the Prospectus, no officer, director, or
stockholder of the Company or any Subsidiary, or any affiliate or associate
(as these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had, either
directly or indirectly, (A) an interest in any person or entity which (1)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or any Subsidiary, or (2)
purchases from or sells or furnishes to the Company or any Subsidiary any goods
or services, or (B) a beneficiary interest in any contract or agreement to
which the Company or any Subsidiary is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under Certain Transactions,
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between
or among the Company or any Subsidiary, and any officer, director, and 5% or
more stockholders (as such term is defined in the Prospectus) of the Company
or any Subsidiary, or any partner, affiliate or associate of any of the
foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company and delivered to
the Underwriter or to Underwriters Counsel (as defined herein) shall be deemed
a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
(xxix) The minute books of the Company and each Subsidiary have been made
available to the Underwriter and contains a complete summary of all meetings
and actions of the directors and stockholders of the Company and each
Subsidiary since the time of its incorporation, and reflects all transactions
referred to in such minutes accurately in all material respects.
(xxx) Except and to the extent described in the Prospectus, no holders of any
securities of the Company or the Subsidiaries or of any options, warrants or
other convertible or exchangeable securities of the Company or the Subsidiaries
have the right to include any securities issued by the Company or the
Subsidiaries in the Registration Statement or any registration statement under
the Act and no person or entity holds any anti-dilution rights with respect to
any securities of the Company or the Subsidiaries.
(xxxi) The Company has as of the effective date of the Registration Statement
(a) entered into employment agreements with Dr. Jan Stahl and Peter Steil on
terms and conditions satisfactory to the Underwriter, and (ii) purchased
Key-Man insurance on the lives of Dr. Jan Stahl and Peter Steil in the sum of
$1,000,000 each which names the Company as the sole beneficiary on terms and
conditions satisfactory to the Underwriter.
(xxxii) The Company has entered into a Warrant Agreement with respect to the
Public Warrants substantially in the form filed as Exhibit __________ to the
Registration Statement and a Underwriters Warrant Agreement with respect to
the Underwriters Warrants substantially in the form filed as Exhibit _________
to the Registration Statement, each with American Stock Transfer and Trust
Company in form and substance satisfactory to the Underwriter.
(xxxiii) Immediately prior to the effective date of the Registration Statement
there shall be no more than an aggregate of 914,131 shares of Common Stock
issued and outstanding (including any and all (a) securities with equivalent
rights as the Common Stock, (b) Common Stock or such equivalent securities,
issuable upon the exercise of options, warrants and other contract rights, and
(c) Securities convertible directly or indirectly into Common Stock or such
equivalent securities, and excluding a maximum of 100,000 shares of Common
Stock which are issuable upon exercise of options which may be granted pursuant
to the Companys 1996 Stock Option Plan.
(xxxiv) Subsequent to the date hereof and prior to any Closing Date or Option
Closing Date except as otherwise described in or contemplated by the
Prospectuses, the Company will not issue or acquire any equity securities.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the warranties, representations and agreements herein
contained, and subject to the satisfaction of all the terms and conditions of
this Agreement, the Company agrees to engage the Underwriter, and the
Underwriter agrees to serve as the Companys exclusive agent to sell, on a best
efforts basis, a minimum of 300,000 shares of Common Stock and 300,000 Public
Warrants (the Minimum Offering) and a maximum of 540,000 shares of Common
Stock and 540,000 Public Warrants (the Maximum Offering), less, in the case
of each such security, an underwriting commission of ten percent (10%) of the
gross sale price of each such security sold in the Offering by deduction from
the proceeds of the Offering. The Underwriter may allow a concession not
exceeding $_______ per share of Common Stock and $______ per Public Warrant to
Selected Dealers who are members of the NASD, and to certain foreign dealers,
and such dealers may reallow to NASD members and to certain foreign dealers a
concession not exceeding $_____ per share of Common Stock and $____ per Public
Warrant.
(b) The proceeds from the sale of the Securities shall be deposited by the
Underwriter upon receipt thereof in an escrow account (the Escrow Account) at
The Chase Manhattan Bank, a New York state chartered bank with offices at 450
West 33rd Street, New York, New York 10001 until the Minimum Offering amount of
300,000 shares of Common Stock and 300,000 Public Warrants are sold and
$1,530,000 is deposited in the Escrow Account. If the Minimum Offering amount
is not sold and the proceeds thereof deposited into the Escrow Account prior to
the expiration of the Offering Period, the Offering proceeds received from
investors will be promptly refunded to the investors in full without interest
thereon and/or deduction of any kind therefrom.
(c) Delivery of the Securities and payment therefore shall be made at 10:00
a.m., New York time on each Closing Date and Option Closing Date, if any, as
hereinafter defined, at the offices of the Underwriter or such other location
as may be agreed upon by you and the Company. Delivery of certificates for the
Common Stock and Public Warrants (in definitive form and registered in such
names and in such denominations as you shall request by written notice to the
Company delivered at least four business days prior to the Closing Date or
Option Closing Date, if any), shall be made to you for the account of the
purchasers of the Securities against payment of the purchase price therefor by
certified or bank check or wire transfer payable in New York Clearing House
funds to the order of the Company. The Company will make such certificates
available for inspection at least one business day prior to the Closing Date
and Option Closing Date, if any, at such place as you shall designate.
3. Closing Date
The Closing Date shall be not later than the fourth business day following
receipt of the Minimum Offering amount in cleared funds and thereafter as
additional funds are received up to the Maximum Offering amount at such times
as you shall determine (the Option Closing Date) and advise the Company by at
least three full business days notice.
4. Covenants and Agreements of the Company. The Company covenants and agrees
with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable (such Registration Statement to be in form and substance
satisfactory to the Underwriter and its counsel) and will not at any time,
whether before or after the effective date of the Registration Statement, file
any amendment to the Registration Statement or supplement to the Prospectus or
file any document under the Act or Exchange Act before termination of the
offering of the Securities by the Underwriter of which the Underwriter shall
not previously have been advised and furnished with a copy, or to which the
Underwriter shall have objected unless required under the Act, the Exchange Act
or the Rules and Regulations thereunder or which is not in compliance with the
Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the Company
will advise the Underwriter and confirm the notice in writing, (I) when the
Registration Statement, as amended, becomes effective, if the provisions of
Rule 430A promulgated under the Act will be relied upon, when the Prospectus
has been filed in accordance with said Rule 430A and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the issuance
by the Commission of any stop order or of the initiation, or the threatening,
of any proceeding, suspending the effectiveness of the Registration Statement
or any order preventing or suspending the use of the Preliminary Prospectus or
the Prospectus, or any amendment or supplement thereto, or the institution of
proceedings for that purpose (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any j
urisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for additional
information. If the Commission or any state securities commission authority
shall enter a stop order or suspend such qualification at any time, the Company
will make every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance satisfactory
to the Underwriter and its counsel) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424 (b) (or, if applicable and if consented to by the Underwriter, pursuant to
Rule 424 (b)(47).
(d)The Company will give the Underwriter notice of its intention to file or
prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the IPO Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Underwriter with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Underwriter or Doros & Brescia, P.C. (Underwriters Counsel), shall
reasonably object unless required under the Act or the Rules and Regulations
thereunder.
(e)The Company shall take all action, in cooperation with the Underwriter, at
or prior to the time the Registration Statement becomes effective, to qualify
the IPO Securities for offering and sale under the securities laws of such
jurisdictions as the Underwriter may designate to permit the continuance of
sales and dealings therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents and furnish
such information as may be required for such purpose; provided, however, the
Company shall not be required to qualify as a foreign corporation or file a
general or limited consent to service of process in any such jurisdiction. In
each jurisdiction where such qualification shall be effected, the Company will,
unless the Underwriter agrees that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the la ws of such
jurisdiction to continue such qualification. It is agreed that Underwriters
Counsel (or its designees) shall perform all such required Blue Sky legal
services.
(f) During the time when a prospectus is required to be delivered under the
Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the IPO Securities in accordance with the provisions hereof and the Prospectus,
or any amendments or supplements thereto. If at any time when a prospectus
relating to the IPO Securities is required to be delivered under the Act, any
event shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or Underwriters Counsel, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were m ade, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act and the Rules and Regulations, the Company
will notify the Underwriter promptly and prepare and file with the Commission
an appropriate amendment or supplement in accordance with Section 10 of the
Act, each such amendment or supplement to be reasonably satisfactory to
Underwriters Counsel, and the Company will furnish to the Underwriter copies of
such amendment or supplement as soon as available and in such quantities as the
Underwriter may reasonably request.
(g) During the time when a prospectus relating to the IPO Securities is
required to be delivered under the Act, the Company will use its best efforts
to comply with all requirements imposed upon it by the Act and the Securities
Exchange Act of 1934 (the Exchange Act), as now and hereafter amended and by
the Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the IPO Securities in accordance with
the provisions hereof and the Prospectus and the Company shall use its best
efforts to keep the Registration Statement current and effective so long as a
Prospectus is required to be delivered in connection with the sale of the IPO
Securities by the Underwriter or by dealers effecting transactions therein in
connection with the initial public offering thereof. If at any time when a
prospectus relating to the IPO Securities is required to be delivered under the
Act, any event shall have occurred as a result of which, in the reasonable
opinion of counsel for the Company or counsel for the Underwriter, the
Prospectus as then amended or supplemented (or the prospectus contained in a
new registration statement filed by the Company pursuant to Paragraph 4(y),
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
or if, in the reasonable opinion of either such counsel, it is necessary at any
time to amend the Prospectus (or the prospectus contained in such new
registration statement) to comply with the Act, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act and will furnish to you
copies thereof.
(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 Public Warrants and issuable upon exercise of the
Underwriters Warrants (including the underlying securities) outstanding from
time to time.
(i) The Company will timely prepare and file at its sole cost and expense one
or more post-effective amendments to the Registration Statement or a new
registration statement as required by law as will permit holders of the Public
Warrants and Underwriters Warrants (collectively the Warrants) to be
furnished with a current prospectus in the event and at such time as the
Warrants are exercised, and the Company will use its best efforts and due
diligence to have the same be declared effective (with the intent that the same
be declared effective as soon as the Warrants become exercisable) and to keep
the same effective so long as the Warrants are outstanding. The Company will
deliver a draft of each such post-effective amendment or new registration
statement to the Underwriter at least ten days prior to the filing of such
post-effective amendment or registration statement.
(j) So long as any of the Warrants remain outstanding, the Company will timely
deliver and supply to its Warrant agent sufficient copies of the Companys
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.
(k) So long as any of the Warrants remain outstanding, the Company shall
continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to the Underwriter in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto. During the same period, the Company shall employ the services of a
law firm(s) reasonably acceptable to the Underwriter in connection with all
legal work of the Company, including the preparation of a registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto.
(l) So long as any of the Warrants remain outstanding, the Company shall
continue to appoint a Warrant agent for the Warrants, who shall be reasonably
acceptable to the Underwriter.
(m) As soon as practicable, but in any event not later than 45 days after the
end of the 12-month period beginning on the day after the end of the fiscal
quarter of the Company during which the effective date of the Registration
Statement occurs (90 days in the event that the end of such fiscal quarter is
the end of the Companys fiscal year), the Company shall make generally
available to its security holders, in the manner specified in Rule 158(b) of
the Rules and Regulations, and to the Underwriter, an earnings statement which
will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(n) During a period of seven years after the date hereof, the Company will
furnish to its stockholders, as soon as practicable, annual reports (including
financial statements audited by independent public accountants) and unaudited
quarterly reports of earnings, and will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly reports to its stockholders,
statements of income of the Company for each quarter in the form filed on Form
10-Q with the Commission and certified by the Companys principal financial or
accounting officer;
(ii) concurrently with furnishing such annual reports to its stockholders, a
balance sheet of the Company as at the end of the preceding fiscal year,
together with statements of operations, stockholders equity, and cash flows of
the Company for such fiscal year, accompanied by a copy of the certificate
thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to stockholders;
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(v) every press release and every material news item or article of interest to
the financial community in respect of the Company or its affairs which was
released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the Company (and
any future subsidiaries) or its businesses which the Underwriter may reasonably
request.
During such seven-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(o) The Company will maintain American Stock Transfer and Trust Company as its
Transfer Agent and Registrant (the Transfer Agent) and counsel, accounting
firm and financial printer for its Common Stock and Public Warrants all of whom
shall be reasonably acceptable to the Underwriter. Such Transfer Agent shall,
for a period of two years following the Closing Date, deliver to the
Underwriter the daily securities position of the Companys stockholders of
record and for a period of three (3) years thereafter the monthly securities
position.
(p) The Company will furnish to the Underwriter or on the Underwriters order,
without charge, at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Registration Statement, any pre-effective or
post-effective amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any Prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Underwriter may reasonably request.
(q) On or before the effective date of the Registration Statement, the Company
shall provide the Underwriter with true copies of duly executed, legally
binding and enforceable agreements pursuant to which for a period of not less
than 24 months after the effective date of the Registration Statement, each
holder of securities issued by the Company and outstanding at the effective
date of the Registration Statement aggregating 755,000 in shares of Common
Stock (including, securities convertible into Common Stock of the Company)
agrees that it or he or she will not, directly or indirectly, issue, offer to
sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any of such securities (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of
any beneficial interest therein without the prior written consent of the
Underwriter (collectively, the Lock-up Agreements). During the two (2) year
period com mencing with the effective date of the Registration Statement, the
Company shall not issue any securities under Regulation S and will not, without
the prior written consent of the Underwriter, sell, contract or offer to sell,
issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly
or indirectly, any debt security of the Company or any shares of Common Stock
or any options, rights or warrants with respect to any shares of Common Stock
(other than upon exercise of options or warrants referred to in the
Registration Statement, or with respect to transactions between the Company and
its lenders and purchasers of mortgage backed securities). On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate legends on the certificates representing
the securities subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Companys ledgers.
(r) The Company has not taken and will not take, directly or indirectly, and
the Company will use their its efforts to ensure that any of its employees,
officers, directors, stockholders or affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(s) The Company shall apply the net proceeds from the sale of the IPO
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company except
as described in the Prospectuses.
(t) The Company shall timely file all such reports, forms or other documents as
may be required (including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under the Act, the
Exchange Act and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act and the Rules and Regulations.
(u) The Company shall furnish to the Underwriter as early as practicable prior
to each of the date hereof, the Closing Date and each Option Closing Date, if
any, but no later than two (2) full business days prior thereto, a copy of the
latest available unaudited interim financial statements of the Company (which
in no event shall be as of a date more than thirty (30) days prior to the date
of the Registration Statement) which have been read by the Companys
independent public accountants, as stated in their letters to be furnished
pursuant to Section 6(j) hereof.
(v) The Company shall cause the Common Stock and the Public Warrants to be
listed on the NASD Electronic Bulletin Board and on the BSE, and for a period
of seven (7) years from the date hereof, use its best efforts to maintain such
listings of the Common Stock and the Public Warrants to the extent outstanding.
(w) For a period of five (5) years from the Closing Date, the Company shall
furnish to the Underwriter at the Underwriters request and at the Companys
sole expense, (i) the list of holders of all of the Companys securities, (ii)
a Blue Sky Trading Survey for secondary sales of the Companys securities
prepared by counsel to the Company, and (iii) daily consolidated transfer
sheets relating to the Common Stock and the Public Warrants but not more than
six (6) times per year.
(x) As soon as practicable, (i) but in no event more than five business days
before the effective date of the Registration Statement, file a Form 8-A with
the Commission providing for the registration under the Exchange Act of the
Securities and (ii) but in no event more than 30 days from the effective date
of the Registration Statement, take all necessary and appropriate actions to be
included in Standard and Poors Corporation Records Service in order to satisfy
the requirements for manual exemption in those states where available and to
maintain such inclusion for as long as the IPO Securities are outstanding.
(y) Until the completion of the distribution of the IPO Securities, the Company
shall not without the prior written consent of the Underwriter and
Underwriters Counsel, issue, directly or indirectly any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Companys business consistent with past
practices with respect to the Companys operations.
(z) For a period of three (3) years after the effective date of the
Registration Statement, the Underwriter shall have the right to designate, one
(1) individual for election to the Companys Board of Directors ("Board") and
the Company shall cause such individual to be elected to the Board. In the
event the Underwriter shall not have designated such individual at the time of
any meeting of the Board or such person is unavailable to serve, the Company
shall notify the Underwriter of each meeting of the Board and an individual
designated by the Underwriter shall be permitted to attend all meetings of the
Board and to receive all notices and other correspondence and communications
sent by the Company to members of the Board. Such individual shall be
reimbursed for all out-of-pocket expenses incurred in connection with his or
her service on, or attendance at meetings of, the Board. The Company shall
provide its outside directors with compensation in the form of cash and/or
options on ts Common Stock as deemed appropriate and similar for similar
companies.
(aa) The Company hereby grants to the Underwriter a right of first refusal on
the terms and subject to the conditions set forth in this paragraph, for a
period of three years from the effective date of the Registration Statement, to
purchase for its account or to sell for the account of the Company or its
present or future subsidiaries, any securities of the Company or any of its
present or future subsidiaries, with respect to which the Company or any of its
present or future subsidiaries may seek a public or private sale. The Company,
for a period of five years from the effective date of the Registration
Statement, will consult, and will cause such present or future subsidiaries to
consult with the Underwriter with regard to any such offering or placement and
will offer, or cause any of its present or future subsidiaries to offer, to the
Underwriter the opportunity, on terms not more favorable to the Company or such
present or future subsidiary than they can secure elsewhere, to pur hase or
sell any such securities. If the Underwriter fails to accept in writing such
proposal made by the Company or any of its present or future subsidiaries
within fifteen business days after receipt of a notice containing such
proposal, then the Underwriter shall have no further claim or right with
respect to the proposal contained in such notice. If, thereafter, such
proposal is materially modified, the Company shall again consult, and cause
each present or future subsidiary to consult, with the Underwriter in
connection with such modification and shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided hereinabove with respect to the original proposal.
