As filed with the Securities and Exchange Commission on January ,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 1
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 Organiza- Industrial Clas- identification.
tion] sification ] Number]
3590 Oceanside Road, Oceanside, New York 11572; Tel: (516)-594-0005
[Address and Telephone Number of
Principal Place of Business and Executive Offices]
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.
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
<S> <C> <C> <C> <C>
Proposed
Maximum Proposed
Title of Securities Being Amount Being Offering Price Maximum Amount of
Registered Registered (7) Per Share/Warrant Aggregate Registration
Maximum Aggregate Offering Price (1) Fee (2)(11)
Common Stock,
Par Value $0.001 540,000 Shs $5.00(2) $ 2,700,000 $ 931
Warrants 1,080,000 Wts $0.10$ 108,000 37
Common Stock
underlying Warrants 1,080,000 Shs $5.00 $ 5,400,000 1,862
Underwriter's Warrants
(3) 162,000 Wts $0.0001 $ 16.20 0
Common Stock
underlying Underwriter's
Warrants (4) 162,000 Shs $8.00 $ 1,296,000 447
Warrants Underlying the
Underwriter's Warrants
(3) 324,000 Wts $0.10 $ 32,400 11
Common Stock
underlying the Warrants
underlying the
Underwriter's Warrants
(4) 324,000 Shs $5.00 $ 1,620,000 558
Bridge Lender's
Common Stock (5) 200,000 Shs $5.00 $ 1,000,000 344
Bridge Lender's Warrants
(6) 2,500,000 Shs $5.00 $12,500,000 4,310
Underwriter's Bridge
Warrants (8) 250,000 Wts $0.0004 $ 100 0
Common Stock
Underlying Underwriter's
Bridge Warrants (9) 250,000 Shs $5.00 $ 1,250,000 431
Consultant's Common
Stock (10) 20,000 Shs $5.00 $ 100,000 41
Total $8,972
(11)
</TABLE>
<PAGE>
(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 Worthington Capital Group, Inc.
(the "Underwriter") to acquire an aggregate of 162,000 shares of Common Stock
and 324,000 Warrants, entitling the holder to purchase 324,000 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 160% of the price of the
Common Stock to the public in this Offering (or $8 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.
(4) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of the
Underwriter's Warrants.
(5) 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").
(6) Represents warrants (the "Bridge Lenders' Warrants") granted to the Bridge
Lenders to acquire an aggregate of 2,500,000 shares of Common Stock at a price
equal to 100% of the price of the Common Stock to the public in this Offering.
(7) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of the
Bridge Lenders' Warrants.
(8) Represents warrants (the "Underwriter's Bridge Warrants") granted at a
price of $0.0001 per Underwriter's Bridge Warrant to Worthington Capital Group,
Inc. as placement agent for the Bridge Loan to acquire 250,000 shares of Common
Stock at an exercise price equal to 100% of the price of the Common Stock to
the public in this Offering.
(9) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of the
Underwriter's Bridge Warrants.
(10) Consists of 20,000 Shares of common stock issued to Ameristar Group
Incorporated, a non-affiliated consultant for the Company with respect to which
the Company granted "piggy-back" registration rights (also the "Selling
Shareholders").
(11) 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.
<PAGE>
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
<PAGE>
PRELIMINARY PROSPECTUS DATED ________, 1997 (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
1,080,000 Redeemable Common Stock Purchase Warrants, at $0.10 per Warrant.
Xetal, Inc., a Utah corporation (the "Company"), is hereby offering (the
"Offering"), through Worthington Capital Group, Inc. 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 1,080,000
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 tradeable
immediately upon issuance. The minimum offering will consist of 300,000 shares
of Common Stock and 600,000 Warrants (the "Minimum Offering") and the maximum
offering will consist of 540,000 shares of Common Stock and 1,080,000 Warrants
(the "Maximum Offering"). Each Warrant expires on ___________,2002, 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 shares of Common Stock and Warrants are
being offered by Selling Shareholders. The Selling Shareholders may be deemed
to be "underwriters" under the federal securities laws.
<PAGE>
The Company's Shares are traded in the over-the-counter market on the NASD
Electronic "Bulletin Board" (the "Bulletin Board"), an electronic quotation
system maintained by the NASD, under the symbol "XETX." The Company has made
application for listing of the Shares and Warrants on the Bulletin Board and
the Boston Stock Exchange under the symbols "_______" and "____." On
_______, 1997, 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 Page ______" 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 $1,560,000 $156,000 $1,404,000
Total Maximum $2,808,000 $280,800 $2,527,200
(footnotes on following page)
WORTHINGTON CAPITAL GROUP, INC.
The date of this Prospectus is , 1997
<PAGE>
(footnotes from previous page)
(1) In addition, the Company has agreed to pay the Underwriter a
non-accountable expense allowance equal to 2.5% of the gross proceeds of the
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 162,000 shares of Common Stock and 324,000
Warrants, entitling the holder to purchase 324,000 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 160% of the price of the Common
Stock to the public in this Offering, subject to adjustment in amount pro rata
in the event all of the Common Stock and/or Warrants are not sold in this
Offering and subject to the adjustment pursuant to the anti-dilution provisions
thereof; (ii) indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended (the "Act") and (iii) engage the Underwriter
as a financial consultant for a period of 24 months commencing on the date of
this Prospectus, for which the Underwriter will receive a consulting fee of
$67,500 payable in full at the closing of the Minimum Offering. 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 $37,500 if the
Minimum Offering is sold or $67,500 if the Maximum Offering is sold, the
Underwriter's consulting fee in the amount of $67,500 and other expenses of the
Offering (estimated at $71,972) 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 600,000 Warrants (the "Minimum
Offering") and on a " best efforts " basis as to an additional 240,000 shares
of Common Stock and 480,000 Warrants (together with the Minimum Offering, the
"Maximum Offering"), during an offering period commencing on the date hereof
and expiring on __________, 1997, 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").
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 references to
"Companies" include 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 giving effect to a 1-for-10 reverse stock split
effected in August 1996, 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. Additionally, Dr. Jan Stahl and Mr. Peter
Steil became the holders of approximately 62.3% of the issued and outstanding
capital stock of the Company and thereafter became officers and directors of
the Company. 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, the
Company's principal shareholder, in exchange for 400,000 shares 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.
<PAGE>
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 65% of
revenues) (ii) directly to doctors, dentists and veterinarians (accounting for
approximately 30% of revenues) and (iii) to others, including direct consumers,
and through exporters to foreign countries (accounting for approximately 5% 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." 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 $1 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
1,080,000 Warrants.
Common Stock
outstanding prior to
the Offering: 928,263 shares of Common Stock
Common Stock to be
outstanding after the
Offering(1)(2): 1,228,263 shares of Common Stock, if only the
minimum Offering is sold or 1,468,263 shares of
Common Stock if all the Shares offered are sold.
<PAGE>
Proposed Boston Stock
Exchange symbols for
Common Stock and
Warrants(3): _________ and ________
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: ______, 2002 (five 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 of $.05 per
Warrant 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 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 certain 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.
<PAGE>
(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, which Warrants and underlying Common Shares are registered for future
sale as part of this Offering. (3) The listing of the Company's Securities on
the Bulletin Board and Boston Stock Exchange is subject to the successful
completion of this Offering and the definitive approval of the listing by the
NASD and the Boston Stock Exchange, of which there can be no assurance. If the
Company is successful in obtaining listing there are no assurances that it will
be able to maintain the listing in the future.
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 CONDITIONS"
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.
Summary Balance Sheet Data:
September 30, September 30,
1997 1996
Total Assets $ 4,089,332 $3,023,130
Total Current Assets 3,773,391 2,762,834
Total Liabilities 4,056,823 3,000,056
Retained Earnings (Deficit) (582,431) (566,766)
Stockholders' Equity 32,509 23,074
<PAGE>
Summary Earnings Data:
Year Ended Year Ended
September 30, 1997 September30, 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
Selling Expenses 1,049,201 911,336
General and
Administrative Exp. 1,212,929 855,056
Income (Loss)
from operations 211,625 (133,107)
Year Ended Year Ended
September 30, 1997 September 30, 1996
Net Income (Loss) (15,665) (308,390)
Earnings (Loss) per Share $ (0.02) $ (0.78)
Weighted Average
No. of Shares 913,630 394,800
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 its Securities. 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 corporation. The Company's sole business operations are 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 continued operating losses in the future. See,
"FINANCIAL STATEMENTS" and "BUSINESS OF THE COMPANY."
<PAGE>
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 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 25,000 shares of the Company's Common Stock (as adjusted
for a reverse split of Common Stock) at an exercise price of $7.50 per share,
exercisable until January 3, 2003. The Company also granted Warrants to
purchase 12,500 shares of Common Stock under the same terms to Jansen-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. For each unit of $25,000 in notes
purchased, the Company granted 20,000 shares of Common Stock plus Warrants to
purchase an aggregate of 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 250,000 shares of Common Stock exercisable
at $5.00, exercisable for a period of four years commencing October 1, 1997.
The placement fee, expense allowance and Warrants granted 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 (including the Underwriter) were granted certain registration
rights and are included in this Registration Statement as selling
securityholders.
<PAGE>
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
and the Underwriter will have a dilutive effect on his 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 life of Dr. Stahl and Mr. Steil in the amount of not less
than $500,000 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 Messrs. Stahl and Steil. 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
the 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, who 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.
<PAGE>
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 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 of 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. Further, 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.
<PAGE>
8. Product Liability and 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 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 APO Health 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 business in an intensely
competitive one. 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."
<PAGE>
11. Dependence Upon Third Party Manufacturers/Suppliers.
The Company does not directly manufacture any of the products its 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 in addition to their base salaries
which will be 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 has been 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.
<PAGE>
14. Related Party Transactions.
Since commencement of its new operations in 1994, the Company entered into
two 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 acquiring 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, the total number of shares issued to Dr. Stahl
and Mr. Steil was 100,000 shares of Common Stock of the Company each. 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 his entire interest in Dental Alternatives, Inc., a corporation which
owned marketing rights and trademarks to products developed by Dr. Stahl, in
exchange for 400,000 shares of the Company's Common Stock (after adjustment for
the 1-in-10 reverse stock split). 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. There are no further transactions
presently 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 Offering Officers and
Directors of the Company will continue to own approximately 47.6% 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 only 39.9% of the total outstanding number of shares of
Common Stock and will not, themselves, be in a position to control the policies
of the Company. However, the officers and directors, with the vote of all of
the other existing shareholders prior to the Offering may be in a position to
continue to control the policies of the Company after the Maximum Offering.
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. See "Principal
Shareholders."
16. Dilution.
As of September 30, 1997, the net tangible book value of the Company's
Shares was $(0.196) per share. If all the Securities being offered hereby are
sold, the net tangible book value of the Shares will be approximately $1.502.
Consequently the purchasers of the securities being offered hereby will suffer
an immediate dilution of approximately $3.498 per Share (approximately 70%).
Conversely, present Shareholders of the Company would receive an immediate
benefit of approximately $1.698 per Share if all the securities offered are
sold. For detailed information concerning dilution, see "DILUTION."
<PAGE>
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
"THE OFFERING."
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 600,000
Warrants and thereafter on a "best efforts" basis only with respect to the
remaining 240,000 shares of Common Stock and 480,000 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.
<PAGE>
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 SEC
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.
<PAGE>
23. Unregistered Securities.
The existing shares of Common Stock and Warrants (and the Warrant's
underlying shares of Common Stock) 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 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, 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."