(bb) For a period equal to the lesser of (i) seven (7) years from the date
hereof, and (ii) the date of the sale to the public of the securities issuable
upon exercise of the Underwriters Warrants and the Underwriters Securities,
the Company will not take any action or actions which may prevent or disqualify
the Companys use of Form SB-2 for the registration under the Act of the
securities issuable upon exercise of the Underwriters Warrants and the
Underwriters Securities.
(cc) Commencing one year from the date hereof, the Company shall pay the
Underwriter a commission equal to seven percent (7%) of the aggregate exercise
price of the Public Warrants, payable on the date of the exercise thereof on
terms provided in the Warrant Agreement. The Company will not solicit the
exercise of the Public Warrants other than through the Underwriter and will not
authorize any other dealer or engage in such solicitation without the
Underwriter prior written consent. Commission will be payable only if (i)
the Public Warrant is exercised at least 12 months after the dated of this
Prospectus; (ii) the market price of the Common Stock on the date that the
Public Warrant is exercised is greater than the exercise price of the Warrants;
(iii) the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc.; (iv) the Public Warrant is not held in
a discretionary account; (v) disclosure of the compensation arrangements is
made t the time of the exercise of the Warrant; (vi) the holder of the Public
Warrant has stated in writing that the exercise was solicited and designated in
writing the soliciting broker-dealer; and (vii) the solicitation of exercise of
the Public Warrant was not in violation of Rule 10b-6 promulgated under the
Exchange Act. However, no fees will be payable to the Underwriter in
connection with Public Warrants voluntarily exercised without solicitation by
the Underwriter.
(dd) On or before the effective date of the Registration Statement, the Company
shall have retained a financial public relations firm reasonably satisfactory
to the Underwriter, which shall be continuously engaged from such engagement
date to a date twelve (12) months from the Closing Date.
5 Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and the Option
Closing Date (to the extent not paid at the Closing Date) all expenses and fees
(other than fees of Underwriters Counsel, except as provided in (iv) below)
upon presentation of an itemized schedule of expenses incident to the
performance of the obligations of the Company under this Agreement, the
Underwriters Warrant Agreement and the Warrant Agreement including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement, the Underwriters
Warrant Agreeme t, the Warrant Agreement, and related documents, including the
cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriter and such dealers as the Underwriter may reasonably request, in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the IPO Securities, including, but not limited to, (x) the purchase
by the Underwriter of the Underwriters Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Underwriters Warrant Agreement, and the Warrant Agreement, and (z) the sale of
the IPO Securities by the Underwriter in connection with the distribution
contemplated hereby to the extent that expenses relate to the printing,
engraving, issuance and delivery of the IPO Securities, (iv) the qualification
of the IPO Securities under state or foreign securities or Blue Sky laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the Preliminary Blue Sky
Memorandum, the Supplemental Blue Sky Memorandum and Legal Investments
Survey, if any, and legal fees of counsel Doros & Brescia, P.C., of $40,000
plus disbursements incurred by them in connection therewith, (v) fees and
expenses of the transfer agent, warrant agent and registrar, (vi) applications
for assignments of a rating of the IPO Securities by qualified rating agencies,
(vii) the fees payable to the Commission, and the NASD, and (viii) the fees
and expenses incurred in connection with the listing of the IPO Securities on
the NASD Electronic Bulletin Board, the BSE and any other exchange.
(b) If this Agreement is terminated by the Underwriter in accordance with the
provisions of Section 6, Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Underwriter for all of its actual out-of-pocket
expenses, including the fees and disbursements of Underwriters Counsel (and in
addition to fees and expenses of Underwriters Counsel incurred pursuant to
Section 5(a)(iv) above for which the Company shall remain liable) less any
amounts previously paid, provided, however, that in the event of a termination
pursuant to Section 10(a) hereof such obligation of the Company shall not
exceed $50,000.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Underwriter by
certified or bank cashiers check or, at the election of the Underwriter, by
deduction from the proceeds of the Offering, on the initial Closing Date and
each Option Closing Date, a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds of the Offering (a minimum of $30,600 and a
maximum of $55,080) less the amount of $25,000 which was previously paid by the
Company to the Underwriter.
(d) The Underwriter shall not be responsible for any expense of the Company or
others or for any charge or claim related to the Offering in the event that the
sale of the IPO Securities as contemplated hereunder is not consummated.
6 Conditions of the Underwriters Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company and its Subsidiaries herein as of
the date hereof and as of the Closing Date and each Option Closing Date, if
any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement, which shall be in form and substance
satisfactory to Underwriters Counsel, shall have become effective no later
than 12:00 p.m., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Underwriter, and, at
the Closing Date and each Option Closing Date, if any, 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 shall be pending or
contemplated by the Commission and any request on the part of the Commission
for additional information shall have been complied with to the reasonable
satisfaction of Underwriters Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the IPO Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the Co
mission for filing pursuant to Rule 424(b) of the Rules and Regulations within
the prescribed time period, and prior to the Closing Date the Company shall
have provided evidence satisfactory to the Underwriter of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the Registration
Statement, or any amendment thereto, contains an untrue statement of fact
which, in the Underwriters opinion, is material, or omits to state a fact
which, in the Underwriters opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriters opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have received from
Underwriters Counsel, such opinion or opinions with respect to the
organization of the Company and its Subsidiaries, the validity of the IPO
Securities, the Underwriters Warrants, the Registration Statement, the
Prospectus and other related matters as the Underwriter may request and
Underwriters Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriter shall have received the favorable
opinion of B. Bruce Freitag, Esq. counsel to the Company, dated as of the
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriters Counsel, to the effect that:
(i) each of the Company and the Subsidiaries (A) has been duly organized and is
validly existing as a corporation in good standing under the laws of its
jurisdiction; (B) to such counsels knowledge has all requisite corporate
power and authority to own or lease its properties and conduct its business as
described in the Prospectus; (C) to such counsels knowledge is duly qualified
and licensed and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing; and (D) to such counsels
knowledge, has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business, operations, condition, financial or otherwise, o
the earnings, business affairs or prospects, properties, business, assets or
results of operations of the Company and the Subsidiaries taken as a whole. To
the knowledge of such counsel the disclosures in the Registration Statement
concerning the effects of federal, state and local laws, rules and regulations
on the Companys or any Subsidiaries business as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
fact necessary to make the statements contained therein not misleading in light
of the circumstances in which they were made:
(ii) to such counsels knowledge, except as set forth in the Prospectus, the
Company nor any Subsidiary does not own an equity interest in any other
corporation, partnership, joint venture, trust or other business entity;
(iii) to such counsels knowledge the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under Capitalization, and, to such counsels knowledge,
the Company nor any Subsidiary is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement, the
Underwriters Warrant Agreement, the Warrant Agreement and as described in the
Prospectus. The IPO Securities, and all other securities issued or issuable by
the Company, conform in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. To the
knowledge of such counsel all issued and outstanding securities of the Company
and the Subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof have no contr ctual rights of
rescission with respect thereto, and are not subject to personal liability
under the laws of the State of Utah as currently in effect by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company. The IPO
Securities to be sold by the Company hereunder and under the Underwriters
Warrant Agreement and the Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and conform
to the description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all corporate
action required to be taken for the authorization, issue and sale of the IPO
Securities when issued will be duly and validly taken; and the certifica tes
representing the IPO Securities are in due and proper form. The Public
Warrants and the Underwriters Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise thereof and payment
therefore the number and type of securities of the Company called for thereby.
Upon payment the issuance and delivery pursuant to this Agreement of the IPO
Securities to be sold by the Company hereunder, the purchasers thereof, will
acquire good and marketable title to the IPO Securities free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security interest, or other
restriction or equity of any kind whatsoever.
(iv) the Registration Statement is effective under the Act, and, if applicable,
filing of all pricing information has been timely made in the appropriate form
under Rule 430A, and, to such counsels knowledge, no stop order suspending
the use of the Preliminary Prospectus, the Registration Statement or Prospectus
or any part of any thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending, threatened or contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration Statement, and the
Prospectus and any amendments or supplement thereto (other than the financial
statements and other financial and statistical data included therein, as to
which no opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations.
(vi) to the best of such counsels knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
(or required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed are
substantially correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other documents to
which the Company or any Subsidiary is a party or by which it is bound,
including any document to which the Company or any Subsidiary is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or ame dment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2; (C) there
is not pending or threatened against the Company or any Subsidiary any action,
arbitration, suit, proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of the Company or any Subsidiary which (1)
is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), (2) questions the validity of the
capital stock of the Company or any Subsidiary or this Agreement, the
Underwriters Warrant Agreement or the Warrant Agreement or of any action taken
or to be taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as required; and
(E) except as disclosed in the Prospectus, there is no action, suit or
proceeding pending, or threatened, against or affecting the Company or any
Subsidiary before any court or arbitrator or governmental body, agency or
official (or any basis thereof known to such counsel) in which an adverse
decision which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, position, prospects, stockholders
equity, value, operation, properties, business or results of operations of the
Company and the Subsidiaries taken as a whole, which could adversely affect the
present or prospective ability of the Company to perform its obligations under
this Agreement, the Underwriter s Warrant Agreement or the Warrant Agreement
or which in any manner draws into question the validity or enforceability of
this Agreement, the Underwriters Warrant Agreement or the Warrant Agreement;
(vii) the Company has full legal right, power and authority to enter into this
Agreement, the Underwriters Warrant Agreement and the Warrant Agreement and to
consummate the transactions provided for herein and therein; and this
Agreement, the Underwriters Warrant Agreement and the Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriters Warrant Agreement and the Warrant Agreement
assuming due authorization, execution and delivery by each other party hereto
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
imited by applicable law), and neither the Companys execution or delivery of
this Agreement, the Underwriters Warrant Agreement and the Warrant Agreement,
its performance hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company or the Subsidiaries pursuant to the
terms of, (A) the certificate of incorporation or by-laws of the Company or the
Subsidiaries, (B) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit agreement
or any other agreement or instrument to known to such counsel which the Company
or any of the Subsidiaries is a party or by which it is or may be bound or to
which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule
or regulation applicable to the Company or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body domestic or foreign, having jurisdiction over the
Company or any of the Subsidiaries or any of its activities or properties,
except for conflicts, breaches, violations, defaults, creations or impositions
which do not and would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs, position,
shareholders equity, value, operations, properties, business or results of
operations of the Company and the Subsidiaries taken as a whole;
(viii) except as described in the Prospectus, no consent, approval,
authorization or order, and no filing with, any court, regulatory body,
government agency or other body (other than such as may be required under Blue
Sky laws, as to which no opinion need be rendered) is required in connection
with the issuance of the IPO Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Underwriters Warrants, the
performance of this Agreement, the Underwriters Warrant Agreement and the
Warrant Agreement and the transactions contemplated hereby and thereby;
(ix) the properties and business of the Company and the Subsidiaries conform
to the description thereof contained in the Registration Statement and the
Prospectus;
(x) to such counsels knowledge and except as described in the Prospectus
neither the Company nor any of the Subsidiaries is in breach of, or in default
under, any term or provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement
or any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries may
be bound or to which the property or assets (tangible or intangible) of the
Company or any of the Subsidiaries is subject or affected, which could
materially adversely affect the Company or any of the Subsidiaries; and neither
the Company nor any of the Subsidiaries is in violation of any term or
provision of its Certificate of Incorporation or By-Laws, or in violation of
any fra chise, license, permit, judgment, decree, order, statute, rule or
regulation the result of which would materially and adversely affect the
condition, financial or otherwise, or the earnings, business affairs, position,
shareholders equity, value, operation, properties, business or results of
operations of the Company and the Subsidiaries taken as a whole;
(xi) to the knowledge of such counsel and except as described in the Prospectus
the Company and the Subsidiaries owns or possesses, free and clear of all liens
or encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct its business (including, without limitation any such licenses or
rights described in the Prospectus as being owned or possessed by the Company
or any Subsidiary), and to the best of such counsels knowledge after
reasonable investigation, there is no claim or action by any person pertaining
to, or proceeding, pending, or threatened, which challenges the exclusive
rights of the Company or any Subsidiary with respect to any trademarks, service
marks, copyrights, service names, trade names, patents, patent applications and
licenses used in the conduct of the Companys or any Subsidiarys bus ness
(including, without limitations, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company or any Subsidiary).
(xii) the IPO Securities have been approved for listing on the NASD Electronic
Bulletin Board and the Companys Registration Statement on Form 8-A under the
Exchange Act has become effective;
(xiii) to such counsels knowledge, the persons listed under the caption
PRINCIPAL STOCKHOLDERS in the Prospectus are the respective beneficial
owners (as such phrase is defined in Regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder as and
to the extent set forth therein;
(xiv) to such counsels knowledge, except as described in the Prospectus, no
person, corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration statement
or, if filed, to include any security in such registration statement;
(xv) to such counsels knowledge, except as described in the Prospectus, there
are no claims, payments, issuances, arrangements or understandings for services
in the nature of a finders or origination fee with respect to the sale of the
IPO Securities hereunder or the financial consulting arrangement or any other
arrangements, agreements, understandings, payments or issuances that may affect
the Underwriters compensation, as determined by the NASD;
(xvi) the Lock-up Agreements are legal, valid and binding obligations of the
parties thereto, enforceable against each such party and any subsequent holder
of the securities subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and the application of equitable
principles in any action, legal or equitable); and In rendering such opinion,
such counsel may rely (A) as to matters involving the application of laws other
than the laws of the United States and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified
in such opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriters Counsel) of other counsel acceptable to
Underwriters Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the Company
or the Subsidiaries, provided that copies of any such statements or
certificates shall be delivered to Underwriters Counsel if requested. The
opinion of such counsel for the Company shall state that the opi nion of any
such other counsel is in form satisfactory to such counsel. At each Option
Closing Date, if any, the Underwriter shall have received an opinion letter
from B. Bruce Freitag, Esq., counsel to the Company, dated the Option Closing
Date, addressed to the Underwriter and in form and substance satisfactory to
Underwriters Counsel confirming as of such Option Closing Date the statements
made in its opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing Date, if
any, Underwriters Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company and its Subsidiaries, or herein contained.
(f) Prior to each Closing Date and each Option Closing Date, if any, (i) there
shall have been no adverse change nor development involving a prospective
change in the condition, financial or otherwise, prospects, stockholders
equity or the business activities of the Company and the Subsidiaries taken as
a whole, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or any Subsidiary, (iii)
neither the Company nor any Subsidiary shall be in default under any provision
of any instrument relating to any outstanding indebtedness; (iv) neither the
Company nor any of the Subsidiaries shall have issued any securities (other
than the IPO Securities and the Underwriters Warrants) or declared or paid any
dividend or made any distribution in respect of its capital stock of any clas
and there has not been any change in the capital or any change in the debt
(long or short term) or liabilities or obligations of the Company or any
Subsidiary (contingent or otherwise); (v) no material amount of the assets of
the Company or the Subsidiaries shall have been pledged or mortgaged, except as
set forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company or any Subsidiary, or
affecting any of its properties or business before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
operations, management prospects or financial condition or assets of the
Company or the Subsidiaries taken as a whole, except as set forth in the
Registration Statement and Prospectus: and (vii) no stop order shall have been
issu ed under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the principal executive
officer and the chief financial or chief accounting officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the
effect that each of such persons has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties in this Agreement of the Company and its
Subsidiaries are true and correct, as if made on and as of the Closing Date or
the Option Closing Date, as the case may be, and the Company and its
Subsidiaries have complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on their part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as the case
may be;
(ii) No stop order suspending the effectiveness of the Registration Statement
or any part thereof has been issued, and no proceedings for that purpose have
been instituted or are pending or are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any, each amendment
and each supplement thereto, contain all statements and information required to
be included therein, and none of the Registration Statement, the Prospectus nor
any amendment or supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and neither the
Preliminary Prospectus or any supplement thereto included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Since the dates as of which information is given in the Registration
Statement and the Prospectus, (A) there must not have been any material change
in the shares of Common Stock or liabilities of the Company or any Subsidiary
except as set forth in or contemplated by the Prospectus; (B) there must not
have been any material adverse change in the general affairs, management,
business, financial condition or results of operations of the Company or any
Subsidiary, whether or not arising from transactions in the ordinary course of
business, as set forth in or contemplated by the Prospectus; (C) the Company
and each Subsidiary must not have sustained any material loss or interference
with its business from any court or from legislative or other governmental
action, order or decree, whether foreign or domestic, or from any other
occurrence, not described in the Registration Statement and Prospectus; (D)
there must not have occurred any event that makes untrue or incorrect in any
materi l respect any statement or information contained in the Registration
Statement or Prospectus or that is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements
or information therein, in light of the circumstances in which they were made,
not misleading in any material respect; (E) the Company and each Subsidiary
must not have incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent; (F)
the Company and each Subsidiary must not have paid or declared any dividends or
other distributions on its capital stock; (G) the Company and each Subsidiary
must not have entered into any transactions not in the ordinary course of
business; (H) there has not been any change in the capital stock or long-term
debt or any increase in the short-term borrowings (other than any increase in
the s hort-term borrowings in the ordinary course of business) of the Company
or any Subsidiary; (i) the Company and each Subsidiary must not have sustained
any material loss or damage to its property or assets, whether or not insured;
and (J) there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth. References to the
Registration Statement and the Prospectus in this subsection (g) are to such
documents as amended and supplemented at the date of such certificate.