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 162,000 shares of Common Stock and 324,000
Warrants, entitling the holder to purchase 324,000 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 160% of the price of the Common
Stock to the public in this Offering, 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 Shares and Warrants issuable upon exercise of the
Underwriter's Warrants are identical to those offered hereby. 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 securities
issuable upon exercise of the Underwriter's Warrants.
<PAGE>
25. Continuing Relationship with the Underwriter.
The Company has entered into agreements with the Underwriter
providing for a Financial Consulting arrangement with the Underwriter after the
expiration of the Offering period and permitting the Underwriter to designate a
voting member to the Company's Board of Directors. The existence of these
agreements will cause the Company to have a continuing relationship with the
Underwriter at the expiration of the Offering period and will, in the case of
the Financial Consulting Agreement, cause the Company to pay the Underwriter a
fee of $67,500 if the Minimum Offering is sold for consulting services to be
rendered.
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 shares may be affected, the result
of which may be that the Offering will be delayed, postponed or discontinued.
The Company expects that the Underwriter will enter into agreements with the
Selling Shareholders to refrain from offering their stock for a period of time.
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 September 30, 1997, the net tangible book value of the Common Stock
of the Company was $(0.196) 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 September 30, 1997, would have
been $0.906 per Share, if only the minimum Offering is sold, or $1.502 per
Share, if the maximum Offering is sold. This represents an immediate increase
in net tangible book value of $1.102 per Share, if the minimum Offering is sold
($1.698) per Share if the maximum Offering is sold) to existing holders of
Shares and an immediate dilution of $4.094 per Share or 82% (minimum) or $3.498
per Share or 70% (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 September 30, 1997
(Before Offering): $(0.196)
Increase per share attributable to new investors: $ 1.102
Pro forma net tangible book value at September 30, 1997
(After Offering) (3): $ 0.906
Per share dilution to new investors: $ 4.094
II. Assuming The Maximum Offering is Sold:
Public Offering price per share (1)(2): $ 5.00
Net tangible book value at September 30, 1997
(Before Offering): $(0.196)
Increase per share attributable to new investors: $ 1.698
Pro forma net tangible book value at September 30, 1997
(After Offering)(3): $ 1.502
Per Share dilution to new investors $ 3.498
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 and does not include
the amount of Consulting Fees paid for a 24 month consulting agreement
as a prepaid expense. Is based upon 928,263 shares of Common Stock
issued and outstanding at September 30, 1997.
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:
<PAGE>
III. Assuming Only The Minimum Offering is Sold:
Shares Owned Consideration Average Per
Number Percent Amount Percent Share Price
Present
Shareholders 928,263 75.6% $ 614,940 29.1% $ 0.66
New Investors 300,000 24.4% $1,500,000 70.9% $ 5.00
Total(1) 1,228,263 100.0% $2,114,940 100.0%
IV. Assuming The Maximum Offering is Sold:
Shares Owned Consideration Average Per
Number Percent Amount Percent Share Price
Present
Shareholders 928,263 63.2% $ 614,940 18.6% $ 0.66
New Investors 540,000 36.8% $2,700,000 81.4% $ 5.00
Total(1) 1,468,263 100.0% $3,314,940 100.0%
___________________________
(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 Warrants also registered herein.
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 $265,500 if only the minimum number of shares of
Common Stock are sold, or $420,300 if all shares of Common Stock and Warrants
are sold, will be approximately $1,294,500 if the Minimum Offering is sold and
$2,387,700 if the Maximum Offering is sold. These proceeds are intended to be
applied approximately in the following manner:
<PAGE>
Minimum Percentage(1) Maximum Percentage(1)
Amount Amount
Repayment of Bridge
Loan Financing(2) $ 570,000 44.0% $ 570,000 23.9%
Expansion of
Inventory(3) 100,000 7.7% 200,000 8.4%
Marketing(4) 50,000 3.9% 100,000 4.2%
Key-man Insurance(5) 25,000 1.9% 25,000 1.0%
Insurance(6) 20,000 1.5% 20,000 0.8%
Consulting Fee(7) 67,500 5.2% 67,500 2.8%
Expansion and
Acquisition
Program(8) 200,000 15.4% 500,000 20.9%
Working Capital(9) 262,000 20.4% 905,200 38.0%
TOTALS $1,294,500 100.0% $2,387,700 100.0%
______________________________
(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 represents the Consulting Fees payable to the Underwriter upon the
successful completion of this Offering
(8) 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.
(9) This allocation will be used as general "Working Capital" to pay various
routine administrative and operating expenses of the Company.
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.
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company as
of September 30, 1997 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 Offering(1)(3) Offering(2)(3)
Long term debt $ 162,038 $ 162,038 $ 162,038
Stockholders' Equity:
Preferred stock,
$0.10 par value,
no shares outstanding
Common Stock,
$0.001 par value,
20,000,000 shares
authorized; 928,263
shares issued and
outstanding,
1,228,263 shares to be
outstanding upon sale
of the minimum,
1,468,263 shares upon
sale of the maximum
Offering(3) 928 1,228 1,468
Additional paid-in
capital (3) 614,012 1,858,689 2,951,649
Retained Earnings
(Deficit) (582,431) (582,431) (582,431)
Total stockholders'
equity 32,509 1,277,486 2,370,686
Total Capitalization $ 194,547 $ 1,439,524 $2,532,724
________________________
(1) As adjusted to reflect the sale of the Minimum number of Securities
offered hereby and the application of the proceeds by the Company.
(2) As adjusted to reflect the sale of the Maximum number of Securities
offered hereby and the application of the proceeds by the Company.
(3) 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.
<PAGE>
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 65% of total revenues); (ii) directly to
doctors, dentists and veterinarians (approximately 30 % of total revenues);
(iii) to others including to consumers and through export to foreign countries
(approximately 5% 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
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.
<PAGE>
A comparison of certain significant tangible assets of the Company and
Stockholder's Equity for the years ended September 30, 1997, 1996 and 1995 is
as follows:
September 30, September 30, September 30,
1997 1996 1995(1)
Cash $ 1,163 $ 129,250 $ 247,856
Receivables 2,533,090 1,162,602 1,357,114
Inventory 1,001,219 1,288,278 772,722
Net Property
& Equipment 96,323 78,078 76,875
__________ ________ _________
Total $ 3,631,795 $ 2,658,208 $ 2,454,567
Stockholders
Equity
(Deficit) $ 32,509(2) $ 23,074(3) $ 327,364(3)
______________________
(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.
(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 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 has been a significant cash decline since September 30, 1995.
This decline primarily results from the increase 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.
<PAGE>
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 25,000 shares of the Company's Common Stock (as adjusted
for a reverse split of Common Stock) at an exercise price of $7.50 per share,
exercisable until January 3, 2003. The Company also granted Warrants to
purchase 12,500 shares of Common Stock under the same terms to Jansen-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. As a condition to such
registration, each holder of the Warrants are required to enter into a lock-up
agreement whereby each holder agrees not to sell, assign or transfer the
Warrants or the underlying Common Stock for a period of one year from the
effective date of the registration statement without written consent from the
underwriter. The 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 20,000
shares of Common Stock plus Warrants to purchase an aggregate of 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. 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 250,000 shares of Common Stock
exercisable at $5.00 per share if this Offering is sold. The placement fee,
expense allowance and Warrants granted 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 (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."
<PAGE>
Liabilities
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
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.
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.
The following other costs of operations either remained essentially the
same or declined in the period ended September 30, 1997 when compared with
1996:
(a) 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.
<PAGE>
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 Adminis- tration (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.
<PAGE>
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 65% of total
revenues); (ii) directly to doctors, dentists and veterinarians (approximately
30 % of total revenues) (iii) to others including to consumers and through
export to foreign countries (approximately 5% 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 He- alth Administration (OSHA), reported the passing of 29 CFR PART
1910.1030, "Occupational Exposure to Blood borne Pathogens; Final Rule." The
mandatory regulations have signifi- cantly 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 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. Its 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 believes 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 "EDK
Emergency Dental Kit" and "Dr. Stahl's Dental First Aid Center."
<PAGE>
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. Further, 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.
<PAGE>
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 does not have any contractual
agreements with its suppliers except for a Purchasing Agreement with Johnson &
Johnson Medical Inc. ("J&J"), pursuant to which the Company has secured the
purchase of $2,847,500 in J&J products during the one-year period from June 1,
1996 through May 31, 1997.
The Company also obtains certain of its products through third party
manufacturers. Although the Company does not have contractual arrangements
with its manufacturers, except as noted above, 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.
<PAGE>
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," labelling, 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.
At the present time, the Company has one principal supplier, Johnson and
Johnson.. 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 Johnson and Johnson was 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. Except for its Purchasing Agreement with J&J
discussed above, 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 7000 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 is 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.
<PAGE>
MANAGEMENT
The officers and directors of the Company, and further information
concerning them, are as follows:
Name Age Position
Dr. Jan Stahl 48 Chairman, Chief Executive Officer,
Secretary, Director
Peter Steil 48 President, Chief Financial Officer,
Director
Kenneth Levanthal 41 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. Mr. Steil is
also President of Prophy Perfect, Inc., a manufacturer of dental products. 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.
<PAGE>
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-
1996 $96,200 n/a -0- -0-
1995 $90,700 n/a -0- -0-
Peter Steil,
President(1)(2) 1997 $100,000 $6,375(4) -0- -0-
1996 $70,200 n/a -0- -0-
1995 $70,200 n/a -0- -0-
Kenneth
Levanthal(2)(3) 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.
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, 1999. 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, 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 year ended September 30, 1997.
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.
<PAGE>
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 100,000 shares of
its Common Stock, as adjusted for the Company 1-for-10 reverse stock split. Dr.
Stahl and Mr. Steil became the 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 25,000 shares (as
reduced after the Company's 1-for-10 reverse stock split) of Common Stock of
the Company at a price of $7.50 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., for its services as placement agent in the
Pre-Bridge Financing, warrants to purchase 12,500 shares of Common Stock (as
reduced after a 1-for-10 reverse stock split), also at an adjusted exercise
price of $7.50 per share. The warrants are exercisable for a period of seven
(7) years ending January 3, 2003. The Company also granted Janssen-Meyers
Associates 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, legal 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 for each unit of $25,000 of Bridge Notes
purchased, the Bridge Lenders received (a) 20,000 Shares plus (b) warrants (the
"Bridge Lenders Warrants") to purchase an aggregate of 250,000 Shares at an
exercise price of $5.00 per share if this Offering is consummated or, if it is
not consummated, then at $5.00 per share. 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 Worthington Capital Group, Inc. ("Worthington") for its
services as placement agent in the Bridge Financing, warrants (the
Underwriter's Bridge Warrants") to purchase 250,000 shares of Common Stock at a
price of $5.00 per share if this Offering is consummated or, if it is not
consummated, then at $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 Worthington certain demand and
"piggy-back" registration rights with respect to the Underwriter's Bridge
Warrants and Shares underlying the Underwriter's Bridge Warrants.
5. In July 1996, the Company entered into an agreement with Dental
Alternat ives, Inc., a New York corporation wholly owned by Dr. Stahl, 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 became a
subsidiary of the Company. In consideration for his shares of Dental
Alternatives, Inc., the Company issued to Dr. Stahl 400,000 Shares, as
adjusted for the Company's 1-for-10 reverse stock split.
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 20,000 shares of Common
Stock, as adjusted for the Company's 1-for-10 reverse stock split. Ameristar
was also granted certain "piggy-back" 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.