(h) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriter and Underwriters Counsel, from Linder & Linder:
(i) confirming that they are independent accountants with
respect to the Company and the Subsidiaries within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company and the Subsidiaries included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of Linder & Linder with respect
to the financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company and the Subsidiaries (with an indication of the date
of the latest available unaudited interim financial statements), a reading of
the latest available minutes of the stockholders and board of directors and the
various committees of the boards of directors of the Company and the
Subsidiaries, consultations with officers and other employees of the Company
and the Subsidiaries responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention which
would lead them to believe that (A) the unaudited financial statements, if any,
of the Company and the Subsidiaries included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly pres
ented in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements of
the Company and the Subsidiaries included in the Registration Statement, or (B)
at a specified date not more than five (5) days prior to the effective date of
the Registration Statement, there has been any change in the capital stock or
long-term debt of the Company and the Subsidiaries, or any decrease in the
stockholders equity or net current assets or net assets of the Company and the
Subsidiaries as compared with amounts shown in the ________________, 19__
balance sheet included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement, or, if there was any change
or decrease, setting forth the amount of such change or decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of liabilities of
the Company and the Subsidiaries (including a breakdown of commercial paper and
notes payable to banks) ;
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company and the Subsidiaries set forth
in the Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and the Subsidiaries
and excluding any questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
(vi) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information;
(vii) stating that they have not during the immediately preceding five (5) year
period brought to the attention of any of the Companys management any
weakness, as defined in Statement of Auditing Standard No. 60 Communication
of Internal Control Structure Related Matters Noted in an Audit, in any of the
Companys internal controls; and
(viii) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriter may reasonably request.
(j) At the Closing Date and each Option Closing Date, if any, the Underwriter
shall have received from Linder & Linder, a letter, dated as of the Closing
Date or the Option Closing Date, as the case may be, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (i)
of this Section, except that the specified date in the referred to letter shall
be a date not more than five days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (i) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified i n such
clause (v).
(k) On each of the Closing Date and Option Closing Date, if any, there shall
have been duly tendered to the Underwriter the appropriate number of IPO
Securities.
(l) No order suspending the sale of the IPO Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date,
if any, and no proceedings for that purpose shall have been instituted or shall
be contemplated.
(m) On or before the Closing Date, the Common Stock and the Public Warrants
shall have been approved for quotation on the NASD Electronic Bulletin Board
and shall have been authorized upon official notice of issuance for trading on
the BSE.
(n) On or before the Closing Date, there shall have been delivered to the
Underwriter the Lock-up Agreements, in form and substance satisfactory to
Underwriters Counsel.
(o) On or before the Closing Date, the Company shall have executed the
financial consulting agreement with the Underwriter, in final form and
substance satisfactory to the Underwriter.
(p) On or before the Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Underwriters Warrant Agreement
substantially in the form filed as Exhibit ________ to the Registration
Statement in final form and substance satisfactory to the Underwriter, and (ii)
the Underwriters Warrants in such denominations and to such designees as shall
have been provided to the Company.
If any condition to the Underwriters obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the
case may be, is not so fulfilled, the Underwriter may terminate this Agreement
or, if the Underwriter so elects, it may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter (for
purposes of this Section 7 Underwriter shall include the officers, directors,
partners, employees, agents and counsel of the Underwriter, and each person, if
any, who controls the Underwriter (controlling person) within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and against
any and all losses, claims, damages, expenses or liabilities, joint or several
(and actions in respect thereof), whatsoever (including but not limited to any
and all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act, or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon any untrue statement or alleged untrue st atement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any time new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the IPO Securities; or (iii) in any application or
other document or written communication (in this Section 7 collectively called
Application) executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the IPO
Securities under the securities laws thereof or filed with the Commission, any
securities commission or agency, the NASD, the BSE or any securities exchange;
or the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in the light of the circum stances under which
they were made), unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company with
respect to the Underwriter by or on behalf of such Underwriter expressly for
use in any Preliminary Prospectus, the Registration Statement or Prospectus, or
any amendment thereof or supplement thereto, or in any Application, as the case
may be. The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the Registration Statement,
and each other person, if any, who controls the Company within the meaning of
the Act, to the same extent as the foregoing indemnity from the Company to the
Underwriter but only with respect to statements or omissions, if any, made in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any Application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to the Underwriter by such Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such Application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospect us directly
relating to the transactions effected by the Underwriter in connection with
this offering. The Company acknowledges that the statements with respect to
the public offering of the IPO Securities set forth under the heading
Underwriting and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, suit or proceeding, such indemnified
party shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice f rom such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifyi ng parties (in which case the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that the express
provisions of this Section 7 provide for indemnification in such case, or (ii)
contribution under the Act may be required on the part of any indemnified
party, then each indemnifying party shall contribute to the amount paid as a
result of such losses, claims, damages, expenses or liabilities (or actions in
respect thereof) (A) in such proportion as is appropriate to reflect the
relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the I PO Securities or (B) if the allocation provided by clause (A) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of each of the contributing parties, on the one hand, and
the party to be indemnified on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any
case where the Company is a contributing party and the Underwriter is the
indemnified party, 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 net proceeds from the offering of the Securities
(before deducting expenses) bear to the total underwriting discounts received
by the Underwriter hereunder, in each case as set forth in the Prospectus.
Relative fault sh all 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 necessary to make the
statements made, in light o the circumstances under which they were made, not
misleading relates to information supplied by the Company, or by the
Underwriter, and the parties relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriter shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
IPO Securities sold by the Underwriter hereunder. 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 was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of
the Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d), Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or part ies shall not relieve the party or parties from
whom contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subparagraph (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the Closing Date and
any Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and its Subsidiaries and the
respective indemnity agreements contained in Section 7 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter, the Company, any controlling person of the
Underwriter or the Company, and shall survive termination of this Agreement or
the issuance and delivery of the IPO Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the first full business day following the day on which the
Registration Statement becomes effective.
10. Termination.
(a Subject to subsection (b) of this Section 10, the Underwriter shall have
the right to terminate this Agreement, (i) if any domestic or international
event or act or occurrence has materially disrupted, or in the Underwriters
opinion will in the immediate future materially disrupt the financial markets;
or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) if trading on the New York Stock Exchange, the American
Stock Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction; or (iv) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency
shall have be en declared in the United States; or (v) if a banking moratorium
has been declared by a state or federal authority; or (vi) if a moratorium in
foreign exchange trading has been declared; or (vii) if the Company and/or any
of its Subsidiaries, shall have sustained a loss material or substantial to the
Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act which, whether or not such loss shall have
been insured, will, in the Underwriters opinion, make it inadvisable to
proceed with the delivery of the IPO Securities; or (vii) if there shall have
been such a material adverse change in the condition (financial or otherwise),
business affairs or prospects of the Company and/or any of its Subsidiaries,
whether or not arising in the ordinary course of business, which would render,
in the Underwriters judgment, either of such parties unable to perform
satisfactorily its respective obligations as contemplated by this Agreement or
the Regi stration Statement, or such material adverse change in the general
market, political or economic conditions, in the United States or elsewhere as
in the Underwriters judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the IPO Securities.
(b) If this Agreement is terminated by the Underwriter in accordance with the
provisions of Section 10(a), the Company shall promptly reimburse and indemnify
the Underwriter for all of its actual out-of-pocket expenses, including the
fees and disbursements of counsel for the Underwriter in an amount not to
exceed $50,000 (less amounts previously paid pursuant to Section 5(c) above).
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Underwriter, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied (including, without limitation,
pursuant to Section 6 or Section 12) then, the Company shall promptly reimburse
and indemnify the Underwriter for all of their actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriter (less
amounts previously paid pursuant to Section 5 (c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and expenses and Blue
Sky filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to
have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at 71 Clinton Street, Garden City, New York 11530, Attention:
Frank Norris, Jr., President, with a copy to Doros & Brescia, P.C., 1140 Avenue
of the Americas, New York, New York 10036, Attention: Ronald J. Brescia, Esq.
Notices to the Company shall be directed to the Company at 3590 Oceanside Road,
Oceanside, New York 11572, Attention: Dr. Jan Stahl, Chief Executive Officer,
with a copy to B. Bruce Freitag, Esq., 39 Sackerman Avenue, North Haledon, New
Jersey 07508.
12. Parties. This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal Underwriters and assigns and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained.
No purchaser of Securities from the Underwriter shall be deemed to be a
successor by reason merely of such purchase.
13. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
15. Entire Agreement; Amendments. This Agreement, the Underwriters Warrant
Agreement and the Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof.
This Agreement may not be amended except in a writing, signed by the
Underwriter and the Company. If the foregoing correctly sets forth the
understanding between the Underwriter and the Company, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us. Very truly yours,
XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:
Peter Steil, President
Confirmed and accepted as of
the date first above written
MORGAN GRANT CAPITAL CORP.
By:
Name: Michael Christ
Title: President
EXHIBIT 1(v)
Form of Underwriter's Warrant Agreement and Amended Underwriter's Warrant
Certificate
UNDERWRITERS WARRANT AGREEMENT dated as of __________, 1998 between XETAL,
INC., a Utah corporation (the Company) and MORGAN GRANT CAPITAL CORP.
(formerly Worthington Capital Group, Inc.), its successors, designees and
assigns (hereinafter referred to as the Underwriter).
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Morgan Grant Capital Corp. warrants
(the Underwriters Warrants) to purchase up to an aggregate of 54,000 shares
of the Companys common stock, $0.001 par value per share (the Common Stock),
each Warrant entitling the holder to purchase one share of Common Stock (the
Underwriters Warrants and the shares of Common Stock issuable upon exercise of
the Underwriters Warrants being collectively referred to as the Warrant
Securities); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting agreement (the
Underwriting Agreement) dated as of the date hereof among the Underwriter and
the Company to act as to act as the exclusive agent for the Company, on a best
efforts basis, in connection with the Company's proposed public offering of up
to 540,000 shares of Common Stock and 540,000 redeemable common stock purchase
warrants (the Warrants) at a public offering price of $5.00 per share of
Common Stock and $.10 per Warrant (the Public Offering); and
WHEREAS, the Underwriters Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date and Option Closing Date(s) (as such terms
are defined in the Underwriting Agreement) by the Company to the Underwriter in
consideration for, and as part of the Underwriters compensation in connection
with, and pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate five dollars and forty cents
($5.40), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Grant. The Underwriter is hereby granted the right to prchase, at any time
from ____________, 1999 until 5:00 P.M., New York time, on _______________,
2003, up to an aggregate of 54,000 shares of Common Stock (the Shares) at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
of $8.25 per share of Common Stock subject to the terms and conditions of this
Agreement. The Underwriters Warrants and the shares of Common Stock issuable
upon exercise of the Underwriters Warrants will be separately transferable
immediately upon issuance. Except as set forth herein, the Underwriters
Warrants are in all respects identical to the Warrants being sold by the
Underwriter to the public pursuant to the terms and provisions of the
Underwriting Agreement and the Warrant Agreement (as such term is defined in
Section 8.8 hereof.) Except as set forth herein, the shares of Common Stock
issuable upon exercise of the Underwriters Warrants are in all respects
identical to the shares of Common Stock being sold by the Underwriter to the
public pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the Warrant
Certificates) delivered and to be delivered pursuant to this Agreement shall
be in the form set forth in Exhibit A, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Underwriters Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per Warrant set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Common Stock purchased at the Company's principal offices (presently located at
3590 Oceanside Road, Oceanside, New York 11572) the registered holder of a
Warrant Certificate (Holder or Holders) shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holders thereof, in whole or part (but not as to fractional
shares of t e Common Stock). In the case of the purchase of less than all
shares of Common Stock purchasable under any Warrant Certificate, the Company
shall cancel said Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the shares of Common Stock purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of payment set
forth in Section 3.1 and in lieu of any cash payment required thereunder, the
Holder(s) of the Underwriters Warrants shall have the right at any time and
from time to time to exercise the Underwriters Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1.
The number of shares of Common Stock to be issued pursuant to this Section 3.2
shall be equal to the difference between (a) the number of shares of Common
Stock in respect of which the Underwriters Warrants are exercised and (b) a
fraction, the numerator of which shall be the number of shares of Common Stock
in respect of which the Underwriters Warrants are exercised multiplied by the
Exercise Price (as hereinafter defined) and the denominator of which shall be
the Market Price.
3.3 Definition of Market Price. As used herein, the phrase Market Price at
any date shall be deemed to be, when referring to the Common Stock, 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 (3) 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 by the
Nasdaq National Market (NNM), or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted by NNM, the
average closing bid price as furnished by the National Association of
Securities Dealers, Inc. (NASD) through Nasdaq or similar organization
including the NASD Electronic Bulletin Board if Nasdaq is no longer reporting
such information, or if the Common Stock is not quoted on Nasdaq, or such
similar organization as determined in good faith by resolution of the Board of
Directors of he Company, based on the best information available to it.
Notwithstanding the foregoing, for purposes of Section 8, the Market Price of a
share of Common Stock shall be determined by reference to the relevant
information set forth above during the thirty (30) trading days immediately
preceding the date of the event requiring the determination of the Market Price
(except that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock shall be determined by reference to the
trading day immediately preceding the effective date of the public offering and
not such thirty (30) trading day period).
4. Issuance of Certificates. Upon the exercise of the Underwriters Warrants,
the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Underwriters Warrants shall
be made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder and the Company shall
not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the ompany
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares (and/or
other securities, property or rights issuable upon the exercise of the
Underwriters Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary of the Company.
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate,
by its acceptance thereof, covenants and agrees that the Underwriters Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Underwriters Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof, except to officers of the
Underwriters.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in
Section 8 hereof, the initial exercise price of each Underwriter Warrant shall
be $8.25 per share of Common Stock. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
6.2 Exercise Price. The term Exercise Price herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Current Registration Under the Securities Act of 1933. The Underwriters
Warrants and the Shares issuable upon exercise of the Underwriters Warrants
have been registered under the Securities Act of 1933, as amended (the Act),
pursuant to the Company's Registration Statement on Form SB-2 (Registration No.
333-20525) (the Registration Statement). The Company covenants and agrees to
use its best efforts to maintain the effectiveness of the Registration
Statement for a period of five (5) years from its effective date.
7.2 Contingent Registration Rights. In the event that, for any reason
whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement for a period of five (5) years from its effective date
and, in any event, from and after the fifth (5th) anniversary of the effective
date of the Registration Statement, the Underwriter and other Holders shall
have, commencing the date of any such occasion, the contingent registration
rights (Registration Rights) set forth in Sections 7.3 and 7.4 hereof.
7.3 Piggyback Registration. (1) If, at any time commencing after the effective
date of the Registration Rights and expiring on the seventh (7th) anniversary
of the effective date of the Registration Statement, the Company proposes to
register any of its securities under the Act, either for its own account or the
account of any other security holder or holders of the Company possessing
registration rights (Other Stockholders) (other than pursuant to Form S-4,
Form S-8 or comparable registration statement), it shall give written notice,
at least thirty (30) days prior to the filing of each such registration
statement, to the Underwriter and to all other Holders of Underwriters
Warrants and/or the Shares (collectively the Registrable Securities) of its
intention to do so. If the Underwriter or other Holders of Registrable
Securities notify the Company within twenty-one (21) days after the receipt of
any such notice of its or their desire to include any such securities in such
pro osed registration statement, the Company shall afford the Underwriter and
such other Holders of such securities the opportunity to have any such
securities registered under such registration statement. (2) If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Underwriter
and such other Holders as part of the written notice given pursuant to Section
7.3(a) hereof. The right of the Underwriter or any such other Holders to
registration pursuant to this Section 7.3 shall be conditioned upon their
participation in such underwriting and the inclusion of their Registrable
Securities in the underwriting to the extent hereinafter provided. The
Underwriter and all other Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any officers,
directors or other Stockholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
Underwriter of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 7.3, if the Underwriter of
the u nderwriter or underwriters advises the Company in writing that marketing
factors require a limitation or elimination of the number of shares of Common
Stock or other securities to be underwritten, the Underwriter may limit the
number of shares of Common Stock or other securities to be included in the
registration and underwriting. The Company shall so advise the Underwriter and
all other Holders of Registrable Securities requesting registration, and the
number of shares of Common Stock or other securities that are entitled to be
included in the registration and underwriting shall be allocated among the
Underwriter and other Holders requesting registration, in each case, in
proportion, as nearly as practicable, to the respective amounts of securities
which they had requested to be included in such registration at the time of
filing the registration statement. (3) Notwithstanding the provisions of this
Section 7.3, the Company shall have the right at any time after it shall have
given written notice pursuant to Section 7.3(a) hereof (irrespective of whether
a written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof.
7.4 Demand Registration. (1) At any time commencing after the effective date
of the Registration Statement and ending on the fifth (5th) anniversary of the
effective date of the Registration Statement, the Holders of Registrable
Securities representing a Majority (as hereinafter defined) of such
securities (assuming the exercise of all of the Underwriters Warrants) (the
Initiating Holders) shall have the right (which right is in addition to the
registration rights under Section 7.3 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Registrable
Securities for up to two hundred and seventy (270) days by such Holders and a y
other Holders of Registrable Securities, as well as any other security holders
possessing similar registration rights, who notify the Company within
twenty-one (21) days after receiving notice from the Company of such request.