The number of shares issuable in Items 1, 3, 5 and 6 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 of $_____ to a high of $_____ 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:
PERIOD HIGH LOW
____________________________________________________________________________
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 ___________,1997 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 (2)(3)
Name (1) Minimum Maximum
Dr. Jan Stahl 500,000 53.8% 40.7% 34.1%
3141 Ann Street
Baldwin, NY 11510
Peter Steil
430 East Olive
Long Beach, NY 1156 75,000 8.0% 6.1% 5.1%
Kenneth Levanthal
24 Meadowbrook Road
Huntington Station
New York 11725 10,000 1.1% 0.8% 0.7%
All Directors and
Officers as a Group
(3 Persons) 585,000 62.4% 47.6% 39.9%
________________________
(1) Based upon 928,263 Shares being issued and outstanding as of the date of
this Prospectus as adjusted for the Company's 1-for-10 reverse split.
(2) Does not give effect to the possible exercise of any of the Warrants
included in the Units 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, 220,000
shares of Common Stock will also be sold by the Selling Shareholders set forth
below ("Selling Shareholders"). Also being registered hereby are 2,500,000
Bridge Warrants and 2,500,000 Bridge Shares underlying the Bridge Warrants. 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 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' Warrants and Shares
underlying the Bridge Lenders' 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 has any material
relationship with the Company.
Except with respect to the Shares held by Ameristar Group, Inc., as a
condition to registration hereunder, each holder of the Bridge Shares and
Bridge Warrants has or will enter into a lock-up agreement whereby each of them
agreed not to sell, assign or transfer their Bridge Shares or Bridge Warrants
for aperiod of twenty-four months from the date of issuance or, if such
securities are included in this registeration statement, eighteen months from
the effective date of the registration statement, whichever is earlier.
Approximate Percentage(3)
Shares Warrants Before After Offering
Name and Address Owned(1) Owned(2) Offering Minimum Maximum
Glen Nortman 10,000 125,000 3.93% 3.62% 3.40%
88 Foxwood Drive
Jericho, NY 11753
Gary Lyle Brustein 20,000 250,000 7.85 % 7.24% 6.80%
201 Brookville Road
Brookville, NY 11545
Ameristar Group
Incorporated 20,000 - 0.58% 0.54% 0.50%
Suite 1710
444 Madison Avenue
New York, NY 10022
Capital Planning
Holding Corp. 10,000 125,000 3.93% 3.62% 3.40%
3 Asccot Ridge
Great Neck, NY 11021
Elull Development 20,000 250,000 7.85% 7.24% 6.80%
155 Westwood Drive
Westbury, NY 11590
Abbey S. Freiberg 20,000 250,000 7.85% 7.24% 6.80%
6 Woodstock Court
Muttontown, NY 11590
Jay G. Goldman 10,000 125,000 3.93% 3.62% 3.40%
745 Fifth Avenue
New York, NY 10151
Jay Goldman,
Master Limited
Partnership 10,000 125,000 3.93% 3.62% 3.40%
745 Fifth Avenue
New York, NY 10151
Christopher Mackie 10,000 125,000 3.93% 3.62% 3.40%
50 Pummick Street
Bluepoint, NY 11715
Wainscott Capital, Ltd 40,000 500,000 15.71% 14.48% 13.60%
Seaton House
Suite 2
17-19 Seaton Place,
St. Healier, Jersey
Channel Islands
Neil Jeffrey Weisman 10,000 125,000 3.93% 3.62% 3.40%
3 Piper Drive
Searington, NY 11507
Harry Zarin 20,000 250,000 7.85% 7.24% 6.80%
73-79 Park Drive East
Flushing, NY 11367
Robert Zarin 20,000 250,000 7.85% 7.24% 6.80%
9 Stewart Lane
Kings Point, NY 11024
_____________________________________
(1) Represents the total number of shares of Common Stock owned by the Selling
Shareholder which are being registered hereunder for sale to the public.
(2) Represents the total number of Bridge Lender Warrants outstanding prior to
this Offering. The Company has, prior to this Offering issued warrants in
connection with its Bridge Financing (see, "CERTAIN TRANSACTIONS").
(3) 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 the sum of 928,263 Shares presently issued and
outstanding, plus 2,500,000 Shares to be issued upon exercise of the Bridge
Warrants. Consequently, it is assumed for purposes of the above chart that the
number of Shares outstanding prior to this Offering was 3,428,263; the number
of Shares to be outstanding following the minimum Offering herein will be
3,728,263; and the number of Shares to be outstanding following the maximum
Offering herein will be 3,968,263.
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 600,000
Warrants (or a total of $1,560,000), the "Minimum Offering, and a maximum of
540,000 shares of Common Stock and 1,080,000 Warrants (or a total of
$2,808,000), the "Maximum Offering, at a purchase price of $5.00 per share of
Common Stock and $0.10 per Warrant. The Company has agreed to pay Worthington
Capital Group, Inc. (the "Underwriter") a commission of ten (10%) per cent of
the gross sale price of all Securities sold in this Offering ($156,000 if only
the Minimum Offering is sold and $280,800 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 utilize 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 ny'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 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 600,000 Warrants have
been sold and $1,560,000 is deposited in the Escrow Account. If at least
300,000 shares of Common Stock and 600,000 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 600,000 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 600,000 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. 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 324,000 shares of Common Stock and 324,000
Warrants, entitling the holder to purchase 324,000 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 160% of the price of the Common
Stock to the public in this Offering (or $8.00 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 and one half percent (2 1/2%) of
the gross proceeds of this Offering to the Underwriter ($37,500 if only the
Minimum Offering is sold or $67,500 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.
Certain of the Company's shareholders, constituting in the aggregate
________ shares of Common Stock, and all its officers and directors,
constituting in the aggregate 585,000 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 250,000 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.
Except to the extent of the agreement not to sell their shares for a
period of 24 months from the date of the Prospectus without the Underwriter's
consent, the Selling Shareholders have no other agreement, plans, proposals or
understandings for future transactions with the Underwriter.
The Underwriting Agreement provides that the Company will neither solicit
the exercise of the Warrants which are part of the Units 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 Rule 10b-6
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 Company has engaged the Underwriter or its designee as its financial
consultant for a period of 24 months commencing on the date of this Prospectus,
for which the Underwriter will receive in advance a consulting fee of $67,500,
payable in full at the closing of the Minimum Offering.
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 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." <PAGE>
<PAGE>
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 928,263 shares are presently issued and
outstanding, including 200,000 shares of Common Stock in the aggregate issued
to the Bridge Lenders. Each out- standing 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.
Bridge Warrants
Each of the Bridge Lenders' Warrants entitles the holder thereof to
purchase up to 250,000 shares of Common Stock at a price of $5.00 per share,
100% of the proposed public Offering price herein, during the four year period
commencing one year after the date of issuance of such Bridge Lenders'
Warrants. There are issued and outstanding an aggregate of 2,500,000 Bridge
Lenders' Warrants entitling the holders thereof to purchase an aggregate of
2,500,000 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 shall be 100% of the public Offering price of the Common Stock in this
Offering. Pursuant to the terms of the Bridge Lenders' Warrants, the holders
thereof were granted certain demand and "piggy-back" registration rights with
respect to the Shares underlying the Bridge Lenders' Warrants. Consequently,
all 2,500,000 Shares underlying the 12 Bridge Lenders' Warrants issued by the
Company 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, upon
the exercise of the Bridge Lenders' Warrants 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 their Bridge
Lenders' Warrants without the prior consent of Worthington 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.
General Terms Applicable to 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.
No Warrant or Bridge Lenders' Warrant 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 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
shares of Common Stock and Warrants identical to the Securities being offered
hereby, on the basis of one share of Common Stock for each ten (10) shares sold
in this Offering and one Warrant for each ten (10) Warrants sold in this
Offering and 100% of each component thereof. The Underwriter's Warrants are
exercisable at a price of $8.00 per Unit for a period of four years commencing
one year from the date of this Prospectus.
The Underwriter's Warrant 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 Warrant 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 Warrant 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 Warrant and/or underlying securities issuable
upon exercise of the Underwriter's Warrant 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 Warrant 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 Warrant contains anti-dilution provisions regarding
certain events, including but not limited to. stock dividends, split_ups, and
reclassification. Holders of the Underwriter's Warrant 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
Warrant will not be entitled to participate in a distribution of the Company's
assets.
For the life of the Underwriter's Warrant, 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 Warrant 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 Warrant.
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.
<PAGE>
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
<PAGE>
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 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
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: $ 8,861
NASD Filing Fees: 770
Cost of Printing 7,500*
Accountants' Services and Expenses 12,500*
Legal Services and Expenses 50,000*
Blue Sky Fees and Expenses 30,000*
Miscellaneous 145,000*
Total Expenses $ 254,631*
* 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. 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;
3. Consolidated Statement of Operations for the Periods Ended September 30,
1997 and September 30, 1996;
4. Consolidated Statement of Changes in Stockholders' Equity for the Periods
Ended September 30, 1997 and September 30, 1996;
5. Consolidated Statement of Cash Flows for the Periods Ended September 30,
1997 and September 30, 1996;
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; **
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) **
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 Worthingtonb Capital
Group, Inc.**
23(I) 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 14th day of
January, 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
January 14, 1998
/s/Peter Steil President, Director
Peter Steil Chief Financial Officer
January 14,1998
/s/Kenneth Levanthal Director
Kenneth Levanthal
January 14, 1998
Exhibit 1(i).
Form of Underwriting Agreement
Form of Underwriting Agreement
540,000 Shares of Common Stock
and 1,080,000 Redeemable Common Stock Purchase Warrants
XETAL, INC.
UNDERWRITING AGREEMENT
New York, New York
_________, 1997
Worthington Capital Group, Inc.
71 Clinton Road
Garden City, New York 11530
Ladies and Gentlemen:
Xetal, Inc., a Utah corporation (the "Company"), confirms its agreement with
Worthington Capital Group, Inc., ("you", the "Underwriter" or "Worthington") as
follows: The Company retains Worthington as its exclusive agent to sell (the
"Offering"), on a best efforts basis, a minimum of 300,000 shares (the
"Shares") of the Company's common stock, $0.001 par value per share (the
"Common Stock") and 600,000 redeemable common stock purchase warrants (the
"Public Warrants") and a maximum of 540,000 shares of Common Stock and
1,080,000 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 _______________________, 1997,
unless extended by the mutual consent of the Company and the Underwriter for u
p 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 _____________, 1998 until _____________, 2002 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 1,080,000 Public Warrants are
hereinafter collectively referred to as the "Securities". The Company also
proposes to issue and sell to you warrants (the "Underwriter's Warrants") at a
purchase price of $0.0001 per Underwriter's Warrant pursuant to the
Underwriter's Warrant Agreement entitling the holder to purchase an aggregate
of 162 ,000 shares of Common Stock and 324,000 Public Warrants entitling the
holder to purchase 324,000 shares of Common Stock exercisable for a period of
four years from ______________, 1998 until ___________________, 2002 at an
initial exercise price of $8.00, 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 Underwriter's Warrants are
hereinafter referred to as the "Underwriter's Securities." The shares of
Common Stock issuable upon exercise of the Public Warrants (including the
Public Warrants issuable upon exercise of the Underwriter's Warrants) are
hereinafter sometimes referred to as the "Warrant Shares". The Securities, the
Common Stock, the Public Warrants, the Underwriter's Warrants, the
Underwriter's Securities and the Warrant Shares are more fully described in the
Registration Statement and the Prospectus referred to below.