(2) The Company covenants and agrees to give written notice of any registration
request under this Section 7.4 by any Holder or Holders to all other registered
Holders of Registrable Securities, as well as any other security holders
possessing similar registration rights, within ten (10) days after the date of
the receipt of any such registration request. (3) If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 7.4(a) hereof. The right of any Holder to
registration pursuant to this Section 7.4 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent and subject to the
limitations provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities it holds. (4) The
Company shall (together with all Holders, officers, directors and other
stockholders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
Underwriter of the underwriters selected for such underwriting by the
Initiating Holders, which underwriter(s) shall be reasonably acceptable to the
Underwriter. Notwithstanding any other provision of this Section 7.4, if the
Underwriter of the underwriter or underwriters advises the Initiating Holders
in writing that marketing factors require a limitation or elimination of the
number of shares of Common Stock or other securities to be underwritten, the
Underwriter may limit the number of shares of Common Stock or other securities
to be included in the registration and underwriting. The Company shall so
advise the Underwriter and all Holders of Registrable Securities requesting
registration, and the number of shares of Common Stock or other securities that
are en titled to be included in the registration and underwriting shall be
allocated among the Underwriter and other Holders requesting registration, in
each case, in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration at
the time of filing the registration statement. If the Company or any Holder of
Registrable Securities who has requested inclusion in such registration as
provided above disapproves of the terms of any such underwriting, such person
may elect to withdraw its securities therefrom by written notice to the
Company, the underwriter and the Initiating Holders. Any securities so
excluded shall be withdrawn from such registration. No securities excluded
from such registration by reason of such underwriters' marketing limitations
shall be included in such registration. To facilitate the allocation of shares
in accordance with this Section 7.4(d), the Company or underwriter or
underwriters selec ted as provided above may round the number of securities of
any holder which may be included in such registration to the nearest 100
shares. (5) In the event that the Initiating Holders are unable to sell all of
the Registrable Securities for which they have requested registration due to
the provisions of Section 7.4(d) hereof and if, at that time, the Initiating
Holders are not permitted to sell Registrable Securities under Rule 144(k), the
Initiating Holders shall be entitled to require the Company to afford the
Initiating Holders an opportunity to effect one additional demand registration
under this Section 7.4. (6) In addition to the registration rights under
Section 7.3 and subsection (a) of Section 7.4 hereof, at any time commencing on
the date hereof and expiring five (5) years thereafter any Holder of
Registrable Securities shall have the right, exercisable by written request to
the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for 270 days by any such Holder of its Registrable Securities provided,
however, that the provisions of Section 7.5(b) hereof, shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holder's making such request.
(7) Notwithstanding anything to the contrary contained herein, if the Company
shall not have filed a registration statement for the Registrable Securities of
the Initiating Holders or the Holder(s) referred to in Section 7.5(f) above
(the Paying Holders), within the time period specified in Section 7.5(a)
below, the Company shall upon the written notice of election of the Initiating
Holders or the Paying Holders, as the case may be, repurchase (i) any and all
Shares and/or Underlying Warrants at the higher of the Market Price per share
of Common Stock or per Underlying Warrant, as the case may be, on (x) the date
of the notice sent to the Company under Section 7.4(a) or (f), as the case may
be, or (y) the expiration of the period specified in Section 7.5(a) and (ii)
any and all Warrants at such Market Price less the Exercise Price of such
Warrant. Such repurchase shall be in immediately available funds and shall
close within five (5) business days after the expiration of the period
specified in Section 7.5(a).
7.5 Covenants of the Company With Respect to Registration. In connection with
any registration under Sections 7.3 and 7.4 hereof, the Company covenants and
agrees as follows: (1) The Company shall use its best efforts to file a
registration statement within sixty (60) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Registrable Securities such number of prospectuses as shall
reasonably be requested. (2) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration statements
filed pursuant to Sections 7.3 and 7.4 hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky fees and
expenses. If the Company shall fail to comply with the provisions of Section
7.5(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Underwriters
Warrants by such number of days as shall equal the delay caused by the
Company's failure. (3) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s); provided that
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. (4) The Company shall indemnify the
Holder(s) of the Registrable Securities to be sold pursuant to any registration
statement and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (Exchange Act), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement. (5) The
Holder(s) of the Registrable Securities to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the
Company. (6) For a period of one hundred eighty (180) days after the
effectiveness of any registration statement filed pursuant to Section 7.4
hereof, the Company shall not permit any other registration statement (other
than (1) a registration statement relating to the securities for which the
Company has granted demand registration rights, as described in the Prospectus
included in the Registration Statement, (2) a registration statement relating
to the shares of Common Stock issuable upon exercise of the Warrants issued to
the public pursuant to the Registration Statement, (3) a registration statement
relating to the securities for which the Company has granted piggyback
registration rights, as described in the Prospectus included in the
Registration Statement and (4) a registration statement filed on Forms S-4 or
S-8 to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.4 hereof, without the prior written
consent of the Holders of the Regi strable Securities representing a Majority
of such securities. (7) The Company shall furnish upon request to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
cold comfort letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with resp ect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities. (8) The Company shall as soon as practicable
after the effective date of any registration statement filed pursuant to
Sections 7.3 and 7.4 hereof, and in any event within 15 months thereafter,
make generally available to its security holders (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(9) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all written correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the
registration statement and permit each Holder and underwriters to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as any such Holder or underwriter shall reasonably request.
(10) With respect to any registration under Section 7.4 hereof, the Company
shall enter into an underwriting agreement with the managing underwriter
selected for such underwriting by the Initiating Holders or the Paying Holders,
as the case may be. Such agreement shall be satisfactory in form and substance
to the Company, each Holder and such managing underwriters, and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Registrable Securities and
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not
be required to make any representations or warranties to or agreements with t
he Company or the underwriters, except as they may relate to such Holders and
their intended methods of distribution. (11) For purposes of this Agreement,
the term Majority in reference to the Holders of Registrable Securities,
shall mean in excess of fifty percent (50%) of the then outstanding
Underwriters Warrants and/or shares of Common Stock issuable upon exercise of
the Underwriters Warrants that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act. (12) Nothing
contained in this Agreement shall be construed as requiring the Holder(s) to
exercise their Underwriters Warrants prior to the initial filing of any
registration statement or the effectiveness thereof. (13) In addition to the
Registrable Securities, upon the written request therefor, by any Holder(s),
the Company shall include in the registration statement any other securities of
the Company held by such Holder(s) as of the date of filing of such
registration statement, including without limitation restricted shares of
Common Stock, options, warrants or any other securities convertible into shares
of Common Stock.
7.6 Restrictive Legends. In the event that the Company fails to maintain the
effectiveness of the Registration Statement, such that the exercise, in part or
in whole, of the Underwriters Warrants are not, at the time of such exercise,
registered under the Act, any certificates representing the Shares underlying
the Underwriters Warrants, and any of the other securities issuable upon
exercise of the Underwriters Warrants shall bear the following restrictive
legend: The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (Act), and may not be offered or
sold except pursuant to (i) an effective registration statement under the Act,
(ii) to the extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or (iii) an opinion
of counsel, if such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is available.
8. Adjustments to Exercise Price and Number of Securities. 8.1 Computation of
Adjusted Exercise Price. Except as hereinafter provided, in the event the
Company shall at any time after the date hereof issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 8.7
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 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 the Market Price in effect immediately prior
to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (i) an amount equal to the sum
of (a) the total number of shares of Common Stock ou tstanding immediately
prior to the issuance or sale of such shares, multiplied by the Exercise Price
in effect immediately prior to such issuance or sale, and (b) the aggregate of
the amount of all consideration, if any, received by the Company upon such
issuance or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after such issuance or sale; provided, however, that in
no event shall the Exercise Price be adjusted pursuant to this computation to
an amount in excess of the Exercise 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 8.3 hereof. For the purposes of this
Section 8 the term Exercise Price shall mean the Exercise Price per share of
Common Stock set forth in Section 6 hereof, as adjusted from time to time
pursuant to the provisions of this Section 8. For the purposes of any
computation to be made in accordance with this Section 8.1, 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
either of such securities shall be sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price)
before deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or other
performing similar services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (other 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 and shall include any amounts payable to security holders or any
affiliates thereof, including without limitation, pursuant to any employment
agreement, royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or understanding,
whether oral or written; all such amounts being valued for the purposes hereof
at the aggregate amount payable thereunder, whether such payments are absolute
or contingent, and irrespective of the period or uncertainty of payment, the
rate of interest, if any, or the contingent nature thereof; provide d, however,
that if any Holder(s) does not agree with such evaluation, a mutually
acceptable independent appraiser shall make such evaluation, the cost of which
shall be borne by 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. (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 8.1. (v) The number of shares of Common Stock at any
one time outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable Securities. In
case the Company shall at any time after the date hereof 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, for a
consideration per share less than the Market Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration, the Exercise 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 8.1 hereof, provided that:
(1) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such 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 the Underwriterss Warrants), if any, received by the Company for
such options, rights or warrants.
(2) 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 the Underwriters Warrants) received by the
Company for such securities, plus the minimum consideration, if any, receivable
by the Company upon the conversion or exchange thereof.
(3) If any change shall occur in the price per share provided for in any of the
options, rights or warrants referred to in subsection (a) of this Section 8.2,
or in the price per share at which the securities referred to in subsection (b)
of this Section 8.2 are convertible or exchangeable, such 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.
8.3 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.4 Adjustment in Number of Securities. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 8, the number of shares of
Common Stock issuable upon the exercise at the adjusted exercise price of each
Underwriters Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable upon exercise
of the Underwriters Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price. For purpose of this
Section 8 the Exercise Price for the Underwriters Warrants shall be $8.00
per Underwriters Warrant.
8.5 Definition of Common Stock. For the purpose of this Agreement, the term
Common Stock shall mean (i) the class of stock designated as Common Stock in
the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
In the event that the Company shall after the date hereof issue securities
with greater or superior voting rights than the shares of Common Stock
outstanding as of the date hereof, the Holder, at its option, may receive upon
exercise of any Underwriters Warrant either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
8.6 Merger or Consolidation. In case of any consolidation of the Company with,
or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder
a supplemental warrant agreement providing that the holder of each
Underwriters Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Underwriters Warrant) to
receive, upon exercise of such warrant, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation or merger,
by a holder of the number of shares of Common Stock of the Company for which
such Underwriters Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall rovide for adjustments which shall be identical to the adjustments
provided in Section 8. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made: (1) Upon the issuance or sale of the
Underwriters Warrants or the shares of Common Stock issuable upon the exercise
of the Underwriters Warrants; or (2) If the amount of said adjustment shall be
less than two cents (2) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2) per Warrant Security.
8.8 Dividends and Other Distributions. In the event that the Company shall at
any time prior to the exercise of all Underwriters Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value, the
Holders of the unexercised Underwriters Warrants shall thereafter be entitled,
in addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Underwriters Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Underwriters Warrants had been exercised immediately prior to such dividend or
distribu ion. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 8.8.
9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate
is exchangeable without expense, upon the surrender thereof by the registered
Holder at the principal executive office of the Company, for a new Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of shares of Common Stock in such denominations as
shall be designated by the Holder thereof at the time of such surrender. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any Warrant Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of the Underwriters Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required to
issue fractional shares of Common Stock upon the exercise of Underwriters
Warrants. Underwriters Warrants may only be exercised in such multiples as
are required to permit the issuance by the Company of one or more whole shares
of Common Stock. If one or more Underwriters Warrants shall be presented for
exercise in full at the same time by the same Holder, the number of whole
shares of Common Stock which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of shares of Common Stock
purchasable on exercise of the Underwriters Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions provided
herein, be issuable on the exercise of any Underwriters Warrant (or specified
portion thereof), the Company shall pay an amount in cash equal to such
fraction multiplied by the then current market value of a share of Common St
ck, determined as follows: (1) If the Common Stock is listed, or admitted to
unlisted trading privileges on the NYSE or the AMEX, or is traded on the NNM,
the current market value of a share of Common Stock shall be the closing sale
price of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Underwriters Warrants on
whichever of such exchanges or NNM had the highest average daily trading volume
for the Common Stock on such day; or (2) If the Common Stock is not listed or
admitted to unlisted trading privileges, on either the NYSE or the AMEX and is
not traded on NNM, but is quoted or reported on Nasdaq, the current market
value of a share of Common Stock shall be the average of the Underwriter
closing bid and asked prices (or the last sale price, if then reported by
Nasdaq) of the Common Stock at the end of the regular trading session on the
last business day prior to the date of exercise of the Underwriters Warrants
as quoted or reported on Nasdaq, as the case may be; or (3) If the Common Stock
is not listed, or admitted to unlisted trading privileges, on either of the
NYSE or the AMEX, and is not traded on NNM or quoted or reported on Nasdaq, but
is listed or admitted to unlisted trading privileges on the BSE or another
national securities exchange (other than the NYSE or the AMEX), the current
market value of a share of Common Stock shall be the closing sale price of the
Common Stock at the end of the regular trading session on the last business day
prior to the date of exercise of the Underwriters Warrants on whichever of
such exchanges has the highest average daily trading volume for the Common
Stock on such day; or (4) If the Common Stock is not listed or admitted to
unlisted trading privileges on any national securities exchange, or listed for
trading on NNM or quoted or reported on Nasdaq, but is traded in the
over-the-counter market, the current market value of a share of Common Stock
shall be the average of the last reported bid and asked prices of the Common
Stock reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of exercise of the Underwriters Warrants; or (5) If the
Common Stock is not listed, admitted to unlisted trading privileges on any
national securities exchange, or listed for trading on NNM or quoted or
reported on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current market value of a
share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined in accordance with generally
acceptable accounting principles, consistently applied.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Underwriters Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Underwriters Warrants and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Underwriters Warrants shall be outstanding, the Company shall use
its best efforts to cause the Underwriters Warrants and all shares of Common
Stock issuable upon the exercise of the Underwriters Warrants to be listed
(subject to official notice of issuance) on all securities exchanges on whic
the Warrants and the Common Stock issued to the public in connection herewith
may then be listed and/or quoted on NNM.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall be
construed as conferring upon the Holders the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Underwriters Warrants and their exercise, any of the
following events shall occur:
(1) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable other than in cash, or a cash dividend or distribution payable other
than out of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company; or
(2) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(3) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer book, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
130 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(1) If to the registered Holder of the Underwriters Warrants, to the address
of such Holder as shown on the books of the Company; or
(2) If to the Company, to the address set forth in Section 3 hereof or to such
other address as the Company may designate by notice to the Holders.
140 Supplements and Amendments. The Company and the Underwriter may from time
to time supplement or amend this Agreement without the approval of any Holders
of Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision 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 shall not adversely affect the interests of the Holders of
Warrant Certificates.
150 Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
160 Termination. This Agreement shall terminate at the close of business on
___________, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on ___________, 2008.
170 Governing Law; Submission to Jurisdiction. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws. The Company, the Underwriter and
any other registered Holders hereby agree that any action, proceeding or claim
against it arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The
Company, the Underwriter and any other registered Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Underwriter
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding up on the party so served in any action,
proceeding or claim. The Company, the Underwriter and any other registered
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its'/their
reasonable legal costs and expenses relating to such action or proceeding
and/or incurred in connection with the preparation therefor.
180 Entire Agreement; Modification. This Agreement (including the Underwriting
Agreement and the Warrant Agreement to the extent portions thereof are referred
to herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
190 Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
200 Captions. The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
210 Benefits of this Agreement. Nothing in this Agreement shall be construed
to give to any person or corporation other than the Company and the Underwriter
and any other registered Holder(s) of the Warrant Certificates or Warrants
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole benefit of the Company and the
Underwriter and any other registered Holders of Warrant Certificates or Warrant
Securities.
220 Counterparts. This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
[SEAL] XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
Attest: By:____________________________
Peter Steil, President
MORGAN GRANT CAPITAL CORP.
By:
Michael Christ, President
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _______________, 2003
No. RW-101Warrants to Purchase
54,000 Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that Morgan Grant Capital Corp., or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from _________, 1999 until 5:00 p.m. New York time on ___________,
2003 (the Expiration Date), up to 54,000 fully-paid and non-assessable shares
of common stock, $.001 par value (Common Stock) of Xetal, Inc., a Utah
corporation (the Company), at the initial exercise price, subject to
adjustment in certain events (the Exercise Price), of $8.25 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Underwriter's Warrant Agreement dated as
of ________________, 1998 between the Company and Morgan Grant Capital Corp.
(the Underwriter's Warrant Agreement). Payment of the Exercise Price shall
be made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant
Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the Expiration
Date, at which time all Warrants evidenced hereby, unless exercised prior
thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words holders or
holder meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Underwriter's Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant Certificate
at an office or agency of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Underwriter's Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this Warrant
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereon made by anyone), for the purpose of any exercise
hereof, and of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed under its corporate seal.
Dated as of ____________, 1998
[SEAL] XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:
Peter Steil, President
Attest:
Dr. Jan Stahl, Secretary
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
shares of Common Stock
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of Xetal, Inc.
in the amount of $ , all in accordance with the terms of Section
3.1 of the Underwriter's Warrant Agreement dated as of ___________________,
1998 between Xetal, Inc. and Morgan Grant Capital Corp. The undersigned
request that a certificate for such shares of Common Stock be registered in the
name of whose address is and that
such Certificate be delivered to whose address is
.
Signature
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate)
(Insert Social Security or Other Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and
unto
(Please print name and address of transferee)
Warrant Certificate, together with all right, title and interest
therein, and does hereby reasonably constitute and appoint
, as Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Date: Signature:
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant Certificate)
(Insert Social Security or Other Identifying
Number of Assignee)
XETAL, INC.
AND
MORGAN GRANT CAPITAL CORP.
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of _______________, 1998
EXHIBIT 5
Opinion of B. Bruce Freitag
B. BRUCE FREITAG
Attorney at Law
39 Sackerman Avenue
_____________
Telephone (973) 238 1909
Telecopier (973) 238 1910
October , 1998
Xetal, Inc.
3590 Oceanside Road
Oceanside, New York 11572
Gentlemen:
This opinion and the consent to use my name is furnished in connection with the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission, Washington, D.C., by Xetal, Inc. (hereinafter referred to as the
"Company") pursuant to the Securities Act of 1933, as amended, covering a total
of 540,000 shares of the common stock of the Company (hereafter the "Common
Stock") and common stock purchase warrants (hereinafter "Warrants") to
purchase a total of 540,000 shares of Common Stock. I have acted as counsel to
the Company in connection with the preparation and filing of the Registration
Statement and as such counsel, I am familiar with the Registration Statement
and proceedings to date with respect to the authorization by the Company of the
Common Stock and Warrants. Based upon the foregoing, I advise you that: 1. The
540,000 shares of Common Stock covered by the Registration Statement have been
duly authorized by the Company and upon full receipt of consideration for such
shares, such shares will be legally issued, fully paid and non-assessable
shares of the Common Stock of the Company. 2. The Warrants covered by the
Registration Statement have been duly authorized by the Company and when full
consideration has been received for such Warrants, they will be legally issued
and will permit the holder thereof to purchase from the Company up to a total
of 540,000 shares of Common Stock.