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:
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 Underwriter's Warrants,
the Underwriter's 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 contex t 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. 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 Company's 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 misl eading, 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.
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. 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, business 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, loca l and foreign laws, rules and
regulations and neither the Company nor the Subsidiaries 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 wh ich they were made.
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 Underwriter's Warrants, the Underwriter's 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
Prospect us. 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 required 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.
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 Company's 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
throughout 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.
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.
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.
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 Company's 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
Company's knowledge there are no facts or circumstances under any such
insurance policy 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.
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 Underwriter's 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 Underwriter's
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 affect 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.
The Company has full legal right, power and authority to authorize, issue,
deliver and sell the IPO Securities, enter into this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement and to consummate the
transactions provided for herein and therein; and each of this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement have been duly and
properly authorized, executed and delivered by the Company. This Agreement,
the Underwriter's 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 Company's issue and sale
of the IPO Securities or execution or delivery of this Agreement, the
Underwriter's 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 State ment, 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 statut e, 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, shareholder's equity, value, operation, properties, business
or results of operations of the Company and its Subsidiaries.
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 Underwriter's Warrants, the execution, delivery or performance
of this Agreement, the Underwriter's 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 Underwriter's purchase
of the Underwriter's Warrants to be sold by the Company hereunder and there
under.
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 are 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.
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.
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, stockholder's equity, value, operation,
properties, business or results of operations of the Company and the
Subsidiaries.
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 Compa ny 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.
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".
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.
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
Company's 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) e
xcept 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.
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.
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.
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
outstanding o n 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 Company's stock
ledgers.
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.
There are no claims, payments, issuances, arrangements or understandings,
whether oral or written, for services in the nature of a finder's 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
Underwriter's 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.
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").
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
proceeding (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 Company's and the Subsidiaries' internal accounting
controls are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
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 th e
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.
Any certificate signed by any officer of the Company and delivered to the
Underwriter or to Underwriter's Counsel (as defined herein) shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
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.
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.
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 life of Dr. Jan Stahl in the sum of $1,000,000 which names the
Company as the sole beneficiary on terms and conditions satisfactory to the
Underwriter.
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 Underwriter's Warrant Agreement with respect to
the Underwriter's 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.
Immediately prior to the effective date of the Registration Statement there
shall be no more than an aggregate of 1,125,000 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
Company's 1996 Stock Option Plan.
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.
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 Company's exclusive agent to sell, on a best
efforts basis, a minimum of 300,000 shares of Common Stock and 600,000 Public
Warrants (the "Minimum Offering") and a maximum of 540,000 shares of Common
Stock and 1,080,000 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
co ncession not exceeding $_____ per share of Common Stock and $____ per Public
Warrant.
The proceeds from the sale of the Securities shall be deposited by the
Underwriter upon receipt thereof in an escrow account at Chase Manhattan Bank,
New York, New York (the "Escrow Account") until the Minimum Offering amount of
300,000 shares of Common Stock and 600,000 Public Warrants are sold and
$1,560,000 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.
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.
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.
Covenants and Agreements of the Company. The Company covenants and agrees with
the Underwriter as follows:
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.
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 juris
diction 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.
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).
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. ("Underwriter's Counsel"), shall
reasonably object unless required under the Act or the Rules and Regulations
thereunder.
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 laws of su ch
jurisdiction to continue such qualification. It is agreed that Underwriter's
Counsel (or its designees) shall perform all such required Blue Sky legal
services.
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 Underwriter's 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
made, 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
Underwriter's 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.
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 opin
ion 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.
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 Underwriter's
Warrants (including the underlying securities) outstanding from time to time.
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 Underwriter's 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.
So long as any of the Warrants remain outstanding, the Company will timely
deliver and supply to its Warrant agent sufficient copies of the Company's
current Prospectus, as will enable such Warrant agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
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.
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.
Upon the initial Closing Date, the Company shall have entered into an agreement
with the Underwriter in form reasonably satisfactory to the Underwriter (the
"Consulting Agreement"), pursuant to which the Underwriter will be retained as
a management and financial consultant for a two year period commencing as of
the initial Closing Date, and will be paid a fee of $67,500, all of which will
be paid upon the initial Closing Date by deduction from the proceeds of the
Offering.
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 Company's 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.
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:
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 Company's principal financial or
accounting officer; 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; as soon
as they are available, copies of all reports (financial or other) mailed to
stockholders; 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; 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 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.
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 Company's stockholders of
record and for a period of three (3) years thereafter the monthly securities
position.
The Company will furnish to the Underwriter or on the Underwriter's 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.
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, (except
that only with respect to 10,000 common shares held by certain trusts and no
more the period shall be 6 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 (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 withou
t the prior written consent of the Underwriter (collectively, the "Lock-up
Agreements"). During the two (2) year period commencing 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 Company's
ledgers.
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.
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.
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.
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 Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Section 6(j) hereof.
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.
For a period of five (5) years from the Closing Date, the Company shall furnish
to the Underwriter at the Underwriter's request and at the Company's sole
expense, (i) the list of holders of all of the Company's securities, (ii) a
Blue Sky "Trading Survey" for secondary sales of the Company's 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.
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 Poor's 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.
Until the completion of the distribution of the IPO Securities, the Company
shall not without the prior written consent of the Underwriter and
Underwriter's 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 Company's business consistent with past
practices with respect to the Company's operations.
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 Company's 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 its C ommon Stock as deemed appropriate and similar for similar
companies.
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 purchase 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.
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 Underwriter's Warrants and the Underwriter's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form SB-2 for the registration under the Act of the securities
issuable upon exercise of the Underwriter's Warrants and the Underwriter's
Securities.
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 at 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.
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.
Payment of Expenses.
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 Underwriter's 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
Underwriter's 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 Underwriter's
Warrant Agreement, t he 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 Underwriter's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement, the
Underwriter's 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 t he 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) advertising
costs and expenses, including but not limited to costs and expenses in
connection with the "road show", information meetings and presentations, bound
volumes and prospectus memorabilia and "tomb-stone" advertisement expenses (not
to exceed $5,000), (vi) costs, fees and expenses in connection with due
diligence investigations, including but not limited to the costs of background
checks on key management and/or personnel of the Company, (vii) fees and
expenses of the transfer agent, warrant agent and registrar, (viii)
applications for assignments of a rating of the IPO Securities by qualified
rating agencies, (ix) the fees payable to th e Commission, and the NASD, and
(x) 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.
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 Underwriter's 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.
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 cashier's check or, at the election of the Underwriter, by
deduction from the proceeds of the Offering (i) on the initial Closing Date and
each Option Closing Date a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds of the Offering less the amount of $25,000
which was previously paid by the Company to the Underwriter and (ii) on the
initial Closing Date a Consulting Fee of $50,000.
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.
Conditions of the Underwriter's 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:
The Registration Statement, which shall be in form and substance satisfactory
to Underwriter's 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 Underwriter's 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 Commiss
ion 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.
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 Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's 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 Underwriter's 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.
On or prior to the Closing Date, the Underwriter shall have received from
Underwriter's Counsel, such opinion or opinions with respect to the
organization of the Company and its Subsidiaries, the validity of the IPO
Securities, the Underwriter's Warrants, the Registration Statement, the
Prospectus and other related matters as the Underwriter may request and
Underwriter's Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
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
Underwriter's Counsel, to the effect that: 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
counsel's 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 counsel's 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 counsel's 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, or 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 Company's 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: to such counsel's 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; to such counsel's 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 counsel's
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 Underwriter's 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 contractual 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
Underwriter's 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
certificates representing the IPO Securities are in due and proper form. The
Public Warrants and the Underwriter's 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. 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
counsel's knowledge, no stop order suspending the use of the Preliminary
Prospect us, 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; 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. to the best of such counsel's 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 w ould 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 amendment 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 Underwriter's 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 a ny 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 Underwriter's Warrant Agreement or the
Warrant Agreement; the Company has full legal right, power and authority to
enter into this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement and to consummate the transactions provided for herein and therein;
and this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement has been duly authorized, executed and delivered by the Company.
Each of this Agreement, the Underwriter's 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 limited by applicable law), and neither the Company's
execution or delivery of this Agreement, the Underwriter's 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, shareholder's equity, value, operations, properties,
business or results of operations of the Company and the Subsidiaries taken as
a whole; 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 Underwriter's Warrants, the
performance of this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement and the transactions contemplated hereby and thereby; the
properties and business of the Company and the Subsidiaries conform to the
description thereof contained in the Registration Statement and the Prospectus;
to such counsel's 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 borro wed
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 franchise, 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; 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 counsel's 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 Company's or any Subsidiary's business
(including, without limitations, any such licenses or rights described in the
Prospectus as be ing owned or possessed by the Company or any Subsidiary). the
IPO Securities have been approved for listing on the NASD Electronic Bulletin
Board and the Company's Registration Statement on Form 8-A under the Exchange
Act has become effective; to such counsel's 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; to such counsel's 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; to such counsel's knowledge, except as
described in the Pro spectus, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's 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 Underwriter's
compensation, as determined by the NASD; 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 Underwriter's Counsel) of
other counsel acceptable to Underwriter's 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 Underwriter's Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion 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 Underwriter's Counsel confirming as of such Option Closing Date
the statements made in its opinion delivered on the Closing Date.
On or prior to each of the Closing Date and the Option Closing Date, if any,
Underwriter's 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.
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 Underwriter's Warrants) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
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
issued u nder the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
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: 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; No stop order
suspending the effectiveness of the Registration Statement or any part thereof
has been issued, and n o proceedings for that purpose have been instituted or
are pending or are contemplated or threatened under the Act; 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 Since the dates
as of which information is given in the Registration Statement and the
Prospectus, (A) there must not have been any mat erial 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 material respect any statement or
information contained in the Registration Statement or Prospectus or that is
not reflected in the Registration St atement 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 short-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.
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.
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
Underwriter's Counsel, from Linder & Linder: 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; 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; stating that, on
th e 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 presented in conformity with generally
accepte d 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; 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 comm ercial paper and notes payable to banks) ;
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; stating that they have in addition carried
out certain specified procedures, not constituting an audit, with respect to
certain pro forma financial information whic h 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; stating that they have not during the
immediately preceding five (5) year period brought to the attention of any of
the Company's 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 Company's internal controls; and statements
as to such other matters incident to the transaction contemplated hereby as the
Underwriter may reasonably request.
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 in su ch clause (v).
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.
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.
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.
On or before the Closing Date, there shall have been delivered to the
Underwriter the Lock-up Agreements, in form and substance satisfactory to
Underwriter's Counsel.
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.
On or before the Closing Date, the Company shall have executed and delivered to
the Underwriter, (i) the Underwriter's 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 Underwriter's Warrants
in such denominations and to such designees as shall have been provided to the
Company.
If any condition to the Underwriter's 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.
Indemnification.
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 statem ent 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 circumstan ces 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.
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 Prospectus d irectly
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.
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 from s uch 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
indemnifying pa rties (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. 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 IPO S
ecurities 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 shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact 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 t he 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 parties 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.
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.
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.
Termination.
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 Underwriter's 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 been d eclared 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 Underwriter's 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 Underwriter's judgment,
either of such parties unable to perform satisfactorily its respective
obligations as contemplated by this Agreement or the Registra tion Statement,
or such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Underwriter's judgment
would make it inadvisable to proceed with the offering, sale and/or delivery of
the IPO Securities.
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 (les s
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.
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.
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.
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.
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.