3. A total of 540,000 shares of Common Stock have been authorized by the
Company as being issuable upon exercise of the Warrants. When properly
exercised by the Warrantholder as provided in the Warrant Agreement and Warrant
Certificate and consideration is received, such shares will be legally issued,
fully paid and non-assessable shares of the Common Stock of the Company.
Consent is hereby given to the use of this opinion as an exhibit to the
Registration Statement and the use of my name in the Prospectus forming a part
of the Registration Statement under the caption "Legal Opinions."
Very truly yours,
B. Bruce Freitag
BBF:emk
EXHIBIT 10(viii)
Form of Amended Warrant Agreement and Warrant Certificate
AGREEMENT, dated this _____ day of _____________, 1998, between XETAL, INC., a
Utah corporation (the Company), and AMERICAN STOCK TRANSFER AND TRUST
COMPANY, as Warrant Agent (the Warrant Agent).
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public pursuant to the
Prospectus (the Prospectus) contained in the Company's Registration Statement
on Form SB-2 (Registration No. 333-20525) of 540,000 shares of the Company's
common stock, $0.001 par value per share (the Common Stock), (ii) the
offering to the public pursuant to the Prospectus of 540,000 redeemable common
stock purchase warrants (the Warrants), each Warrant entitling the holder
thereof to purchase one share of Common Stock, and (iii) the sale to Morgan
Grant Capital Corp. (formerly Worthington Capital Group, Inc.) (Morgan Grant
or the Underwriter), its successors and assigns, of warrants (the
Underwriters Warrants) to purchase an aggregate of 54,000 shares of Common
Stock, each Warrant entitling the holder thereof to purchase one share of
Common Stock, the Company will issue to the public up to 540,000 Warrants and
to the Underwriter the Underwriters Warrants to purchase up to 54,000 shares
of Common
Stock (subject to adjustment); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing to so act, in connection with the issuance,
registration, transfer and exchange of certificates representing the Warrants
and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require: (a) Common
Stock shall mean stock of the Company of any class whether now or hereafter
authorized, which has the right to participate in the voting and in the
distribution of earnings and assets of the Company without limit as to amount
or percentage.
(b) Corporate Office shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business in New York,
New York, shall be administered, which office is located on the date hereof at
40 Wall Street, New York, New York 10005.
(c) Exercise Date shall mean, subject to the provisions of Section 5(b) hereof,
as to any Warrant, the date on which the Warrant Agent shall have received both
(i) the Warrant Certificate representing such Warrant, with the exercise form
thereon duly executed by the Registered Holder hereof or his attorney duly
authorized in writing, and (ii) payment in cash or by certified or bank check
made payable to the Warrant Agent for the account of the Company, of the amount
in lawful money of the United States of America equal to the applicable
Purchase Price in good funds.
(d) Initial Warrant Exercise Date shall mean ____________, 1998.
(e) Initial Warrant Redemption Date shall mean __________, 1999.
(f) Purchase Price shall mean, subject to modification and adjustment as
provided in Section 8, $5.00.
(g) Registered Holder shall mean the person in whose name any certificate
representing the Warrants shall be registered on the books maintained by the
Warrant Agent pursuant to Section 6.
(h) Underwriters Warrant Agreement shall mean the agreement dated as of
______________, 1998 between the Company and the Underwriter relating to and
governing the terms and provisions of the Underwriters Warrants.
(i) Subsidiary or Subsidiaries shall mean any corporation or corporations, as
the case may be, of which stock having ordinary power to elect a majority of
the Board of Directors of such corporation (regardless of whether or not at the
time stock of any other class or classes of such corporation shall have or may
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned by the Company or by one or more Subsidiaries, or
by the Company and one or more Subsidiaries.
(j) Transfer Agent shall mean American Stock Transfer and Trust Company, or
its authorized successor.
(k) Underwriting Agreement shall mean the underwriting agreement dated
______________, 1997 between the Company and the Underwriters relating to the
sale to the public by Morgan Grant, as the Companys exclusive agent, on a best
efforts basis, of the 540,000 shares of Common Stock and 540,000 Warrants.
(l) Warrant Certificate shall mean a certificate representing each of the
Warrants substantially in the form annexed hereto as Exhibit A.
(m) Warrant Expiration Date shall mean, unless the Warrants are redeemed as
provided in Section 9 hereof prior to such date, 5:00 p.m. (New York time), on
______________, 2003, or, if such date shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:00 p.m. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
(n) Warrant Agent shall mean American Stock Transfer and Trust Company, or
its authorized successor.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the Warrant
Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof, subject to
modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing 540,000
Warrants to purchase up to an aggregate of 540,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8) shall be
executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Underwriters Warrants as provided therein, Warrant
Certificates representing all of 54,000 Warrants, to purchase up to an
aggregate of 54,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Underwriters' Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board,
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary.
(d) From time to time, up to the Warrant Expiration Date, as the case may be,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Underwriters Warrant Agreement (including Warrants in excess of the
Underwriter's Warrants to purchase 54,000 shares of Common Stock issued as a
result of the anti-dilution provisions contained in the Underwriter's Warrant
Agreement), and (v) at the option of the Company, Warrant Certificates in such
form as may be a proved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the redemption price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed hereto
as Exhibit A (the provisions of which are hereby incorporated herein) and 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 Warrants may be listed, or to conform
to usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates). (b) Warrant Certificates shall
be executed on behalf of the Company by its Chairman of the Board, President or
any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned. In case
any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof may be
exercised commencing at any time on or after the Initial Warrant Exercise Date,
but not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein (including the provisions set forth in Sections 5
and 9 hereof) and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date, provided that the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder thereof
or his attorney duly authorized in writing, together with payment in cash or by
check made payable to the Warrant Agent for the account of the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price has been received in good funds by the Warrant Agent. The
person entitled to receive the securities deliverable upon such exercise shall
be treated for all purposes as the holder of such securities as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date and in any event within five business days after having received
authorization from the Company, the Warrant Agent on behalf of the Company
shall cause to be issued to the person or persons entitled to receive the same
a Common Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the same to
the person or persons entitled thereto. Upon the exercise of any Warrant, 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
subsection (b) below, shall cause all payments of an amount in cash or by check
made payable to the order of the Company, equal to the Purchase Price, to be
deposited promptly in the Company's bank account.
(b) At any time upon the exercise of any Warrants after one (1) year and one
day from the date hereof, the Warrant Agent shall, on a daily basis, within two
business days after such exercise, notify the Underwriter, and its and their
successors or assigns, of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), remit to the Underwriter (so
long as the Underwriter solicited the exercise of such Warrant as indicated
upon the Subscription Form attached to the Warrant Certificate tendered for
exercise), an amount equal to seven percent (7%) of the Purchase Price of such
Warrants being then exercised if written certification is received that (i) the
Warrant is exercised at least 12 months after the date of this Prospectus; (ii)
the market price of the Common Stock on the date that the Warrant is exercised
is greater than the exercise price of the Warrants; (iii) the exercise of the
Warrants was solicited by a member of the National Association of Securities
Dealers, Inc.; (iv) the Warrant is not held in a discretionary account; (v)
disclosure of the compensation arrangements is made at the time of the exercise
of the Warrant; (vi) the holder of the Warrant has stated in writing that the
exercise was solicited and designated in writing the soliciting broker-dealer;
and (vii) the solicitation of exercise of the Warrant was not in violation of
Rule 10b-6 promulgated under the Exchange Act; provided that the Warrant Agent
shall not be obligated to pay any amounts pursuant to this Section 4(b) during
any week that such amounts payable are less than $1,000 and the Warrant Agent's
obligation to make such payments shall be suspended until the amount payable
aggregate $1,000, and provided further, that, in any event, any such payment
(regard less of amount) shall be made not less frequently than monthly. (c) The
Company shall not be required to issue fractional shares upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares. If one or more
Warrants shall be presented for exercise in full at the same time by the same
Registered Holder, the number of whole shares which shall be issuable upon such
exercise thereof shall be computed on the basis of the aggregate number of
shares purchasable on exercise of the Warrants so presented. If any fraction
of a share would, except for the provisions provided herein, be issuable on the
exercise of any Warrant (or specified portion thereof), the Company shall pay
an amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows: (1) If the Common
Stock is listed or admitted to unlisted trading privileges on the NYSE or the
AMEX or is traded on the Nasdaq/NM, the current market value of a share of
Common Stock shall be the closing sale price of the Common Stock at the end of
the regular trading session on the last business day prior to the date of
exercise of the Warrants on whichever of such exchanges or Nasdaq/NM had the
highest average daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on either the NYSE or the AMEX and is not traded on Nasdaq/NM, but
is quoted or reported on Nasdaq, the current market value of a share of Common
Stock shall be the average of the last reported closing bid and asked prices
(or the last sale price, if then reported by Nasdaq) of the Common Stock at the
end of the regular trading session on the last business day prior to the date
of exercise of the Warrants as quoted or reported on Nasdaq, as the case may
be; or (3) If the Common Stock is not listed or admitted to unlisted trading
privileges on either of the NYSE or the AMEX, and is not traded on Nasdaq/NM or
quoted or reported on Nasdaq, but is listed or admitted to unlisted trading
privileges on the BSE or other national securities exchange (other than the
NYSE or the AMEX), the current market value of a share of Common Stock shall be
the closing sale price of the Common Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the Warrants
on whichever of such exchanges has the highest average daily trading volume for
the Common Stock on such day; or (4) If the Common Stock is not listed or
admitted to unlisted trading privileges on any national securities exchange, or
listed for trading on Nasdaq/NM or quoted or reported on Nasdaq, but is traded
in the over-the-counter market, the current market value of a share of Common
Stock shall be the average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of exercise of the Warrants; or (5) If the
Common Stock is not listed or admitted to unlisted trading privileges on any
national securities exchange, or listed for trading on Nasdaq/NM or quoted or
reported on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current market value of a
share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined in accordance with generally
accepted accounting principles, consistently applied. SECTION 5. Reservation of
Shares; Listing; Payment of Taxes; etc. (a) The Company covenants that it will
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon exercise of Warrants, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, at the time of
delivery thereof, be duly and validly issued and fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, and that upon issuance such shares shall be
listed on each securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed. (b) The Company
covenants that if any securities to be reserved for the purpose of exercise of
Warrants hereunder require registration with, or approval of, any governmental
authority under any federal securities law before such securities may be
validly issued or delivered upon such exercise, then the Company will file a
registration statement under the federal securities laws or a post effective
amendment, use its best efforts to cause the same to become effective and use
its best efforts to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Securities Act of 1933, as amended, (the Act), to the
Registered Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal securities
law or if the Company receives a letter from the staff of the Securities and
Exchange Commission (the Commission) stating that it would not take any
enforcement action if such registration is not effected). The Company will
use best efforts to obtain appropriate approvals or registrations under state
blue sky securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer Agent to
requisition from time to time certificates representing shares of Common Stock
or other securities required upon exercise of the Warrants, and the Company
will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants or may be transferred in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered
to the Warrant Agent at its Corporate Office, and the Company shall execute and
the Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
exchange or other trading market shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof. Upon due presentment for registration
of transfer of any Warrant Certificate at such office, the Company shall
execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription or exercise form, as
the case may be, on the reverse thereof shall be duly endorsed or be
accompanied by a written instrument of instruments or transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing.
(d) No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates. However, the Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange shall be
promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the Company
and the Warrant Agent may deem and treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company or the Warrant Agent) for all purposes and shall not be
affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and (in the case of loss,
theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common Stock
Deliverable.
(a) (i) Except as hereinafter provided, in the event the Company shall, at any
time or from time to time after the date hereof, issue any shares of Common
Stock for a consideration per share less than the Fair Market Value (as
defined in Section 8(g)) or issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such issuance, subdivision or combination being herein called a Change of
Shares), then, and thereafter upon each further Change of Shares, the Purchase
Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent to the nearest
cent) determined by dividing (i) the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, multiplied
by the Purchse Price in effect immediately prior to such Change of Shares and
(b) the consideration, if any, received by the Company upon such sale,
issuance, subdivision or combination, by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Purchase Price be adjusted pursuant to this
computation to an amount in excess of the Purchase Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock. For the purposes of any adjustment to be made in
accordance with this Section 8(a), the following provisions shall be
applicable:
(A) In case of the issuance or sale of shares of Common Stock (or of
other securities deemed hereunder to involve 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 portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if shares of
Common Stock are offered by the Company for subscription, or (ii) 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), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other
case, in each case, without deduction for any expenses incurred by the Company
in connection with such transaction.
(B) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock (or
of other securities deemed hereunder to involve the issuance or sale 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 deemed to have
been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company on the basis
of a record of values of similar property or services.
(C) 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.
(D) 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 (B) of this Section 8(a).
(E) The number of shares of Common Stock at any time outstanding shall be
deemed to include the aggregate maximum number of shares issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights or warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to this Section 8, the
number of shares of Common Stock purchasable upon the exercise of each Warrant
shall be the number derived by multiplying the number of shares of Common Stock
purchasable immediately prior to such adjustment by the Purchase Price in
effect prior to such adjustment and dividing the product so obtained by the
applicable adjusted Purchase Price.
(b) In case the Company shall at any time after the date hereof 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, for a
consideration per share (determined as provided in Section 8(a)(i) and as
provided below) less than the Fair Market Value in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of
any such securities by way of dividend or other distribution), the Purchase
Price for the Warrants (whether or not the same shall be issued and
outstanding) 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 the computation in
accordance with the provisions of Section 8(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable or that may become issuable under such options, rights or warrants
(assuming exercise in full even if not then currently exercisable or currently
exercisable in full) shall be deemed to be issued and outstanding at the time
such options, rights or warrants were issued, for a consideration equal to the
minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any, received by
the Company for such options, rights or warrants; provided, however, that upon
the expiration or other termination of such 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 (A) (and for
the purposes of subsection (E) of Section 8(a)(I) hereof) shall be reduced by
the number of shares as to which options, warrants and/or rights s hall have
expired, and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or that
may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if not
then currently convertible or exchangeable in full) shall be deemed to be
issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration 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
termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding pursuant
to this subsection (B) (and for the purposes of subsection (E) of Section
8(a)(I) hereof) shall be reduced by the number of shares as to which the
conversion or exchange rights shal l have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon conversion or exchange of those convertible
or exchangeable securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (A) of this Section
8(b), or in the price per share or ratio at which the securities referred to in
subsection (B) of this Section 8(b) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, to the extent not theretofore exercise, 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.
(c) In case of any reclassification or change of outstanding shares of Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from 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 case of any consolidation or
merger of the Company with or into another corporation (other than a merger
with a Subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value or as a result of subdivision or combination)
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a
condition of such reclassification, change, consolidation, merger, s ale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its President or a
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary evidencing such provision. Such provisions shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 8(a) and (b). The above
provisions of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(e) hereof, continue to express the Purchase Price per share and the
number of shares purchasable thereunder as the Purchase Price per share.
(e) After each adjustment of the Purchase Price pursuant to this Section 8, the
Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, of the Company setting forth: (i) the Purchase Price
as so adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant, after such adjustment, and (iii) a brief statement of
the facts accounting for such adjustment. The Company will promptly file such
certificate with the Warrant Agent and cause a brief summary thereof to be sent
by ordinary first class mail to each Registered Holder at his last address as
it shall appear on the registry books of the Warrant Agent. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as the Registered Holder to whom the Company failed to
mail such notice, or except as to the Registered Holder whose not ice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(f) No adjustment of the Purchase Price shall be made as a result of or in
connection with (A) the issuance of shares of Common Stock underlying the
Warrants or the securities issuable upon exercise of the Underwriters Warrants
pursuant to the Underwriters Warrant Agreement, or (B) the issuance or sale of
shares of Common Stock if the amount of said adjustment shall be less than
$.10, provided, however, that in such case, any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment that shall amount,
together with any adjustment so carried forward, to at least $.10. In
addition, Registered Holders shall not be entitled to cash dividends paid by
the Company prior to the exercise of any Warrant or Warrants held by them.
(g) Fair Market Value shall mean the value of a share of Common Stock as
determined in accordance with the following provisions:
(1) If the Common Stock is listed or admitted to unlisted trading privileges
on the NYSE or the AMEX or is traded on the Nasdaq/NM, the Fair Market Value of
a share of Common Stock shall be equal to the average of the closing sale price
of the Common Stock during the thirty (30) trading days immediately preceding
the date of the event which requires the determination of Fair Market Value on
whichever of such exchanges or Nasdaq/NM had the total highest daily trading
volume for the Common Stock during such thirty (30) day trading period.
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on either the NYSE or the AMEX and is not traded on Nasdaq/NM, but
is quoted or reported on Nasdaq, the Fair Market Value of a share of Common
Stock shall be the average of the last reported closing bid and asked prices
(or the last sale price, if then reported on Nasdaq) of the Common Stock during
the thirty (30) trading days immediately preceding the date of event which
requires the determination of Fair Market Value.
(3) If the Common Stock is not listed or admitted to unlisted trading
privileges on either of the NYSE or the AMEX and is not traded on Nasdaq/NM or
quoted or reported on Nasdaq, but is listed or admitted to unlisted trading
privileges on the BSE or another national securities exchange (other than the
NYSE or the AMEX), the Fair Market Value of a share of Common Stock shall be
the average of the closing sale price of the Common Stock during the thirty
(30) trading days immediately preceding the date of the event which requires
the determination of Fair Market Value.
(4) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, but is traded in the
over-the-counter market, the Fair Market Value of a share of Common Stock shall
be the average of the average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc. for the thirty
(30) trading days immediately preceding the date of the event which requires
the determination of Fair Market Value.
(5) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, and bid and asked prices of the
Common Stock are not reported by the National Quotation Bureau, Inc., the Fair
Market Value of a share of Common Stock shall be an amount, not less than the
book value thereof as of the end of the most recently completed fiscal quarter
of the company ending prior to the date requiring a determination of fair
market value, determined in accordance with general accepted accounting
principles, consistently applied. SECTION 9. Redemption. (a) Commencing on the
Initial Warrant Redemption Date, the Company may, on 30 days' prior written
notice redeem all the Warrants, other than the Warrants underlying the
Underwriter's Warrants which shall not be redeemable, at five cents ($.05) per
Warrant, provided, however, that before any such call for redemption of
Warrants can take place the closing sale price of the Common Stock as quoted on
NASDAQ or if such shares are not trading on NASDAQ then on the principal market
on which such shares shall then be trading, shall have, for each of the twenty
(20) consecutive trading days ending on the tenth (10th) day prior to the date
on which the notice contemplated by (b) and (c) below is given, equaled or
exceeded $7.50 per share (subject to adjustment in the event of any stock
splits or other similar events as provided in Section 8 hereof). (b) In case
the Company shall exercise its right to redeem all of the Warrants so
redeemable, it shall give or cause notice to such effect to be given to the
Underwriter in the same manner that notice is required to be given by the
Underwriter's Warrant Agreement. The Underwriter may, at its option, solicit
exercises of the Warrants. In the event that the Underwriter does not commence
solicitation of exercises of the Warrants within thirty (30) days of notice
from the Company, the Company may give notice of redemption to the Registered
Holders of the Warrants by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not
the Registered Holder receives such notice. Not less than five business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Underwriter a similar notice telephonically and confirmed in writing together
with a list of the Registered Holders (including their respective addresses and
number of Warrants beneficially owned) to whom such notice of redemption has
been or will be given.
(c) The notice of redemption shall specify (i) the redemption price, (ii) the
date fixed for redemption, which shall in no event be less than thirty (30)
days after the date of mailing of such notice, (iii) the place where the
Warrant Certificate shall be delivered and the redemption price shall be paid,
(iv) that the Underwriter is the Company's warrant solicitation agent and may
receive the commission contemplated by Section 4(b) hereof, and (v) that the
right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be the Redemption Date. 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
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretar y 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.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from the registration
statement or prospectus referred to in Section 5(b) hereof to the same extent
and with the same effect (including the provisions regarding contribution) as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall furnish
to the Underwriter (i) an opinion of counsel to the Company, dated such date
and addressed to the Underwriter, and (ii) a cold comfort letter dated such
date addressed to the Underwriter, signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(g) The Company shall as soon as practicable after the Redemption Date, and in
any event within 15 months thereafter, make generally available to its
security holders (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
(h) The Company shall deliver within five business days prior to the Redemption
Date copies of all correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to such registration statement and permit
the Underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records
and properties and opportunities to discuss the business of the Company with
its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as the Underwriter shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial capacity for
the Company and the Underwriter, and its duties shall be determined solely by
the provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued
upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or responsibility
to any holder of Warrant Certificates to make or cause to be made any
adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except fo r
its own gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board of Directors, President or any Vice President (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder;
the Company further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agents gross negligence or
willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agents own gross negligence or willful misconduct), after giving 30
days prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy
of such notice of resignation to be mailed to the Registered Holder of each
Warrant Certificate at the Company's expense. Upon such resignation the
Company shall appoint in writing a new warrant agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then
the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company doing business in New York. After acceptance in writing of
such appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the warrant
agent, without any further assurance, conveyance, act or deed; but if for any
reason it shall be necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the expense of
the Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate. (g) Any corporation into which
the Warrant Agent or any new warrant agent may be converted or merged, any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent or any new warrant agent shall be
a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holders of each
Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effect as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date of
exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate
to cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; or (ii) that they may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders representing not less
that 66-2/3% of the Warrants then outstanding (including, for this purpose
Warrants issuable to the Underwriter pursuant to the Underwriters Warrant
Agreement, whether or not then outstanding); provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or to increase the Purchase Price therefor, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate, other
than such changes as are specifically prescribed by this Agreement as
originally executed. In addition, this Agreement may not be modified, amended
or supplemented without the prior written consent of the Underwriter, other
than to cure any ambiguity or to correct any provision which is inconsistent
with any other provision of this Agreement or to make any such change that is
necessary or desirable and which shall not adversely affect the interests of
the Underwriter and the Underwriters and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid, or delivered to a telegraph office for
transmission if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at 3590 Oceanside Road, Oceanside, New York 11572,
Attention: Dr. Jan Stahl, Chief Executive Officer, or at such other address as
may have been furnished to the Warrant Agent in writing by the company; and if
to the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to Morgan Grant at Morgan Grant
Capital Corp., 71 Clinton Road, Garden City, New York 11530, Attention: Mr.
Michael Christ, President, or at such other address as may have been furnished
to the Company and the Warrant Agent in writing.
SECTION 13. Applicable Law
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon
any other person any duty, liability or obligation. The Underwriter is and
shall at all times irrevocably be deemed to be, third-party beneficiaries of
this Agreement, with full power, authority and standing to enforce the rights
granted to it hereunder.
SECTION 15. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document. IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the first date first above written.
[SEAL]
AMERICAN STOCK TRANSFER AND
TRUST COMPANY, as Warrant Agent
By:
XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:
Peter Steil, President
ATTEST:
_________________________
Dr. Jan Stahl, Secretary
EXHIBIT A
No. W VOID AFTER ___________, 2003
WARRANTS
WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
XETAL, INC.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the Registered Holder) is the owner of the number of
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, $.001 par value, of XETAL, INC.,
a Utah corporation (the Company), at any time between _____________, 1999,
(the Initial Warrant Exercise Date), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer and Trust Company, 40 Wall Street, New York,
New York 10005, as Warrant Agent, or its successor (the Warrant Agent),
accompanied by payment of $5.00 subject to adjustment (the Purchase Price),
in lawful money of the United States of America in cash or by certified or bank
check made payable to the Warrant Agent for the account of 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 (the Warrant Agreement), dated
_______________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase 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.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of 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
_______________, 2003. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 p.m. (New York time) the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close. The Company shall not extend the Expiration Date nor
reduce the Purchase Price. The Company shall not be obligated to deliver any
securities pursuant to the exercise of this Warrant unless a registration
statement under the Securities Act of 1933, as amended (the Act), with
respect to such securities is effective or an exemption thereunder is
available. The Company has covenanted and agreed that it will file a
registration statement under the Federal securities laws, use its best efforts
to cause the same to become effective, use its best efforts to keep such
registration statement current, if required under the Act, while any of the
Warrants are outstanding, and deliver a prospectus which complies with Section
10(a)(3) of the Act to the Registered Holder exercising this Warrant. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would 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 due 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 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 $.05 per
Warrant, at any time commencing two years after the Initial Warrant Exercise
Date, provided that (i) the closing sale price for the Common Stock as reported
by the National Association of Securities Dealers Automated Quotation System
(Nasdaq) or the National Quotation Bureau, Inc., if the Common Stock is then
traded in the over-the-counter market or (ii) the closing sale price, if the
Common Stock is then traded on Nasdaq/NM or a national securities exchange,
shall have equaled or exceeded for each of the twenty (20) consecutive trading
days ending on the tenth (10) day prior to the Notice of Redemption, as defined
below, $7.50 per share (subject to adjustment in the event of any stock splits
or other similar events). Notice of redemption (the Notice of Redemption)
shall be given not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the close
of business on the day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to the Warrants except to
receive the $.05 per Warrant upon surrender of this Warrant Certificate.
Under certain circumstances, the Underwriter shall be entitled to
receive an aggregate of seven percent (7%) of the Purchase Price of the
Warrants represented hereby in accordance with Section 4(b) of the Warrant
Agreement. 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 giving effect to
conflicts of laws.
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: _____________, 1998
[SEAL] XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:_______________________________
Dr. Jan Stahl, Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
as Warrant Agent
By:
Name:
Title:
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
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. The exercise of this Warrant was
solicited by Worthington Capital Group, Inc. ______
2. The exercise of this Warrant was not
solicited.
Dated:
Address
Social Security or Taxpayer
Identification Number
Signature Guaranteed
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 Attorney
to transfer this Warrant Certificate on the of the Company, with full power of
substitution in the premises.
Dated: X
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION 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 COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR
BOSTON STOCK EXCHANGE.
XETAL, INC.
AND
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
WARRANT AGREEMENT
Dated as of _____________________, 1998
EXHIBIT 10(ix)
Agreement Canceling Underwriter's Warrants
A G R E E M E N T
AGREEMENT made this 18th day of August, 1998 by and between Morgan Grant
Capital Corp. (formerly Worthington Capital Group, Inc.) (Morgan Grant) and
Xetal, Inc. (the Company).
WHEREAS, on October 1, 1996 Warrants (the Warrants) were issued by the
Company to Morgan Grant entitling the holder thereof to purchase 250,000 shares
of the Companys common stock; and
WHEREAS, as of the date hereof Morgan grant and the Company are desirous of
cancelling the Warrants in their entirety;
NOW THEREFORE, in consideration of the mutual agreements herein, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follow:
1. As of the date hereof the Warrants are cancelled in their entirety.
2. This Agreement has been approved by unanimous consent of the respective
Board of Directors of each of Morgan Grant and the Company.
This Agreement may be executed in multiple counterparts and on facsimile paper
and by facsimile transmission as necessary. When each of the parties has
signed and delivered at least one such counterpart, each counterpart will be
deemed an original and, when taken together with the other signed
counterpart(s), shall constitute one fully executed copy of this Agreement,
which shall be binding upon and effective as to the parties according to its
terms.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day
and year first above written.
MORGAN GRANT CAPITAL CORP.
By:
Michael Christ, President
XETAL, INC.
By:
Jan Stahl,
Chief Executive Officer
TERMINATION AGREEMENT
THIS AGREEMENT made and entered into this day of September, 1998 by,
between and among XETAL, INC., a corporation organized under the State of Utah
with offices at 3590 Oceanside Road, Oceanside, New York 11572 hereinafter
called "Xetal" and MORGAN GRANT CAPITAL CO., INC. a corporation organized under
the laws of New York having its principal offices at 71 Clinton Road, Garden
City, New York 11530 hereinafter referred to as "Morgan."
W I T N E S S E T H
WHEREAS the parties have hereunto previously entered into a consulting
agreement wherein Morgan was to provide financial and other consulting services
for Xetal and the parties now desire to terminate such agreement;
NOW THEREFORE in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable considerations, the
parties mutually agree as follows:
1. Termination of Agreement. The parties hereby mutually agree to
terminate the Consulting Agreement previously entered into between them and
hereby declare said agreement to be null and void and of no further effect..
2. No Liability. The parties hereby mutually agree that no party
shall be liable to the other party for any debt, obligation, fee or performance
of any service arising from said Agreement.
IN WITNESS WHEREOF the parties have set their hands and seals the year and date
first above written.
XETAL, INC.
By_______________________
MORGAN GRANT CAPITAL CO., INC.
By________________________
EXHIBIT 23(ii)
Consent of Linder & Linder
INDEPENDENT AUDITORS' CONSENT
To: The Board of Directors
And Stockholders
Xetal, Inc. and Subsidiaries
We consent to the reference to our firm under the caption "Experts" and the
use of our report dated December 12, 1997 with respect to the consolidated
financial statements of Xetal, Inc. and subsidiaries included in the Prospectus
of Xetal, Inc. that is made part of the Registration Statement on Form SB-2
filed in behalf of Xetal, Inc. with the Securities and Exchange Commission.
/s/ Linder & Linder
Linder & Linder
Certified Public Accountants
Dix Hills, New York
September 24, 1998
EXHIBIT 1(vi)
Escrow Agreement
ESCROW AGREEMENT
Escrow Agreement dated as of ____________, 1998 by and among The Chase
Manhattan Bank, a New York State chartered bank with offices at 450 West 33rd
Street, New York, New York 10001, Xetal, Inc., a Utah corporation with offices
at 3590 Oceanside Road, Oceanside, New York 11572 and Morgan Grant Capital
Corp., a Delaware corporation with offices at 71 Clinton Road, Garden City, New
York 11530.
W I T N E S S E T H
WHEREAS, Xetal, Inc. (the Issuer-Corporation) has filed a registration
statement on Form SB-2 under the Securities Act of 1933, as amended, with the
Securities and Exchange Commission, File No. 333-20525 (the Registration
Statement), relating to the subscription for and sale of a maximum of 540,000
shares (the Shares) of common stock, $0.001 par value per share (the Common
Stock) and 540,000 redeemable common stock purchase warrants (the Public
Warrants) in the Issuer-Corporation, with a minimum investment required of
300,000 shares of Common Stock at a price of $5.00 per Share and 300,000 Public
Warrants at a price of $0.10 per Public Warrant; and
WHEREAS, Morgan Grant Capital Corp. (the Depositor-Agent) has been named as the
Underwriter in connection with the proposed offering of the Common Stock and
the Public Warrants (collectively the Securities)in accordance with the terms
of the Underwriting Agreement dated as of _____________, 1998 among the
Issuer-Corporation and the Depositor-Agent (the Underwriting Agreement); and
WHEREAS, in compliance with Rule 15c2-4 under the Securities Exchange Act of
1934, as amended, the Issuer-Corporation and the Depositor-Agent propose to
establish an escrow fund with The Chase Manhattan Bank (the Bank-Escrowee);
and
WHEREAS, the offering of the Securities will terminate no later than sixty
(60) days of the date the Registration Statement is declared effective by the
Securities and Exchange Commission (the Effective Date) unless extended by
the Issuer-Corporation for an additional thirty (30) days (the Offering
Termination Date). If subscriptions for at least 300,000 shares of Common
Stock ($1,500,000) and 300,000 Public warrants ($30,000) ($1,530,000 in
aggregate) have not been received by the Offering Termination Date, no
Securities will be sold; and WHEREAS, the Bank-Escrowee has agreed to act as
escrow agent in connection with the proposed fund;
NOW, THEREFORE, it is agreed as follows:
1. For a period commencing on the Effective Date and terminating at the latest
of the Offering Termination Date, Closing Date or the Option Closing Date, as
the latter two terms are defined in the Underwriting Agreement and as the same
is set forth in the Registration Statement of the Issuer-Corporation, the
Bank-Escrowee shall act as escrow agent and agrees to receive and disburse the
proceeds from the sale of the the Securities in accordance herewith. The
Depositor-Agent and the Issuer-Corporation agree to notify the Bank-Escrowee
(a) promptly after the Registration Statement has been declared effective by
the Securities and Exchange Commission, (b) if the proposed offering of the
Securities is extended as provided in the Underwriting Agreement, (c) of the
Offering Termination Date and (d) of the Closing Date and each Option Closing
Date.
2. All moneys received by the Depositor-Agent and the Issuer-Corporation in
connection with the sale of the Securities shall be deposited by the
Depositor-Agent and the Issuer-Corporation in a non-interest escrow account to
be established for this purpose by the Bank-Escrowee.
3. If at least 300,000 shares of Common Stock and 300,000 Public Warrants have
been subscribed for and any funds remain in the escrow account on the later of
the Closing Date, Option Closing Date or the Offering Termination Date, such
funds will be promptly paid to or credited to the account of, or otherwise
transferred to the Issuer-Corporation less expenses (as specified in written
instructions from the Issuer-Corporation and the Depositor-Agent, signing
jointly).
4. Upon receipt by the Bank-Escrowee of appropriate written instructions at the
Closing Date and Option Closing Date as the case may be, from the
Issuer-Corporation and the Depositor-Agent, jointly, giving notice of the
events described herein, the Bank-Escrowee shall pay to or credit to the
account of, or otherwise transfer (as specified in such instructions) to, the
Issuer-Corporation and other instructed parties such portion of the deposited
funds then held in escrow as specified in such instructions.
5. If at least 300,000 shares of Common Stock and 300,000 Public Warrants have
not been subscribed for by the Offering Termination Date, then the
Depositor-Agent and the Issuer-Corporation promptly shall so advise the
Bank-Escrowee, shall furnish to the Bank-Escrowee a list containing the name
and address of, the amount received from each subscriber whose funds have been
deposited and shall authorize the Bank-Escrowee to return the subscription
funds theretofore received, without interest, to the subscribers as named.
6. In the event of either (a) the occurrence of all the events contemplated by
Sections 3 and 4 hereof, or (b) at least 300,000 shares of Common Stock and
300,000 Public Warrants not having been subscribed for by the Offering
Termination Date and the repayment to the subscribers of the amounts provided
in Section 5 hereof, the Bank-Escrowee shall be relieved of all liabilities in
connection with the escrow deposits provided for herein.
7. The Issuer-Corporation hereby agrees to (i) pay the Bank-Escrowee upon
execution of this Agreement reasonable compensation for the services to be
rendered hereunder, as described on Schedule I attached hereto, and (ii) pay or
reimburse the Bank-Escrowee upon request for all expenses, disbursements and
advances, including reasonable attorneys fees, incurred or made by it in
connection with this agreement.
8. It is understood and agreed, further, that the Bank-Escrowee shall: (a) be
under no duty to enforce payment of any subscription which is to be paid to and
held by it hereunder;
(b) be under no duty to accept funds, checks, drafts or instructions for the
payment of money from anyone other than the Depositor-Agent and the
Issuer-Corporation or to give any receipt therefor except to the
Depositor-Agent and the Issuer-Corporation; (c) be protected in acting under
any notice, request, certificate, approval, consent or other paper believed by
it to be genuine, signed by the proper party or parties and in accordance with
the terms of this Agreement; (d) be deemed conclusively to have given and
delivered any notice required to be given or delivered hereunder if the same is
in writing, signed by any one of its authorized officers, and mailed by
registered or certified mail, or delivered by hand, to the Depositor-Agent, 71
Clinton Street, Garden City, New York 11530, Attn: Michael Christ and the
Issuer-Corporation, 3590 Oceanside Road, Oceanside 11572, Attn.: Dr. Jan Stahl
with a copy to Doros & Brescia, P.C., 1140 Avenue of the Americas, New York,
New York 10036, Attn.: Ronald J. Brescia and with a copy to B. Bruce Freitag,
Esq., 39 Sackerman Avenue, North Haledon, New Jersey 07508 and be deemed
conclusively to have received any notice required to be given or delivered
hereunder if the same is in writing, signed by any one of the authorized
officers of the Depositor-Agent and the Issuer-Corporation, and mailed, by
registered or certified mail, or delivered by hand, to the Bank-Escrowees
Corporate Trust Department, 450 West 33rd Str eet, New York, New York 10001,
Attn.: Escrow Administration: 15th Floor.