Entire Agreement; Amendments. This Agreement, the Underwriter's 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
WORTHINGTON CAPITAL GROUP, INC.
By:
Name: Andrew Dorman
Title: President
<PAGE>
Exhibit 1(iii).
Form of Underwriters Warrant.
UNDERWRITER'S WARRANT AGREEMENT dated as of __________, 1997 between XETAL,
INC., a Utah corporation (the "Company") and 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 Worthington Capital Group, Inc.
warrants (the "Underwriter's Warrants") to purchase up to an aggregate of
162,000 shares of the Company's common stock, $0.001 par value per share (the
"Common Stock"), and up to 324,000 warrants (the "Underlying Warrants"), each
Underlying Warrant entitling the holder to purchase one share of Common Stock.
(One share of Common Stock and two Underlying Warrants hereinafter referred to
as the "Warrant Security" and the Common Stock and Underlying 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 1,080,000
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 Underwriter's Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date and Option Closing Date (s) (as such term's
are defined in the Underwriting Agreement) by the Company to the Underwriter in
consideration for, and as part of the Underwriter's 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 sixteen dollars and twenty cents
($16.20), 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 purchase, at any
time from ____________, 1998 until 5:00 P.M., New York time, on
_______________, 2002, up to an aggregate of 162,000 shares of Common Stock
(the "Shares") and 324,000 Underlying Warrants at an initial exercise price
(subject to adjustment as provided in Section 8 hereof) of $8.00 per share of
Common Stock and $0.160 per Underlying Warrant subject to the terms and
conditions of this Agreement. The shares of Common Stock and the Underlying
Warrants will be separately transferable immediately upon issuance. Each
Underlying Warrant is exercisable to purchase one share of Common Stock at an
initial exercise price of $8.00 from _____________, 1998 until 5:00 P.M. New
York time on ____________, 2002, at which time the Underlying Warrants will
expire. Except as set forth herein, the Underlying Warrants issuable upon
exercise of the Underwriter's Warrants are in all respects identical to the
Warrants being sold by 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
issuable upon exercise of the Underwriter's 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 Underwriter's Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per Warrant Security 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 Warrant Securities 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 and a certificate or certificates for the Underlying
Warrants 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 the Common Stock and Underlying
Warrants). In the case of the purchase of less than all Warrant Securities
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 Warrant Securities
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 Underwriter's Warrants shall have the right at any time and
from time to time to exercise the Underwriter's 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 Underwriter's 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 Underwriter's Warrants are exercised multiplied by the
Exercise Price (as hereinafter defined) and the denominator of which shall be
the Market Price. The number of Underlying Warrants to be issued pursuant to
this Section 3.2 shall be equal to the difference between (a) the number of
Underlying Warrants in respect of which the Underwriter's Warrants are
exercised and (b) a fraction, the numerator of which shall be the number of
Underlying Warrants in respect of which the 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 (i) 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 the Company, based on the best information available to it or (ii)
when referring to an Underlying Warrant, the last reported sale price, or, in
the 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
Underlying Warrants are listed or admitted to trading or by NNM, or, if the
Underlying Warrants are not listed or admitted to trading on any national
securities exchange or quoted by NNM, the average closing bid price as
furnished by the NASD through Nasdaq or similar organization including the NASD
Electronic Bulletin Board if Nasdaq is no longer reporting such information, or
if the Underlying Warrant is not quoted on Nasdaq or such similar organization,
the Market Price of an Underlying Warrant shall equal the difference between
the Market Price of the Common Stock and the Exercise Price (as hereinafter de
fined) of the Underlying Warrant. Notwithstanding the foregoing, for purposes
of Section 8, the Market Price of a share of Common Stock or an Underlying
Warrant 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 or an Underlying Warrant 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 Underwriter's Warrants,
the issuance of certificates for shares of Common Stock and Underlying Warrants
and/or other securities, properties or rights underlying such Underwriter's
Warrants and, upon the exercise of the Underlying Warrants, the issuance of
certificates for shares of Common Stock and/or other securities, properties or
rights underlying such Underlying 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 Company 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,
Underlying Warrants and the shares of Common Stock underlying such Underlying
Warrants (and/or other securities, property or rights issuable upon the
exercise of the Underwriter's Warrants or the Underlying 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 Underwriter's Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Underwriter's 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 $8.00 per share of Common Stock and $0.160 per Underlying Warrant. 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 Underwriter's
Warrants, the Shares, the Underlying Warrants issuable upon exercise of the
Warrants and the shares of Common Stock issuable upon exercise of such
Underlying 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. (a) 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 Underwriter's
Warrants, Shares, Underlying Warrants and/or shares of Common Stock issuable
upon exercise of the Underlying Warrants (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 proposed 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.
(b) 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 underwriter 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.
(c) 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. (a) At any time commencing after the effective date
of the Registration Rights 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 Underwriter's Warrants and
Underlying 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 any 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.
(b) 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. (c) 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. (d) 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 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. 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
underwriter selected as provided above may round the number of securities of
any holder which may be included in such registration to the nearest 100
shares.
(e) 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.
(f) 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. (g) 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: (a) 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. (b) 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 Underwriter's
Warrants by such number of days as shall equal the delay caused by the
Company's failure. (c) 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. (d) 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. (e) 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. (f) 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 Registrable Securities representing a Majority of
such securities.
(g) 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 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.
(h) 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. (i) 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. (j) 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 the
Company or the underwriters, except as they may relate to such Holders and
their intended methods of distribution.
(k) 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 Underwriter's Warrants, Shares, Underlying Warrants
and/or shares of Common Stock issued upon exercise of the Underlying 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.
(l) Nothing contained in this Agreement shall be construed as requiring the
Holder(s) to exercise their Underwriter's Warrants or Underlying Warrants prior
to the initial filing of any registration statement or the effectiveness
thereof.
(m) 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 Underwriter's Warrants and/or the Underlying Warrants are not,
at the time of such exercise, registered under the Act, any certificates
representing the Shares underlying the Underwriter's Warrants, the Underlying
Warrants underlying the Warrants and/or the shares of Common Stock underlying
the Underlying Warrants, and any of the other securities issuable upon exercise
of the Underwriter's 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
outstanding 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; provided, however,
t hat 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: (a) 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 Underwriter's's Warrants), if any, received by the Company for
such options, rights or warrants. (b) 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
Underwriter's Warrants) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(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 8.2,
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 Warrant
Securities issuable upon the exercise at the adjusted exercise price of each
Underwriter's Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon exercise of
the Underwriter's Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price. Notwithstanding
anything contained herein to the contrary, the adjustment to the Exercise Price
provided for in this Section "8" shall be applied solely to the 324,000
Underlying Warrants issuable hereunder and there shall be no adjustment
applicable to the 162,000 shares of Common Stock issuable upon the exercise of
the Underwriter's Warrants. For purpose of this Section "8" the Exercise Price
for the Un derlying Warrants shall be $0.160 per Underlying 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 Underwriter's 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
Underwriter's Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Underwriter's 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 Underwriter's Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall p 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:
(a) Upon the issuance or sale of the Underwriter's Warrants, Underlying
Warrants, Warrants or the shares of Common Stock issuable upon the exercise of
(i) the Underwriter's Warrants, (ii) the Underlying Warrants, or (iii) the
Warrants; or
(b) 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 Underwriter's 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 Underwriter's 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
Underwriter's 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
Underwriter's Warrants had been exercised immediately prior to such dividend or
distribut 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 Warrant Securities in such denominations as shall
be designated by the Holder thereof at the time of such surrender. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any Warrant Certificate, and, in 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 Underwriter's 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 or Underlying Warrants upon the
exercise of Underwriter's Warrants. Underwriter's 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 and/or Underlying Warrants.
If one or more Underwriter's Warrants shall be presented for exercise in full
at the same time by the same Holder, the number of whole shares of Common Stock
or Underlying Underwriter's Warrants which shall be issuable upon such exercise
thereof shall be computed on the basis of the aggregate number of shares of
Common Stock and/or Underlying Warrants purchasable on exercise of the
Underwriter's Warrants so presented. If any fraction of a share of Common
Stock or Underlying Warrants would, except for the provisions provided herein,
be issuable on the exercise of any Underwriter's Warrant (or specified portion
ther eof), 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 or
Underlying Warrants, determined as follows:
(1) If the Common Stock or Underlying Warrant, as the case may be, 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 or
Underlying Warrant, as the case may be, shall be the closing sale price of the
Common Stock or the Underlying Warrant, as the case may be, at the end of the
regular trading session on the last business day prior to the date of exercise
of the Underwriter's Warrants on whichever of such exchanges or NNM had the
highest average daily trading volume for the Common Stock or the Underlying
Warrant, as the case may be, on such day; or
(2) If the Common Stock or the Underlying Warrant, as the case may be, 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 or the Underlying Warrant, as the case
may be, 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 or the
Underlying Warrant, as the case may be, at the end of the regular trading
session on the last business day prior to the date of exercise of the
Underwriter's Warrants as quoted or reported on Nasdaq, as the case may be; or
(3) If the Common Stock or the Underlying Warrant, as the case may be, 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 or Underlying Warrant, as the case may
be, shall be the closing sale price of the Common Stock or the Underlying
Warrant, as the case may be, at the end of the regular trading session on the
last business day prior to the date of exercise of the Underwriter's Warrants
on whichever of such exchanges has the highest average daily trading volume for
the Common Stock or the Underlying Warrant, as the case may be, on such day; or
(4) If the Common Stock or the Underlying Warrant, as the case may be, 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 or the Underlying Warrant, as the case may be, shall be the
average of the last reported bid and asked prices of the Common Stock or the
Underlying Warrant, as the case may be, reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of exercise of the
Underwriter's Warrants; or
(5) If the Common Stock or the Underlying Warrant, as the case may be, 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 or the Underlying Warrant, as the case may
be, are not reported by the National Quotation Bureau, Inc., the current market
value of a share of Common Stock or the Underlying Warrant, as the case may be,
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 Underwriter's Warrants and
the Underlying 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
Underwriter's 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. The Company further covenants and agrees
that upon exercise of the Underlying Warrants underlying the Underwriter's
Warrants and payment of the respective Underlying Warrant exercise price
therefor, all shares of Common Stock and other securities issuable upon such
exercises shall be duly and validly issued, fully paid, non- assessable and not
subject to the preemptive rights of any stockholder. As long as the
Underwriter's Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants and Underlying Warrants and all Underlying Warrants
underlying the Underwriter's Warrants to be listed (subject to official notice
of issuance) on all securities exchanges on which the Common Stock or the
Underlying Warrants 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 Underwriter's Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable 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
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give 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.
13. Underlying Warrants.
The form of the certificate representing Underlying Warrants (and the form of
election to purchase shares of Common Stock upon the exercise of Underlying
Warrants and the form of assignment printed on the reverse thereof) shall be
substantially as set forth in Exhibit "A" to the Warrant Agreement. Each
Underlying Warrant shall entitle the Holder to purchase one fully paid and
non-assessable share of Common Stock at an initial purchase price of $8.00 from
______________, 1998 until 5:00 P.M. New York time on _____________, 2002 at
which time the Underlying Warrants shall expire. The exercise price of the
Underlying Warrants and the number of shares of Common Stock issuable upon the
exercise of the Underlying Warrants are subject to adjustment, whether or not
the Underwriter's Warrants have been exercised and the Underlying Warrants have
been issued, in the manner and upon the occurrence of the events set forth in
Section 8 of the Warrant Agreement, which is hereby incorporated here in by
reference and made a part hereof as if set forth in its entirety herein.