(e) be indemnified by the Depositor-Agent and the Issuer-Corporation against
any claim made against it by reason of its action or failing to act in
connection with any of the transactions contemplated hereby and against any
loss it may sustain in carrying out the terms of this Agreement, except such
claims which are occasioned by its bad faith, gross negligence or willful
misconduct. Anything in this agreement to the contrary notwithstanding, in no
event shall the Bank-Escrowee be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Bank-Escrowee has been advised of the likelihood of such
loss or damage and regardless of the form of action;
(f) promptly notify the Depositor-Agent and the Issuer-Corporation of any
discrepancy between the amounts set forth on any statement delivered by the
Depositor-Agent or the Issuer-Corporation, as the case may be, and the sum or
sums delivered to the Bank-Escrowee therewith;
(g) have no duty to inquire into the terms and conditions of this Agreement,
such duties being purely ministerial in nature;
(h) be permitted to consult with counsel of its choice, including in-house
counsel, and shall not be liable for any action taken, suffered or omitted by
it in accordance with the advice of such counsel, provided, however that
nothing in this subsection (h), nor any action taken by the Bank-Escrowee, or
suffered or omitted by it in accordance with the advice of any counsel, shall
relieve the Bank-Escrowee from liability for any claims that are occasioned by
its bad faith, gross negligence or willful misconduct, all as provided in
subsection (e) above;
(i) not be bound by any modification, amendment, termination, cancellation,
recision or supersession of this Agreement, unless the same shall be in writing
and signed by all parties hereto;
(j) have no liability for following the instructions herein or expressly
provided for, or written instructions given by the Depositor-Agent or the
Issuer-Corporation; and
(k) have the right, at any time, to resign hereunder by given written notice of
its resignation to take effect, and upon the effective date of such resignation
all cash and other payments and all other property then held by the
Bank-Escrowee hereunder shall be delivered by it to such person as may be
designated in writing by the other parties executing this Agreement, whereupon
the Bank-Escrowees obligations hereunder shall cease and terminate. If no
such person has been designated by such date, all obligations of the
Bank-Escrowee hereunder shall, nevertheless, cease and terminate. The
Bank-Escrowees sole responsibility thereafter shall be to keep safely all
property then held by it and to deliver the same to a person designated by the
other parties executing this Agreement or in accordance with the directions of
a final order or judgment of a court of competent jurisdiction.
9. If any checks or other instruments deposited in the escrow account
established hereunder prove uncollectible, the Issuer-Corporation shall deliver
the returned checks or other instruments to the Issuer-Corporation.
10. Nothing in this Agreement is intended to or shall confer upon anyone other
than the parties hereto any legal right, remedy or claim. This Agreement shall
be construed in accordance with the laws of the State of New York and may be
modified only in writing.
11. (a) In the event funds transfer instructions are given (other than in
writing at the time of execution of the Agreement), whether in writing, by
telecopier or otherwise the Bank-Escrowee is authorized to seek confirmation of
such instructions by telephone call-back to person or persons designed on
Schedule 1 hereto, and the Bank-Escrowee may rely upon the confirmations of
anyone purporting to be the person or persons so designated. The persons and
telephone numbers for call-backs may be changed only in a writing actually
received and acknowledged by the Bank-Escrowee. The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.
(b) It is understood that the Bank-Escrowee and the beneficiarys bank in any
funds transfer may rely solely upon any account numbers or similar identifying
number provided by either of the other parties hereto identify (i) the
beneficiary, (ii) the beneficiarys bank, or (iii) an intermediary bank. The
Bank-Escrowee may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even where its use may result in a
person other than the beneficiary being paid, or the transfer of funds to a
bank other than the beneficiarys bank or an intermediary bank designated.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
THE CHASE MANHATTAN BANK
By:
XETAL, INC.
By:
Dr. Jan Stahl,
Chief Executive Officer
By:
Peter Steil, President
MORGAN GRANT CAPITAL CORP.
By:
Michael Christ, President
Schedule 1
$2,500 per annum, or any part thereof, without proration for partial years.
$5.00 per check.
Schedule 2
Telephone Number(s) for Call-Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
If to Issuer-Corporation:
Name
Telephone Number
1. Dr. Jan Stahl
516-594-0005
2. Peter Steil
516-594-0005
If to Depositor-Agent:
Name
Telephone Number
1. Michael Christ
516-873-6218
2. Howard Zelin
516-873-6218
EXHIBIT 5
Opinion of B. Bruce Freitag
B. BRUCE FREITAG
Attorney at Law
39 Sackerman Avenue
_____________
Telephone (973) 238 1909
Telecopier (973) 238 1910
October , 1998
Xetal, Inc.
3590 Oceanside Road
Oceanside, New York 11572
Gentlemen:
This opinion and the consent to use my name is furnished in connection with the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission, Washington, D.C., by Xetal, Inc. (hereinafter referred to as the
"Company") pursuant to the Securities Act of 1933, as amended, covering a total
of 540,000 shares of the common stock of the Company (hereafter the "Common
Stock") and common stock purchase warrants (hereinafter "Warrants") to
purchase a total of 540,000 shares of Common Stock. I have acted as counsel to
the Company in connection with the preparation and filing of the Registration
Statement and as such counsel, I am familiar with the Registration Statement
and proceedings to date with respect to the authorization by the Company of the
Common Stock and Warrants. Based upon the foregoing, I advise you that: 1. The
540,000 shares of Common Stock covered by the Registration Statement have been
duly authorized by the Company and upon full receipt of consideration for such
shares, such shares will be legally issued, fully paid and non-assessable
shares of the Common Stock of the Company. 2. The Warrants covered by the
Registration Statement have been duly authorized by the Company and when full
consideration has been received for such Warrants, they will be legally issued
and will permit the holder thereof to purchase from the Company up to a total
of 540,000 shares of Common Stock.
3. A total of 540,000 shares of Common Stock have been authorized by the
Company as being issuable upon exercise of the Warrants. When properly
exercised by the Warrantholder as provided in the Warrant Agreement and Warrant
Certificate and consideration is received, such shares will be legally issued,
fully paid and non-assessable shares of the Common Stock of the Company.
Consent is hereby given to the use of this opinion as an exhibit to the
Registration Statement and the use of my name in the Prospectus forming a part
of the Registration Statement under the caption "Legal Opinions."
Very truly yours,
B. Bruce Freitag
BBF:emk
EXHIBIT 10(viii)
Form of Amended Warrant Agreement and Warrant Certificate
AGREEMENT, dated this _____ day of _____________, 1998, between XETAL, INC., a
Utah corporation (the Company), and AMERICAN STOCK TRANSFER AND TRUST
COMPANY, as Warrant Agent (the Warrant Agent).
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public pursuant to the
Prospectus (the Prospectus) contained in the Company's Registration Statement
on Form SB-2 (Registration No. 333-20525) of 540,000 shares of the Company's
common stock, $0.001 par value per share (the Common Stock), (ii) the
offering to the public pursuant to the Prospectus of 540,000 redeemable common
stock purchase warrants (the Warrants), each Warrant entitling the holder
thereof to purchase one share of Common Stock, and (iii) the sale to Morgan
Grant Capital Corp. (formerly Worthington Capital Group, Inc.) (Morgan Grant
or the Underwriter), its successors and assigns, of warrants (the
Underwriters Warrants) to purchase an aggregate of 54,000 shares of Common
Stock, each Warrant entitling the holder thereof to purchase one share of
Common Stock, the Company will issue to the public up to 540,000 Warrants and
to the Underwriter the Underwriters Warrants to purchase up to 54,000 shares
of Common
Stock (subject to adjustment); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing to so act, in connection with the issuance,
registration, transfer and exchange of certificates representing the Warrants
and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require: (a) Common
Stock shall mean stock of the Company of any class whether now or hereafter
authorized, which has the right to participate in the voting and in the
distribution of earnings and assets of the Company without limit as to amount
or percentage.
(b) Corporate Office shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business in New York,
New York, shall be administered, which office is located on the date hereof at
40 Wall Street, New York, New York 10005.
(c) Exercise Date shall mean, subject to the provisions of Section 5(b) hereof,
as to any Warrant, the date on which the Warrant Agent shall have received both
(i) the Warrant Certificate representing such Warrant, with the exercise form
thereon duly executed by the Registered Holder hereof or his attorney duly
authorized in writing, and (ii) payment in cash or by certified or bank check
made payable to the Warrant Agent for the account of the Company, of the amount
in lawful money of the United States of America equal to the applicable
Purchase Price in good funds.
(d) Initial Warrant Exercise Date shall mean ____________, 1998.
(e) Initial Warrant Redemption Date shall mean __________, 1999.
(f) Purchase Price shall mean, subject to modification and adjustment as
provided in Section 8, $5.00.
(g) Registered Holder shall mean the person in whose name any certificate
representing the Warrants shall be registered on the books maintained by the
Warrant Agent pursuant to Section 6.
(h) Underwriters Warrant Agreement shall mean the agreement dated as of
______________, 1998 between the Company and the Underwriter relating to and
governing the terms and provisions of the Underwriters Warrants.
(i) Subsidiary or Subsidiaries shall mean any corporation or corporations, as
the case may be, of which stock having ordinary power to elect a majority of
the Board of Directors of such corporation (regardless of whether or not at the
time stock of any other class or classes of such corporation shall have or may
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned by the Company or by one or more Subsidiaries, or
by the Company and one or more Subsidiaries.
(j) Transfer Agent shall mean American Stock Transfer and Trust Company, or
its authorized successor.
(k) Underwriting Agreement shall mean the underwriting agreement dated
______________, 1997 between the Company and the Underwriters relating to the
sale to the public by Morgan Grant, as the Companys exclusive agent, on a best
efforts basis, of the 540,000 shares of Common Stock and 540,000 Warrants.
(l) Warrant Certificate shall mean a certificate representing each of the
Warrants substantially in the form annexed hereto as Exhibit A.
(m) Warrant Expiration Date shall mean, unless the Warrants are redeemed as
provided in Section 9 hereof prior to such date, 5:00 p.m. (New York time), on
______________, 2003, or, if such date shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:00 p.m. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
(n) Warrant Agent shall mean American Stock Transfer and Trust Company, or
its authorized successor.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the Warrant
Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof, subject to
modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing 540,000
Warrants to purchase up to an aggregate of 540,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8) shall be
executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Underwriters Warrants as provided therein, Warrant
Certificates representing all of 54,000 Warrants, to purchase up to an
aggregate of 54,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Underwriters' Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board,
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary.
(d) From time to time, up to the Warrant Expiration Date, as the case may be,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Underwriters Warrant Agreement (including Warrants in excess of the
Underwriter's Warrants to purchase 54,000 shares of Common Stock issued as a
result of the anti-dilution provisions contained in the Underwriter's Warrant
Agreement), and (v) at the option of the Company, Warrant Certificates in such
form as may be a proved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the redemption price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed hereto
as Exhibit A (the provisions of which are hereby incorporated herein) and 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 Warrants may be listed, or to conform
to usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates). (b) Warrant Certificates shall
be executed on behalf of the Company by its Chairman of the Board, President or
any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned. In case
any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof may be
exercised commencing at any time on or after the Initial Warrant Exercise Date,
but not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein (including the provisions set forth in Sections 5
and 9 hereof) and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date, provided that the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder thereof
or his attorney duly authorized in writing, together with payment in cash or by
check made payable to the Warrant Agent for the account of the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price has been received in good funds by the Warrant Agent. The
person entitled to receive the securities deliverable upon such exercise shall
be treated for all purposes as the holder of such securities as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date and in any event within five business days after having received
authorization from the Company, the Warrant Agent on behalf of the Company
shall cause to be issued to the person or persons entitled to receive the same
a Common Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the same to
the person or persons entitled thereto. Upon the exercise of any Warrant, 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
subsection (b) below, shall cause all payments of an amount in cash or by check
made payable to the order of the Company, equal to the Purchase Price, to be
deposited promptly in the Company's bank account.
(b) At any time upon the exercise of any Warrants after one (1) year and one
day from the date hereof, the Warrant Agent shall, on a daily basis, within two
business days after such exercise, notify the Underwriter, and its and their
successors or assigns, of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), remit to the Underwriter (so
long as the Underwriter solicited the exercise of such Warrant as indicated
upon the Subscription Form attached to the Warrant Certificate tendered for
exercise), an amount equal to seven percent (7%) of the Purchase Price of such
Warrants being then exercised if written certification is received that (i) the
Warrant is exercised at least 12 months after the date of this Prospectus; (ii)
the market price of the Common Stock on the date that the Warrant is exercised
is greater than the exercise price of the Warrants; (iii) the exercise of the
Warrants was solicited by a member of the National Association of Securities
Dealers, Inc.; (iv) the Warrant is not held in a discretionary account; (v)
disclosure of the compensation arrangements is made at the time of the exercise
of the Warrant; (vi) the holder of the Warrant has stated in writing that the
exercise was solicited and designated in writing the soliciting broker-dealer;
and (vii) the solicitation of exercise of the Warrant was not in violation of
Rule 10b-6 promulgated under the Exchange Act; provided that the Warrant Agent
shall not be obligated to pay any amounts pursuant to this Section 4(b) during
any week that such amounts payable are less than $1,000 and the Warrant Agent's
obligation to make such payments shall be suspended until the amount payable
aggregate $1,000, and provided further, that, in any event, any such payment
(regard less of amount) shall be made not less frequently than monthly. (c) The
Company shall not be required to issue fractional shares upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares. If one or more
Warrants shall be presented for exercise in full at the same time by the same
Registered Holder, the number of whole shares which shall be issuable upon such
exercise thereof shall be computed on the basis of the aggregate number of
shares purchasable on exercise of the Warrants so presented. If any fraction
of a share would, except for the provisions provided herein, be issuable on the
exercise of any Warrant (or specified portion thereof), the Company shall pay
an amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows: (1) If the Common
Stock is listed or admitted to unlisted trading privileges on the NYSE or the
AMEX or is traded on the Nasdaq/NM, the current market value of a share of
Common Stock shall be the closing sale price of the Common Stock at the end of
the regular trading session on the last business day prior to the date of
exercise of the Warrants on whichever of such exchanges or Nasdaq/NM had the
highest average daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on either the NYSE or the AMEX and is not traded on Nasdaq/NM, but
is quoted or reported on Nasdaq, the current market value of a share of Common
Stock shall be the average of the last reported closing bid and asked prices
(or the last sale price, if then reported by Nasdaq) of the Common Stock at the
end of the regular trading session on the last business day prior to the date
of exercise of the Warrants as quoted or reported on Nasdaq, as the case may
be; or (3) If the Common Stock is not listed or admitted to unlisted trading
privileges on either of the NYSE or the AMEX, and is not traded on Nasdaq/NM or
quoted or reported on Nasdaq, but is listed or admitted to unlisted trading
privileges on the BSE or other national securities exchange (other than the
NYSE or the AMEX), the current market value of a share of Common Stock shall be
the closing sale price of the Common Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the Warrants
on whichever of such exchanges has the highest average daily trading volume for
the Common Stock on such day; or (4) If the Common Stock is not listed or
admitted to unlisted trading privileges on any national securities exchange, or
listed for trading on Nasdaq/NM or quoted or reported on Nasdaq, but is traded
in the over-the-counter market, the current market value of a share of Common
Stock shall be the average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of exercise of the Warrants; or (5) If the
Common Stock is not listed or admitted to unlisted trading privileges on any
national securities exchange, or listed for trading on Nasdaq/NM or quoted or
reported on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current market value of a
share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined in accordance with generally
accepted accounting principles, consistently applied. SECTION 5. Reservation of
Shares; Listing; Payment of Taxes; etc. (a) The Company covenants that it will
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon exercise of Warrants, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, at the time of
delivery thereof, be duly and validly issued and fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, and that upon issuance such shares shall be
listed on each securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed. (b) The Company
covenants that if any securities to be reserved for the purpose of exercise of
Warrants hereunder require registration with, or approval of, any governmental
authority under any federal securities law before such securities may be
validly issued or delivered upon such exercise, then the Company will file a
registration statement under the federal securities laws or a post effective
amendment, use its best efforts to cause the same to become effective and use
its best efforts to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Securities Act of 1933, as amended, (the Act), to the
Registered Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal securities
law or if the Company receives a letter from the staff of the Securities and
Exchange Commission (the Commission) stating that it would not take any
enforcement action if such registration is not effected). The Company will
use best efforts to obtain appropriate approvals or registrations under
state blue sky securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer Agent to
requisition from time to time certificates representing shares of Common Stock
or other securities required upon exercise of the Warrants, and the Company
will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants or may be transferred in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered
to the Warrant Agent at its Corporate Office, and the Company shall execute and
the Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
exchange or other trading market shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof. Upon due presentment for registration
of transfer of any Warrant Certificate at such office, the Company shall
execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription or exercise form, as
the case may be, on the reverse thereof shall be duly endorsed or be
accompanied by a written instrument of instruments or transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing.
(d) No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates. However, the Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange shall be
promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the Company
and the Warrant Agent may deem and treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company or the Warrant Agent) for all purposes and shall not be
affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and (in the case of loss,
theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common Stock
Deliverable.