Subject to the provisions of this Agreement and upon issuance of the Underlying
Warrants, each registered holder of such Underlying Warrant shall have the
right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and non-assessable shares of
Common Stock (subject to adjustment as provided herein and in the Warrant
Agreement), free and clear of all preemptive rights of stockholders, provided
that such registered holder complies with the terms governing exercise of the
Underlying Warrant set forth in the Warrant Agreement, and pays the applicable
exercise price, determined in accordance with the terms of the Warrant
Agreement. Upon exercise of the Underlying Warrants, the Company shall
forthwith issue to the registered holder of any such Underlying Warrant in his
name or in such name as may be directed by him, certificates for the number of
sha res of Common Stock so purchased. Except as otherwise provided herein and
in Section 6.1 hereof, the Underlying Warrants shall be governed in all
respects by the terms of the Warrant Agreement except that any notice of
redemption that the Company may issue with respect to the Warrants shall not
be applicable to the Underlying Warrants. The Underlying Warrants shall be
transferable in the manner provided in the Warrant Agreement, and upon any such
transfer, a new Underlying Warrant Certificate shall be issued promptly to the
transferee. The Company covenants to, and agrees with, the Holder(s) that
without the prior written consent of the Holder(s), which will not be
unreasonably withheld, the Warrant Agreement will not be modified, amended,
canceled, altered or superseded, and that the Company will send to each Holder,
irrespective of whether or not the Underwriter's Warrants have been exercised,
any and all notices required by the Warrant Agreement to be sent to holders of
Warrants.
14. 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:
(a) If to the registered Holder of the Underwriter's Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) 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.
15. 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.
16. 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.
17. Termination. This Agreement shall terminate at the close of business on
___________, 2002. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on ___________, 2007.
18. 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 a
nd 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 14 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, 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.
19. 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.
20. 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.
21. 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.
22. 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.
23. 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:
Dr. Jan Stahl, Secretary
WORTHINGTON CAPITAL GROUP, INC
By:
Andrew Dorman, President
<PAGE>
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, _______________, 2002
No. RW-101 Warrants to Purchase
162,000 Shares of Common Stock and
324,000 Underlying Warrants
<PAGE>
WARRANT CERTIFICATE
This Warrant Certificate certifies that Worthington Capital Group, Inc.,
or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from _________, 1998 until 5:00 p.m. New York time on
___________, 2002 (the "Expiration Date"), up to 162,000 fully-paid and
non-assessable shares of common stock, $.001 par value ("Common Stock") of
Xetal, Inc., a Utah corporation (the "Company"), and 324,000 Underlying
Warrants (each such Underlying Warrant entitling the owner to purchase one
fully-paid and non-assessable share of Common Stock) at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $8.00
per share of common stock and $0.160 per Underlying Warrant 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 ________________, 1997 between
the Company and Worthington Capital Group, Inc. (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 ____________, 1997
[SEAL] XETAL, INC.
By:
Dr. Jan Stahl, Chief Executive Officer
By:
Peter Steil, President
Attest:
Dr. Jan Stahl, Secretary
<PAGE>
[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:
Warrant Securities
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 ___________________,
1997 between Xetal, Inc. and Worthington Capital Group, Inc. The undersigned
request that a certificate for such Warrant Securities 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)
<PAGE>
[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)
<PAGE>
EXHIBIT A
No. W VOID AFTER ___________, 2002
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 _____________, 1998,
(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
_______________, 1997, 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
_______________, 2002. 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: _____________, 1997
[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:
<PAGE>
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: X
Address
Social Security or
Taxpayer Identification Number
Signature Guaranteed
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, , hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please print or type name and address)
of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints 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.
Exhibit 3. Certificate of Incorporation and By-Laws, with all Amendments
thereto.
BY- LAWS
ARTICLE I
The Corporation
Section 1. Name . The legal name of this corporation (hereinafter
called the "Corporation") is Xetal, Inc.
Section 2. Offices . The Corporation shall have its principal office in
the State of New York. The Corporation may also have offices at such other
places within and without the United States as the Board of Directors may from
time to time appoint or the business of the Corporation may require .
Section 3. Seal . The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, New York". One or more duplicate dies for impressing such seal may be
kept and used.
ARTICLE 11
Meetings of Shareholders
Section 1. Place of Meetings . All meetings of the share holders shall
be held at the principal office of the Corporation in the State of New York or
at such other place, within or without the State of New York, as is fixed in
the notice of the meeting.
Section 2. Annual Meeting . An annual meeting of the share holders of
the Corporation for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held on the first
Monday in each year if not a legal holiday, and if a legal holiday, then on the
next secular day following, at ten o'clock A.M., Eastern Standard Time, or at
such other time as is fixed in the notice of the meeting. If for any reason any
annual meeting shall not be held at the time herein specified, the same may be
held at any time thereafter upon notice, as herein provided, or the business
thereof may be transacted at any special meeting called for the purpose.
Section 3. Special Meetings . Special meetings of shareholders may be
called by the President whenever he deems it necessary or advisable. A special
meeting of the shareholders shall be called by the President whenever so
directed in writing by a majority of the entire Board of Directors or whenver
the holders of one-third (1f3) of the number of shares of the capital stock of
the Corporation entitled to vote at such meeting shall, in writing, request the
same.
Section 4. Notice of Meetings . Notice of the time and place of the
annual and of each special meeting of the shareholders shall be given to each
of the shareholders entitled to vote at such meeting by mailing the same in a
postage prepaid wrapper addressed to each such shareholders at his address as
it appears on the books of the Corporation, or by delivering the same
personally to any such shareholder in lieu of such mailing, at least ten (10)
and not more than fifty (50) days prior to each meeting. Meetings may be held
without notice if all of the shareholders entitled to vote thereat are present
in person or by proxy, or if notice thereof is waived by all such shareholders
not present in person or by proxy, before or after the meeting. Notice by mail
shall be deemed to be given when deposited, with postage thereon prepaid, in
the United States mail. If a meeting is adjourned to another time, not more
than thirty (30) days hence, or to another place, and if an announcement of the
adjourned time or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the Board of Directors, after
adjournment fix a new record date for the adjourned meeting. Notice of the
annual and each special meeting of the shareholders shall indicate that it is
being issued by or at the direction of the person or persons calling the
meeting, and shall state the name and capacity of each such person. Notice of
each special meeting shall also state the purpose or purposes for which it has
been called. Neither the business to be transacted at nor the purpose of the
annual or any special meeting of the shareholders need be specified in any
written waiver of notice.
Section 5. Record Date for Shareholders . For the purpose of
determining the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect
of any change, conversion, or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than fifty (50) days nor less than ten (10) days before the
date of such meeting, nor more than fifty (50) days prior to any other action.
If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held; the record
date for determining shareholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which the first written consent is
expressed; and the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Proxy Representation . Every shareholder may authorize
another person or persons to act for him by proxy in all matters in which a
shareholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the shareholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after eleven months
from its date unless such proxy provides for a longer period. Every proxy shall
be revocable at the pleasu re of the shareholder executing it, except as
otherwise provided in Section 608 of the New York Business Corporation Law.
Section 7. VDting at Shareholders' Meetings . Each share of stock shall
entitle the holder thereof to one vote. I n the election of directors, a
plurality of the votes cast shall elect. Any other action shall be authorized
by a majority of the votes cast except where the Utah statutes prescribe a
different percentage of votes or a different exercise of voting power. In the
election of directors, and for any other action, voting need not be by ballot.
Section 8. Quorum and Adjournment. Except for a special election of
directors pursuant to Section 603 of the New York Business Corporation Law, the
presence, in person or by proxy, of the holders ofa majority of the shares of
the stock of the Corporation outstanding and entitled to vote thereat shall be
requisite and shall constitute a quorum at any meeting of the shareholders.
When a quorum is once present to organize a meeting, it shall not be broken by
the subsequent withdrawal of any shareholders. If at any meeting of
shareholders there shall be less than a quorum so present, the shareholders
present in person or by proxy and entitled to vote thereat, may adjourn the
meeting from time to time until a quorum shall be present, but no business
shall be transacted at any such adjourned meeting except such as might have
been lawfully transacted had the meeting not adjourned.
Section 9. List of Shareholders . The officer who has charge of the stock
ledger of the Corporation shall prepare, make an certify, at least ten (10)
days before every meeting of shareholders, a complete list of the shareholders,
as of the record date fixed for such meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
shareholder who is present. If the right to vote at any meeting is challenged,
the inspectors of election, if any, or the person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of
the persons challenged to vote at such meeting, and all persons who appear from
such list to be shareholders entitled to vote thereat may vote at such meeting.
Section 10. Inspectors of Election . The Board of Directors, in advance of
any meeting, may, but need not, appoint one or more inspectors of election to
act at the meeting or any adjournment thereof. If an inspector or inspectors
are not appointed, the person presiding at the meeting may, and at the request
of any shareholder entitled to vote thereat shall, appoint one or more
inspectors. I n case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder entitled to
vote thereat, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or them and
execute a certificate of any fact found by him or them. Any report or
certificate made by the inspector or inspectors shall be prima facie evidence
of the facts stated and of the vote as certified by them.
Section 11. Action of the Shareholders Without Meetings . Any action which
may be taken at any annual or special meeting of the shareholders may be taken
without a meeting on written consent, setting forth the action so taken, signed
by the holders of all outstanding shares entitled to vote thereon. Written
consent thus given by the holders of all outstanding shares entitled to vote
shall have the same effect as aunanimous vote of the shareholders.
ARTICLE lII
Directors
Section 1. Number of Directors . The number of directors which shall
constitute the entire Board of Directors shall be at least three, except that
where all outstanding shares of the stock of the Corporation are owned
beneficially and of record by less than three shareholders, the number of
directors may be less than three but not less than the number of shareholders.
Subject to the foregoing limitation, such number may be fixed from time to time
by action of a majority of the entire Board of Directors or of the shareholders
at an annual or special meeting, or, if the number of directors is not so
fixed, the number shall be three or shall be equal to the number of
shareholders (determined as aforesaid), whichever is less. Until such time as
the corporation shall issue shares of its stock, the Board of Directors shall
consist of two persons. No decrease in the number of directors shall shorten
the term of any incumbent director.
Section 2. Election and Term . The initial Board of Directors shall
be elected by the incorporator and each initial director so elected shall hold
office until the first annual meeting of shareholders and until his successor
has been elected and qualified. Thereafter, each director who is elected at an
annual meeting of shareholders, and each director who is elected in the interim
to fill a vacancy or a newly created directorship, shall hold office until the
next annual meeting of shareholders and until his successor has been elected
and qualified.
Section 3. Filling Vacancies, Resignation and Removal . Any director
may tender his resignation at any time. Any director or the entire Board of
Directors may be removed, with or without cause, by vote of the shareholders.
In the interim between annual meetings of shareholders or special meetings of
shareholders called for the election of directors or for the removal of one or
more directors and for the filling of any vacancy in that connection, newly
created directorships and any vacancies in the Board of Directors, including
unfilled vacancies resulting from the resignation or removal of directors for
cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quroum, or by the sole
remaining director.
Section 4. Qualifications and Powers . Each director shall be at least
eighteen years of age. A director need not be a shareholder, a citizen of the
United States or a resident of the State of Utah. The business of the
Corporation shall be managed by the Board of Directors, subject to the
provisions of the Certificate of Incorporation. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done exclusively by the
shareholders.
Section 5. Regular and Special Meetings of the Board. The Board of
Directors may hold its meetings, whether regular or special, either within or
without the State of New York. The newly elected Board may meet at such place
and time as shall be fixed by the vote of the shareholders at the annual
meeting, for the purpose of organization or otherwise, and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a majority of the entire Board shall be
present; or they may meet at such place and time as shall be fixed by the
consent in writing of all directors. Regular meetings of the Board may be held
with or without notice at such time and place as shall from time to time be
determined by resolution of the Board. Whenever the time or place of regular
meetings of the Board shall have been determined by resolution of the Board, no
regular meetings shall be held pursuant to any resolution of the Board altering
or modifying its previous resolution relating to the time or place of the
holding of regular meetings, without first giving at least three days written
notice to each director, either personally or by telegram, or at least five
days written notice to each director by mail, of the substance and effect of
such new resolution relating to the time and place at which regular meetings of
the Board may thereafter be held without notice. Special meetings of the Board
shall be held whenever called by the President, Vice-President, the Secretary
or any director in writing.
Notice of each special meeting of the Board shall be delivered personally
to each director or sent by telegraph to his residence or usual place of
business at least three days before the meeting, or mailed to him to his
residence or usual place of business at least five days before the meeting.
Meetings of the Board, whether regular or special, may be held at any time and
place, and for any purpose, without notice, when all the directors are present
or when all directors not present shall, in writing, waive notice of and
consent to the holding of such meeting, which waiver and consent may be given
after the holding of such meeting. All or any of the directors may waive notice
of any meeting and the presence of a director at any meeting of the Board shall
be deemed a waiver of notice thereof by him. A notice, or waiver of notice,
need not specify the purpose or purposes of any regular or special meeting of
the Board. i
Section 6. Quorum and Action. A majority of the enti re Board of
Directors shall constitute a quorum except that when the entire Board consists
of one director, then one director shall constitute a quorum, and except that
when a vacancy or vacancies prevents such majority, a majority of the directors
in office shall constitute a quorum, provided that such majority shall
constitute at lease one-third of the entire Board. A majority of the directors
present, whether or not they constitute a quorum, may adjourn a meeting to
another time and place. Except as herein otherwise provided, and except as
otherwise provided by Utah law, the vote of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board.
Section 7. Telephonic Meetings. Any member or members of the Board of
Directors, or of any committee designated by the Board, may participate in a
meeting of the Board, or any such committee, as the case may be, by means of
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
Section 8. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 9. Compensation of Directors. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, for attendance at
each regular or special meeting of the Board or of any committee designated by
the Board and may be paid a fixed sum for attendance at such meeting, or a
stated salary as director, or both. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor; provided however that directors
who are also salaried officers shall not receive fees or salaries as directors.
ARTICLE IV
Committees
Section 1. I n General. The Board of Directors may, by resolution or
resolutions passed by the affirmative vote therefore of a majority of the
entire Board, designate an Executive Committee and such other committees as the
Board may from time to time determine, each to consist of three or more
directors, and each of which, to the extent provided in the resolution or in
the certificate of incorporation or in the By-Laws, shall have all the powers
of the Board, except that no such Committee shall have power to fill vacancies
in the Board, or to change the membership of or to fill vacancies in any
Committee, or to make amend, repeal or adopt By-Laws of the Corporation, or to
submit to the shareholders any action that needs shareholder approval under
these By Laws or under Utah law, or to fix the compensation of the directors
for serving on the Board or any committee thereof, or to amend or repeal any
resolution of the Board which by its terms shall not be so amendable or
repealable. Each committee shall serve at the pleasure of the Board. The Board
may designate one~ or more directors as alternate members of any committee! who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Section 2. Executive Committee. Except as otherwise limited by the
Board of Directors or by these By-Laws, the Executive Committee, if so
designated by the Board of Directors, shall have and may exercise, when the
Board is not in session, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have power
to authorize the seal of the Corporation to be affixed to all papers which may
require it. The Board shall have the power at any time to change the membership
of the Executive Committee, to fill vacancies in it, or to dissolve it. The
Executive Committee may make rules for the conduct of its business and may
appoint such assistance as it shall from time to time deem necessary. A
majority of the members of the Executive Committee, if more than a single
member, shall constitute a quorum. I
ARTICLE V
Officers
Section 1. Designation, Term and Vacancies. The officers of the
Corporation shall be a President, one or more Vice-Presidents, a Secretary, a
Treasurer, and such other officers as the Board of Directors may from time to
time deem necessary. Such officers may have and perform the powers and duties
usually pertaining to their respective offices, the powers and duties
respectively prescribed by law and by these By-Laws, and such additional powers
and duties as may from time to time be prescribed by the Board. The same person
may hold any two or more offices, except that the offices of
President and Secretary may not, be held by the same person unless all the
issued and outstanding stock of the Corporation is owned by one person, in
which instance such person may hold all or any combination of offices.
The initial officers of the Corporation shall be appointed by the
initial Board of Directors, each to hold office until the meeting of the Board
of Directors following the first annual meeting of shareholders and until his
successor has been appointed and qualified. Thereafter, the officers of the
Corporation shall be appointed by the Board as soon as practicable after the
election of the Board at the annual meeting of shareholders, and each officer
so appointed shall hold office until the first meeting of the Board of
Directors following the next annual meeting of shareholders and until his
successor has been appointed and qualified. Any officer may be removed at any
time, with or without cause, by the affirmative note therefor of a majority of
the entire Board of Directors. All other agents and employees of the
Corporation shall hold office during the pleasure of the Board of Directors.
Vacancies occurring among the officers of the Corporation shall be filled by
the Board of Directors. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors.
Section 2. President. The President shall preside at all meetings of
the shareholders and at all meetings of the Board of Directors at which he may
be present. Subject to the direction of the Board of Directors, he shall be the
chief executive officer of the Corporation, and shall have general charge of
the entire business of the Corporation. He may sign certificates of stock and
sign and seal bonds, debentures, contracts or other obligations authorized by
the Board, and may, without previous authority of the Board, make such
contracts as the ordinary conduct of the Corporation's business requires. He
shall have the usual powers and duties vested in the President of a
corporation. He shall have power to select and appoint all necessary officers
and employees of the Corporation, except those selected by the Board of
Directors, and to remove all such officers and employees except those selected
by the Board of Directors, and make new appointments to fill vacancies. He may
delegate any of his powers to a Vice-President of the Corporation.
Section 3. Vice-President. A Vice-President shall have such of the
President's powers and duties as the President may from time to time delegate
to him, and shall have such other powers and perform such other duties as may
be assigned to him by the Board of Directors. During the absence or incapacity
of the President, the Vice-President, or, if there be more than one, the
Vice-President having the greatest seniority in office, shall perform the
duties of the President, and when so acting shall have all the powers and be
subject to all the responsibilities of the office of President.
Section 4. Treasurer. The Treasurer shall have custody of such funds
and securities of the Corporation as may come to his hands or be committed to
his care by the Board of Directors. Whenever necessary or proper, he shall
endorse on behalf of the Corporation, for collection, checks, notes, or other
obligations, and shall deposit the same to the credit of the Corporation in
such bank or banks or depositaries, approved by the Board of Directors as the
Board of Directors or President may designate. He may sign receipts or vouchers
for payments made to the Corporation, and the Board of Directors may require
that such receipts or vouchers shall also be signed by some other officer to be
designated by them. Whenever required by the Board of Directors, he shall
render a statement of his cash accounts and such other statements respecting
the affairs of the Corporation as may be required. He shall keep proper and
accurate books of account. He shall perform all acts incident to the office of
Treasurer, subject to the control of the Board .
Section 5. Secretary. The Secretary shall have custody of the seal of
the Corporation and when required by the Board of Directors, or when any
instrument shall have been signed by the President duly authorized to sign the
same, or when necessary to attest any proceedings of the shareholders or
directors, shall affix it to any instrument requiring the same and shall attest
the same with his signature, provided that the seal may be affixed by the
President or Vice-President or other officer of the Corporation to any document
executed by either of them respectively on behalf of the Corporation which does
not require the attestation of the Secretary. He shall attend to the giving and
serving of notices of meetings. He shall have charge of such books and papers
as properly belong to his office or as may be committed to his care by the
Board of Directors. He shall perform such other duties as appertain to his
office or as may be required by the Board of Directors.
Section 6. Delegation. In case of the absence of any officer of the
Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may temporarily delegate the powers or duties, or any of
them, of such officer to any other officer or to any d i recto r .
ARTICLE Vl
Stock
Section I. Certificates Representing Shares. All certificates
representing shares of the capital stock of the Corporation shall be in such
form not inconsistent with the Certificate of I ncorporation, these By-Laws or
the laws of the State of New York and shall set forth thereon the statements
prescribed by Section 508, and where applicable, by Sections 505, 616, 620, 709
and 1002 of the Business Corporation Law. Such shares shall be approved by the
Board of Directors, and shall be signed by the President or a Vice-President
and by the Secretary or the Treasurer and shall bear the seal of the
Corporation and shall not be valid unless so signed and sealed. Certificates
countersigned by a duly appointed transfer agent and/or registered by a duly
appointed registrar shall be deemed to be so signed and sealed whether the
signatures be manual or facsimile signatures and whether the seal be a
facsimile seal or any other form of seal. All certificates shall be
consecutively numbered and the name of the person owning the shares represented
thereby, his residence, with the number of such shares and the date of issue,
shall be entered on the Corporation's books. All certificates surrendered shall
be cancelled and no new certificates issued until the former certificates for
the same number of shares shall have been surrendered and cancelled, except as
provided for herein.
In case any officer or officers who shall have signed or whose facsimile
signature or signatures shall have been affixed to any such certificate or
certificates, shall cease to be such officer or officers of the Corporation
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation, and may be issued and delivered as though the person or
persons who signed such certificates, or whose facsimile signature or
signatures shall have been affixed thereto, had not ceased to be such officer
or officers of the Corporation.
Any restriction on the transfer or registration of transfer of any shares
of stock of any class or series shall be noted conspicuously on the certificate
representing such shares.
Section 2. Fractional Share Interests. The Corporation, may, but shall
not be required to, issue certificates for fractions of a share. If the
Corporation does not issue fractions of a share, it shall (1) arrange for the
disposition of fractional interests by those entitled thereto, (2) pay in cash
the fair value of fractions of a share as of the time when those entitled to
receive such fractions are determined, or (3) issue scrip or warrants in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
distribution of the assets of the Corporation in the event of liquidation. The
Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the condition
that the shares for which scrip or warrants are exchangeable may be sold by the
Corporation and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions which the Board of Directors may
impose.
Section 3. Addresses o_ Shareholders. Every shareholder shall furnish
the Corporation with an address to which notices of meetings and all other
notices may be served upon or mailed to him, and in default thereof notices may
be addressed to him at his last known post office address.
Section 4. Stolen, Lost or Destroyed Certificates. The Board of
Directors may in its sole discretion direct that a new certificate or
certificates of stock be issued in place of any certificate or certificates of
stock theretofore issued by the Corporation, alleged to have been stolen, lost
or destroyed, and the Board of Directors when authorizing the issuance of such
new certificate or certificates, may, in its discretion, and as a condition
precedent thereto, require the owner of such stolen, lost or destroyed
certificate or certificates or his legal representatives to give to the
Corporation and to such registrar or registrars and/or transfer agent or
transfer agents as may be authorized or required to countersign such new
certificate or certificates, a bond in such sum as the Corporation may direct
not exceeding double the value of the stock represented by the certificate
alleged to have been stolen, lost or destroyed, as indemnity against any claim
that may be made against them or any of them for or in respect of the shares of
stock represented by the certificate alleged to have been stolen, lost or
destroyed.