(a) (i) Except as hereinafter provided, in the event the Company shall, at any
time or from time to time after the date hereof, issue any shares of Common
Stock for a consideration per share less than the Fair Market Value (as
defined in Section 8(g)) or issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such issuance, subdivision or combination being herein called a Change of
Shares), then, and thereafter upon each further Change of Shares, the Purchase
Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent to the nearest
cent) determined by dividing (i) the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, multiplied
by the Purchse Price in effect immediately prior to such Change of Shares and
(b) the consideration, if any, received by the Company upon such sale,
issuance, subdivision or combination, by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Purchase Price be adjusted pursuant to this
computation to an amount in excess of the Purchase Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock. For the purposes of any adjustment to be made in
accordance with this Section 8(a), the following provisions shall be
applicable:
(A) In case of the issuance or sale of shares of Common Stock (or of
other securities deemed hereunder to involve 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 portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price, if shares of
Common Stock are offered by the Company for subscription, or (ii) 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), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other
case, in each case, without deduction for any expenses incurred by the Company
in connection with such transaction.
(B) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock (or
of other securities deemed hereunder to involve the issuance or sale 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 deemed to have
been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company on the basis
of a record of values of similar property or services.
(C) 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.
(D) 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 (B) of this Section 8(a).
(E) The number of shares of Common Stock at any time outstanding shall be
deemed to include the aggregate maximum number of shares issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights or warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to this Section 8, the
number of shares of Common Stock purchasable upon the exercise of each Warrant
shall be the number derived by multiplying the number of shares of Common Stock
purchasable immediately prior to such adjustment by the Purchase Price in
effect prior to such adjustment and dividing the product so obtained by the
applicable adjusted Purchase Price.
(b) In case the Company shall at any time after the date hereof 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, for a
consideration per share (determined as provided in Section 8(a)(i) and as
provided below) less than the Fair Market Value in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of
any such securities by way of dividend or other distribution), the Purchase
Price for the Warrants (whether or not the same shall be issued and
outstanding) 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 the computation in
accordance with the provisions of Section 8(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable or that may become issuable under such options, rights or warrants
(assuming exercise in full even if not then currently exercisable or currently
exercisable in full) shall be deemed to be issued and outstanding at the time
such options, rights or warrants were issued, for a consideration equal to the
minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any, received by
the Company for such options, rights or warrants; provided, however, that upon
the expiration or other termination of such 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 (A) (and for
the purposes of subsection (E) of Section 8(a)(I) hereof) shall be reduced by
the number of shares as to which options, warrants and/or rights s hall have
expired, and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or that
may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if not
then currently convertible or exchangeable in full) shall be deemed to be
issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration 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
termination of the right to convert or exchange such convertible or
exchangeable securities (whether by reason of redemption or otherwise), the
number of shares of Common Stock deemed to be issued and outstanding pursuant
to this subsection (B) (and for the purposes of subsection (E) of Section
8(a)(I) hereof) shall be reduced by the number of shares as to which the
conversion or exchange rights shal l have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon conversion or exchange of those convertible
or exchangeable securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (A) of this Section
8(b), or in the price per share or ratio at which the securities referred to in
subsection (B) of this Section 8(b) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, to the extent not theretofore exercise, 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.
(c) In case of any reclassification or change of outstanding shares of Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from 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 case of any consolidation or
merger of the Company with or into another corporation (other than a merger
with a Subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value or as a result of subdivision or combination)
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a
condition of such reclassification, change, consolidation, merger, s ale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its President or a
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary evidencing such provision. Such provisions shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 8(a) and (b). The above
provisions of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(e) hereof, continue to express the Purchase Price per share and the
number of shares purchasable thereunder as the Purchase Price per share.
(e) After each adjustment of the Purchase Price pursuant to this Section 8, the
Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, of the Company setting forth: (i) the Purchase Price
as so adjusted, (ii) the number of shares of Common Stock purchasable upon
exercise of each Warrant, after such adjustment, and (iii) a brief statement of
the facts accounting for such adjustment. The Company will promptly file such
certificate with the Warrant Agent and cause a brief summary thereof to be sent
by ordinary first class mail to each Registered Holder at his last address as
it shall appear on the registry books of the Warrant Agent. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as the Registered Holder to whom the Company failed to
mail such notice, or except as to the Registered Holder whose not ice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(f) No adjustment of the Purchase Price shall be made as a result of or in
connection with (A) the issuance of shares of Common Stock underlying the
Warrants or the securities issuable upon exercise of the Underwriters Warrants
pursuant to the Underwriters Warrant Agreement, or (B) the issuance or sale of
shares of Common Stock if the amount of said adjustment shall be less than
$.10, provided, however, that in such case, any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment that shall amount,
together with any adjustment so carried forward, to at least $.10. In
addition, Registered Holders shall not be entitled to cash dividends paid by
the Company prior to the exercise of any Warrant or Warrants held by them.
(g) Fair Market Value shall mean the value of a share of Common Stock as
determined in accordance with the following provisions:
(1) If the Common Stock is listed or admitted to unlisted trading privileges
on the NYSE or the AMEX or is traded on the Nasdaq/NM, the Fair Market Value of
a share of Common Stock shall be equal to the average of the closing sale price
of the Common Stock during the thirty (30) trading days immediately preceding
the date of the event which requires the determination of Fair Market Value on
whichever of such exchanges or Nasdaq/NM had the total highest daily trading
volume for the Common Stock during such thirty (30) day trading period.
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on either the NYSE or the AMEX and is not traded on Nasdaq/NM, but
is quoted or reported on Nasdaq, the Fair Market Value of a share of Common
Stock shall be the average of the last reported closing bid and asked prices
(or the last sale price, if then reported on Nasdaq) of the Common Stock during
the thirty (30) trading days immediately preceding the date of event which
requires the determination of Fair Market Value.
(3) If the Common Stock is not listed or admitted to unlisted trading
privileges on either of the NYSE or the AMEX and is not traded on Nasdaq/NM or
quoted or reported on Nasdaq, but is listed or admitted to unlisted trading
privileges on the BSE or another national securities exchange (other than the
NYSE or the AMEX), the Fair Market Value of a share of Common Stock shall be
the average of the closing sale price of the Common Stock during the thirty
(30) trading days immediately preceding the date of the event which requires
the determination of Fair Market Value.
(4) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, but is traded in the
over-the-counter market, the Fair Market Value of a share of Common Stock shall
be the average of the average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc. for the thirty
(30) trading days immediately preceding the date of the event which requires
the determination of Fair Market Value.
(5) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, and bid and asked prices of the
Common Stock are not reported by the National Quotation Bureau, Inc., the Fair
Market Value of a share of Common Stock shall be an amount, not less than the
book value thereof as of the end of the most recently completed fiscal quarter
of the company ending prior to the date requiring a determination of fair
market value, determined in accordance with general accepted accounting
principles, consistently applied. SECTION 9. Redemption. (a) Commencing on the
Initial Warrant Redemption Date, the Company may, on 30 days' prior written
notice redeem all the Warrants, other than the Warrants underlying the
Underwriter's Warrants which shall not be redeemable, at five cents ($.05) per
Warrant, provided, however, that before any such call for redemption of
Warrants can take place the closing sale price of the Common Stock as quoted on
NASDAQ or if such shares are not trading on NASDAQ then on the principal market
on which such shares shall then be trading, shall have, for each of the twenty
(20) consecutive trading days ending on the tenth (10th) day prior to the date
on which the notice contemplated by (b) and (c) below is given, equaled or
exceeded $7.50 per share (subject to adjustment in the event of any stock
splits or other similar events as provided in Section 8 hereof). (b) In case
the Company shall exercise its right to redeem all of the Warrants so
redeemable, it shall give or cause notice to such effect to be given to the
Underwriter in the same manner that notice is required to be given by the
Underwriter's Warrant Agreement. The Underwriter may, at its option, solicit
exercises of the Warrants. In the event that the Underwriter does not commence
solicitation of exercises of the Warrants within thirty (30) days of notice
from the Company, the Company may give notice of redemption to the Registered
Holders of the Warrants by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not
the Registered Holder receives such notice. Not less than five business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Underwriter a similar notice telephonically and confirmed in writing together
with a list of the Registered Holders (including their respective addresses and
number of Warrants beneficially owned) to whom such notice of redemption has
been or will be given.
(c) The notice of redemption shall specify (i) the redemption price, (ii) the
date fixed for redemption, which shall in no event be less than thirty (30)
days after the date of mailing of such notice, (iii) the place where the
Warrant Certificate shall be delivered and the redemption price shall be paid,
(iv) that the Underwriter is the Company's warrant solicitation agent and may
receive the commission contemplated by Section 4(b) hereof, and (v) that the
right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be the Redemption Date. 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
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretar y 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.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from the registration
statement or prospectus referred to in Section 5(b) hereof to the same extent
and with the same effect (including the provisions regarding contribution) as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall furnish
to the Underwriter (i) an opinion of counsel to the Company, dated such date
and addressed to the Underwriter, and (ii) a cold comfort letter dated such
date addressed to the Underwriter, signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(g) The Company shall as soon as practicable after the Redemption Date, and in
any event within 15 months thereafter, make generally available to its
security holders (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
(h) The Company shall deliver within five business days prior to the Redemption
Date copies of all correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to such registration statement and permit
the Underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records
and properties and opportunities to discuss the business of the Company with
its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as the Underwriter shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial capacity for
the Company and the Underwriter, and its duties shall be determined solely by
the provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued
upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or responsibility
to any holder of Warrant Certificates to make or cause to be made any
adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except fo r
its own gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board of Directors, President or any Vice President (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder;
the Company further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agents gross negligence or
willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agents own gross negligence or willful misconduct), after giving 30
days prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy
of such notice of resignation to be mailed to the Registered Holder of each
Warrant Certificate at the Company's expense. Upon such resignation the
Company shall appoint in writing a new warrant agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then
the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company doing business in New York. After acceptance in writing of
such appointment by the new warrant agent is received by the Company, such new
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the warrant
agent, without any further assurance, conveyance, act or deed; but if for any
reason it shall be necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the expense of
the Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate. (g) Any corporation into which
the Warrant Agent or any new warrant agent may be converted or merged, any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent or any new warrant agent shall be
a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holders of each
Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effect as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date of
exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate
to cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; or (ii) that they may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders representing not less
that 66-2/3% of the Warrants then outstanding (including, for this purpose
Warrants issuable to the Underwriter pursuant to the Underwriters Warrant
Agreement, whether or not then outstanding); provided, further, that no change
in the number or nature of the securities purchasable upon the exercise of any
Warrant, or to increase the Purchase Price therefor, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate, other
than such changes as are specifically prescribed by this Agreement as
originally executed. In addition, this Agreement may not be modified, amended
or supplemented without the prior written consent of the Underwriter, other
than to cure any ambiguity or to correct any provision which is inconsistent
with any other provision of this Agreement or to make any such change that is
necessary or desirable and which shall not adversely affect the interests of
the Underwriter and the Underwriters and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid, or delivered to a telegraph office for
transmission if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at 3590 Oceanside Road, Oceanside, New York 11572,
Attention: Dr. Jan Stahl, Chief Executive Officer, or at such other address as
may have been furnished to the Warrant Agent in writing by the company; and if
to the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to Morgan Grant at Morgan Grant
Capital Corp., 71 Clinton Road, Garden City, New York 11530, Attention: Mr.
Michael Christ, President, or at such other address as may have been furnished
to the Company and the Warrant Agent in writing.
SECTION 13. Applicable Law
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon
any other person any duty, liability or obligation. The Underwriter is and
shall at all times irrevocably be deemed to be, third-party beneficiaries of
this Agreement, with full power, authority and standing to enforce the rights
granted to it hereunder.
SECTION 15. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document. IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the first date first above written.
[SEAL]
AMERICAN STOCK TRANSFER AND
TRUST COMPANY, as Warrant Agent
By:
XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:
Peter Steil, President
ATTEST:
_________________________
Dr. Jan Stahl, Secretary
EXHIBIT A
No. W VOID AFTER ___________, 2003
WARRANTS
WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
XETAL, INC.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the Registered Holder) is the owner of the number of
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, $.001 par value, of XETAL, INC.,
a Utah corporation (the Company), at any time between _____________, 1999,
(the Initial Warrant Exercise Date), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer and Trust Company, 40 Wall Street, New York,
New York 10005, as Warrant Agent, or its successor (the Warrant Agent),
accompanied by payment of $5.00 subject to adjustment (the Purchase Price),
in lawful money of the United States of America in cash or by certified or bank
check made payable to the Warrant Agent for the account of 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 (the Warrant Agreement), dated
_______________, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase 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.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of 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
_______________, 2003. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 p.m. (New York time) the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close. The Company shall not extend the Expiration Date nor
reduce the Purchase Price. The Company shall not be obligated to deliver any
securities pursuant to the exercise of this Warrant unless a registration
statement under the Securities Act of 1933, as amended (the Act), with
respect to such securities is effective or an exemption thereunder is
available. The Company has covenanted and agreed that it will file a
registration statement under the Federal securities laws, use its best efforts
to cause the same to become effective, use its best efforts to keep such
registration statement current, if required under the Act, while any of the
Warrants are outstanding, and deliver a prospectus which complies with Section
10(a)(3) of the Act to the Registered Holder exercising this Warrant. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would 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 due 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 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 $.05 per
Warrant, at any time commencing two years after the Initial Warrant Exercise
Date, provided that (i) the closing sale price for the Common Stock as reported
by the National Association of Securities Dealers Automated Quotation System
(Nasdaq) or the National Quotation Bureau, Inc., if the Common Stock is then
traded in the over-the-counter market or (ii) the closing sale price, if the
Common Stock is then traded on Nasdaq/NM or a national securities exchange,
shall have equaled or exceeded for each of the twenty (20) consecutive trading
days ending on the tenth (10) day prior to the Notice of Redemption, as defined
below, $7.50 per share (subject to adjustment in the event of any stock splits
or other similar events). Notice of redemption (the Notice of Redemption)
shall be given not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the close
of business on the day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to the Warrants except to
receive the $.05 per Warrant upon surrender of this Warrant Certificate.
Under certain circumstances, the Underwriter shall be entitled to
receive an aggregate of seven percent (7%) of the Purchase Price of the
Warrants represented hereby in accordance with Section 4(b) of the Warrant
Agreement. 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 giving effect to
conflicts of laws.
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: _____________, 1998
[SEAL] XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:_____________________________
Dr. Jan Stahl, Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
as Warrant Agent
By:
Name:
Title:
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
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. The exercise of this Warrant was
solicited by Worthington Capital Group, Inc. ______
2. The exercise of this Warrant was not
solicited.
Dated:
Address
Social Security or Taxpayer
Identification Number
Signature Guaranteed
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 Attorney
to transfer this Warrant Certificate on the of the Company, with full power of
substitution in the premises.
Dated: X
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION 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 COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR
BOSTON STOCK EXCHANGE.
XETAL, INC.
AND
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
WARRANT AGREEMENT
Dated as of _____________________, 1998
EXHIBIT 10(ix)
Agreement Canceling Underwriter's Warrants
A G R E E M E N T
AGREEMENT made this 18th day of August, 1998 by and between Morgan Grant
Capital Corp. (formerly Worthington Capital Group, Inc.) (Morgan Grant) and
Xetal, Inc. (the Company).
WHEREAS, on October 1, 1996 Warrants (the Warrants) were issued by the
Company to Morgan Grant entitling the holder thereof to purchase 250,000 shares
of the Companys common stock; and
WHEREAS, as of the date hereof Morgan grant and the Company are desirous of
cancelling the Warrants in their entirety;
NOW THEREFORE, in consideration of the mutual agreements herein, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follow:
1. As of the date hereof the Warrants are cancelled in their entirety.
2. This Agreement has been approved by unanimous consent of the respective
Board of Directors of each of Morgan Grant and the Company.
This Agreement may be executed in multiple counterparts and on facsimile paper
and by facsimile transmission as necessary. When each of the parties has
signed and delivered at least one such counterpart, each counterpart will be
deemed an original and, when taken together with the other signed
counterpart(s), shall constitute one fully executed copy of this Agreement,
which shall be binding upon and effective as to the parties according to its
terms.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day
and year first above written.
MORGAN GRANT CAPITAL CORP.
By:
Michael Christ, President
XETAL, INC.
By:
Jan Stahl,
Chief Executive Officer
EXHIBIT 10(x)
Agreement Canceling Underwriters's Consulting Agreement
TERMINATION AGREEMENT
THIS AGREEMENT made and entered into this day of September, 1998 by,
between and among XETAL, INC., a corporation organized under the State of Utah
with offices at 3590 Oceanside Road, Oceanside, New York 11572 hereinafter
called "Xetal" and MORGAN GRANT CAPITAL CO., INC. a corporation organized under
the laws of New York having its principal offices at 71 Clinton Road, Garden
City, New York 11530 hereinafter referred to as "Morgan."
W I T N E S S E T H
WHEREAS the parties have hereunto previously entered into a consulting
agreement wherein Morgan was to provide financial and other consulting services
for Xetal and the parties now desire to terminate such agreement;
NOW THEREFORE in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable considerations, the
parties mutually agree as follows:
1. Termination of Agreement. The parties hereby mutually agree to
terminate the Consulting Agreement previously entered into between them and
hereby declare said agreement to be null and void and of no further effect..
2. No Liability. The parties hereby mutually agree that no party
shall be liable to the other party for any debt, obligation, fee or performance
of any service arising from said Agreement.
IN WITNESS WHEREOF the parties have set their hands and seals the year and date
first above written.
XETAL, INC.
By_______________________
MORGAN GRANT CAPITAL CO., INC.
By________________________
EXHIBIT 23(ii)
Consent of Linder & Linder
INDEPENDENT AUDITORS' CONSENT
To: The Board of Directors
And Stockholders
Xetal, Inc. and Subsidiaries
We consent to the reference to our firm under the caption "Experts" and the
use of our report dated December 12, 1997 with respect to the consolidated
financial statements of Xetal, Inc. and subsidiaries included in the Prospectus
of Xetal, Inc. that is made part of the Registration Statement on Form SB-2
filed in behalf of Xetal, Inc. with the Securities and Exchange Commission.
/s/ Linder & Linder
Linder & Linder
Certified Public Accountants
Dix Hills, New York
September 24, 1998