Section 5. Transfers of Shares. Upon compliance with all provisions
restricting the transferability of shares, if any, transfers of stock shall be
made only upon the books of the Corporation by the holder in person or by his
attorney "hereunto authorized by power of attorney duly filed with the
Secretary of the Corporation or with a transfer agent or registrar, if any,
upon the surrender and cancellation of the certificate or certificates for such
shares properly endorsed and the payment of all taxes due thereon. The Board of
Directors may appoint one or more suitable banks and/or trust companies as
transfer agents and/or registrars of transfers, for facilitating transfers of
any class or series of stock of the Corporation by the holders thereof under
such regulations as the Board of Directors may from time to time prescribe.
Upon such appointment. being made all certificates of stock of such class or
series thereafter issued shall be countersigned by one of such transfer agents
and/or one of such registrars of transfers, and shall not be valid unless so
countersigned.
ARTICLE Vll
Dividends and Finance
Section 1. Dividends. The Board of Directors shall have power to fix
and determine and to vary, from time to time, the amount of the working capital
of the Corporation before declaring any dividends among it shareholders, and to
direct and determine the use and disposition of any net profits or surplus, and
to determine the date or dates for the declaration and payment of dividends and
to determine the amount of any dividend, and the amount of any reserves
necessary in their judgment before declaring any dividends among its
shareholder, and to determine the amount of the net profits of the Corporation
from time to time available for dividends.
Section 2. Fiscal Year. The fiscal year of the Corporation shall end on
the last day of in each year and shall begin on the next succeeding day, or
shall be for such other period as the Board of Directors may from time to time
designate with the consent of the Department of Taxation and Finance, where
applicable.
ARTICLE Vl11
Miscellaneous Provisions
Section 1. Stock of Other Corporations. The Board of Directors shall
have the right to authorize any director, officer or other person on behalf of
the Corporation to attend, act and vote at meetings of the Shareholders of any
corporation in which the Corporation shall hold stock, and to exercise thereat
any and all rights and powers incident to the ownership of such stock, and to
execute waivers of notice of such meetings and calls therefor; and authority
may be given to exercise the same either on one or more designated occasions,
or generally on all occasions until revoked by the Board. In the event that the
Board shall fail to give such authority, such authority may be exercised by the
President in person or by proxy appointed by him on behalf of the Corporation .
Any stocks or securities owned by this Corporation may, if so determined by
the Board of Directors, be registered either in the name of this Corporation or
in the name of any nominee or nominees appointed for that purpose by the Board
of Directors.
Section 2. Books and Records. Subject to the New York Business
Corporation Law, the Corporation may keep its books and accounts outside the
State of New York.
Section 3. Notices. Whenever any notice is required by these By-Laws to
be given, personal notice is not meant unless expressly so stated, and any
notice so required shall be deemed to be sufficient if given by depositing the
same in a post office box in a sealed postpaid wrapper, addressed to the person
entitled thereto at his last known post office address, and such notice shall
be deemed to have been given on the day of such mailing.
Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation or these By-Laws a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
Section 4. Amendments. Except as otherwise provided herein, these
By-Laws may be altered, amended or repealed and By-Laws may be made at any
annual meeting of the shareholders or at any special meeting thereof if notice
of the proposed alteration, amendment or repeal, or By-Law or By-Laws to be
made be contained in the notice of such special meeting, by the holders of a
majority of the shares of stock of the Corporation outstanding and entitled to
vote thereat; or by a majority of the Board of Directors at any regular meeting
of the Board of Directors, or at any special meeting of the Board of Directors,
if notice of the proposed alteration, amendment or repeal, or By-Law or By-Laws
to be made, be contained in the Notice of such Special Meeting.
10(vi) Warrant Agreement between the Company and AMERICAN STOCK TRANSFER AND
TRUST COMPANY, as Warrant Agent.
AGREEMENT, dated this _____ day of _____________, 1997, 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 1,080,000 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
Worthington Capital Group, Inc. ("Worthington" or the "Underwriter"), its
successors and assigns, of warrants (the "Underwriter's Warrants") to purchase
an aggregate of 162,000 shares of Common Stock and 324,000 Warrants, each
Warrant entitling the holder thereof to purchase one share of Common Stock, the
Company will issue to the public up to 1,080,000 Warrants and to the
Underwriter the Underwriter's Warrants to purchase up to 162,000 shares of
Common Stock and 324,000 Warrants (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:
"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.
"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.
"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.
"Initial Warrant Exercise Date" shall mean ____________, 1998.
"Initial Warrant Redemption Date" shall mean__________, 1999.
"Purchase Price" shall mean, subject to modification and adjustment as provided
in Section 8, $5.00.
"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.
"Underwriter's Warrant Agreement" shall mean the agreement dated as of
______________, 1997 between the Company and the Underwriter relating to and
governing the terms and provisions of the Underwriter's Warrants.
"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.
"Transfer Agent" shall mean American Stock Transfer and Trust Company, or its
authorized successor.
"Underwriting Agreement" shall mean the underwriting agreement dated
______________, 1997 between the Company and the Underwriters relating to the
sale to the public by Worthington, as the Company's exclusive agent, on a best
efforts basis, of the 540,000 shares of Common Stock and 1,080,000 Warrants.
"Warrant Certificate" shall mean a certificate representing each of the
Warrants substantially in the form annexed hereto as Exhibit A.
"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
______________, 2002, 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.
"Warrant Agent" shall mean American Stock Transfer and Trust Company, or its
authorized successor.
SECTION 2 Warrants and Issuance of Warrant Certificates.
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.
Upon execution of this Agreement, Warrant Certificates representing 1,080,000
Warrants to purchase up to an aggregate of 1,080,000 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.
Upon exercise of the Underwriter's Warrants as provided therein, Warrant
Certificates representing all or a portion of 324,000 Warrants, including the
Warrants contained in the Underwriter's Warrants to purchase up to an aggregate
of 324,000 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.
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
Underwriter's Warrant Agreement (including Warrants in excess of the
Underwriter's Warrants to purchase 162,000 shares of Common Stock and 324,000
Warrants 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 approved 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.
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).
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.
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.
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
(regardless of amount) shall be made not less frequently than monthly.
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.
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.
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.
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.
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.
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.
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.
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.
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.
All Warrant Certificates surrendered for exercise or for exchange shall be
promptly canceled by the Warrant Agent.
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.
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
Purchase 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.
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.
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 shall 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 c
onversion or exchange rights shall have expired or terminated unexercised, and
such number of shares shall no longer be deemed to be issued and outstanding,
and the 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.
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, sale 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
pract icable 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.
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.
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 notice 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.
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 Underwriter's Warrants
pursuant to the Underwriter's 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.
"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.
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).
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 Regist ered 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.
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 t he Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
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.
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.
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.
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.
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.
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.
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 connec tion with this Agreement except for
its own gross negligence or willful misconduct.
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.
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.
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 Agent's gross negligence or
willful misconduct.
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 Agent's 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 Compa ny 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 b e mailed to the
Registered Holder of each Warrant Certificate.
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.
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.
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 Underwriter's 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, s hall 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 Worthington at Worthington
Capital Group, Inc., 71 Clinton Road, Garden City, New York 11530, Attention:
Mr. Andrew Dorman, President, or at such other address as may have been
furnished to the Company and the Warrant Agent in writing.
SECTION 13 Binding Effect.
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]
XETAL, INC.
By: Dr. Jan Stahl, Chief Executive Officer
AMERICAN STOCK TRANSFER AND TRUST
COMPANY, as Warrant Agent
By:
<PAGE>
EXHIBIT A
No. W VOID AFTER ___________, 2002
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 _____________, 1998,
(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
_______________, 1997, 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
_______________, 2002. 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: _____________, 1997
[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:
10(vii)
Consulting Agreement between the Company and Worthington Capital Group,
Inc.
__________, 1997
Worthington Capital Group, Inc.
71 Clinton Road
Garden City, New York 11530
ENGAGEMENT AGREEMENT:
FINANCIAL CONSULTANT SERVICES
Gentlemen:
Xetal, Inc., a Utah corporation with its principal place of business
located at 3590 Oceanside Road, Oceanside, New York 11572, (the "Company")
hereby engages, upon the following terms and conditions, Worthington Capital
Group, Inc. ("Worthington" or the "Consultant") to provide certain financial
consulting services to the Company. Consulting Services. The Consultant will
provide the Company with the following consulting services, under the following
terms and conditions: The Consultant will assist the Company in the review and
analysis of the Company's business operations, which review and analysis shall
include, but not be limited to, the review and analysis of the Company's annual
net sales and expenses. Upon completing said review, the Consultant shall make
recommendations to the Company with respect thereto. The Consultant will also
assist the Company in the drafting and completion of any business plan(s) which
the Company may require. The Consultant will also assist the Company in
compiling any due diligence material which the Company may require.
Compensation. In consideration of the foregoing financial consulting services,
the Company further agrees to the following financial terms and conditions and
the Company agrees to the Consultant's fees as follows: The Company will engage
the Consultant as its financial consultant for a period of twenty-four (24)
months to commence upon the closing of the $67,500, public offering of the
Company's securities (the "Offering"), at a fee of $67,500, which $67,500 will
be payable in full at the closing of the Offering by deduction from the
proceeds thereof. The Consultant hereby accepts such compensation. 14.
Expenses Payment Schedule. The Company agrees to reimburse the Consultant for
reasonable expenses incurred by the Consultant in connection with the Services
hereunder. The Consultant will invoice the Company in advance for its
estimated expenses for each month. Payment of invoices will be due upon
receipt. A reconciliation of actual versus estimated expenses will be made and
adjusted on a monthly basis. Liability of Consultants. In furnishing the
Company with management advice and other services as herein provided, neither
the Consultant nor any officer, director or agent thereof shall be liable to
the Company or its creditors for errors of judgment or for anything except
wilful malfeasance, bad faith or gross negligence in the performance of their
duties or reckless disregard of their obligations and duties under the terms of
this Agreement. It is further understood and agreed that the Consultant may
rely upon information furnished to it reasonably believed to be accurate and
reliable and that, except as herein provided, the Consultant shall not be
accountable for any loss suffered by the Company by reason of the Company's
action or non-action on the basis of any advice, recommendation or approval of
the Consultant, its officers, partners, employees or agents. Status of
Consultant. The Consultant shall be deemed to be an independent contractor
and, except as expressly provided or authorized in this Agreement, shall have
no authority to act or represent the Company. Other Activities of Consultant.
The Company recognizes the Consultant now renders and may continue to render
management and other services to other companies which may or may not have
policies and conduct activities similar to those of the Company. The
Consultant shall be free to render such advice and other services and the
Company hereby consents thereto. The Consultant shall not be required to
devote its full time and attention to the performance of its duties under this
Agreement, but shall devote only so much of its time and attention as it deems
reasonable or necessary for such purposes. This Agreement shall be defined by
and construed in accordance with the laws of the State of New York. AGREED AND
ACCEPTED as of the date first above written:
XETAL, INC.
By:
Dr. Jan Stahl,
Chief Executive
Officer
By:
Peter Steil,
President
WORTHINGTON CAPITAL GROUP, INC.
By:
Andrew Dorman, President
Exhibt 23
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 to 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 a part of the Registration Statement (Form SB-2).
Linder & Linder
Certified Public Accountants
Dix Hills, New York
January 14, 1998
