<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-06121
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CABLE-SAT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
FLORIDA 7372 65-0581474
(State of other Jurisdiction (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No)
</TABLE>
2105 HAMILTON AVENUE
SUITE 140
SAN JOSE, CA 95125
(408) 879-6600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
ABE OSTROVSKY
2105 HAMILTON AVENUE
SUITE 140
SAN JOSE, CA 95125
(408) 879-6600
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
JOEL BERNSTEIN, ESQ. DAVID A. CARTER, P.A.
P.O.BOX 330072 355 WEST PALMETTO PARK ROAD
MIAMI, FL 33233 BOCA RATON, FL 33432
(305) 751-3008 (407)750-6999
(305) 751-4928 (FAX) (407) 367-0960 (FAX)
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock.............................. 1,150,000 $6.00 $6,900,000 $
- ---------------------------------------------------------------------------------------------------------------
Common Stock(2)........................... 1,150,000 6.00 6,900,000
- ---------------------------------------------------------------------------------------------------------------
Stock Purchase Warrant.................... 1,150,000 .125 143,750
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Underwriters' Warrant..................... 100,000 .001 100
- ---------------------------------------------------------------------------------------------------------------
Common Stock(2)(3)........................ 200,000 9.00 1,800,000
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Underlying Underwriters' Warrant(4)....... 100,000 .1875 18,750
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Common Stock(5)........................... 2,092,000 2.50 5,230,000
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Total..................................... $20,992,600 $7,238.25
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</TABLE>
- ---------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Representing the Common Stock issuable upon exercise of warrants. This
registration statement also relates to such additional indeterminate number
of shares of Common Stock as may be issued upon adjustment of the warrants
in accordance with the terms therefore to prevent dilution.
(3) Represents the Common Stock issuable upon exercise of the Underwriters'
Warrants and the Underlying Underwriters' Warrant.
(4) Represents warrants issuable upon exercise of the Underwriters' Warrants.
(5) Represents the shares to be distributed by Call Now, Inc. and sold by the
Selling Shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGULATION 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> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 2, 1996
PROSPECTUS
CABLE-SAT SYSTEMS, INC.
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Cable-Sat Systems, Inc. (the "Company") is offering hereby 1,000,000 shares
of its Common Stock, $.001 par value per share (the "Common Stock") and
1,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). The Common
Stock and the Warrants (collectively, the "Securities") are separately
transferable at any time after the date of this Prospectus (the "Effective
Date"). Each Warrant entitles the registered holder thereof to purchase, at any
time during the period commencing on the Effective Date, one share of Common
Stock at a price of $6.00 per share, subject to adjustment under certain
circumstances, through [three years from Effective Date]. The Warrants offered
hereby are not exercisable unless, at the time of exercise, the Company has a
current prospectus covering the shares of Common Stock issuable upon exercise of
the Warrants and such shares have been registered, qualified or deemed to be
exempt under the securities laws of the states of residence of the exercising
holders of the Warrants. Commencing after the Effective Date, the Warrants are
subject to redemption by the Company at $.25 per Warrant on 30 days' prior
written notice if the closing bid price for the Company's Common Stock, as
reported on The NASDAQ SmallCap Market ("NASDAQ"), or the last sale price as
reported on a national or regional securities exchange, as applicable, for 30
consecutive trading days ending within 10 days of the notice of redemption of
the Warrants, averages at least $12.00. The Company is required to maintain an
effective registration statement with respect to the Common Stock underlying the
Warrants prior to redemption of the Warrants. The Warrants may not be redeemed
during the first year from the effective date without the written consent of
Barron Chase Securities, Inc. The Registration Statement of which this
Prospectus is a part also includes 1,367,630 shares of Common Stock (the
"Selling Stockholders Shares") for resale by certain of its stockholders (the
"Selling Stockholders") and distribution of 724,370 shares of Common Stock
currently owned by Call Now, Inc. as a dividend to its stockholders of record as
of March 12, 1996 (the "Distribution"). The Selling Stockholders have agreed not
to sell any of the Selling Stockholders' Shares for periods from six months from
the date of this Prospectus (in the case of 667,630 of such shares) or 12 months
(in the case of 700,000 of such shares) after the date of this Prospectus
without the prior written consent of the Underwriter. Call Now, Inc. has agreed
not to make the Distribution until six months from the date of this Prospectus.
None of these 2,092,000 shares are being underwritten by the Underwriter and the
Company will not receive any of the proceeds from the Distribution or sale of
the Selling Stockholders Shares. See "Selling Stockholders" and "The
Distribution".
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants. The Common Stock and the Warrants have been approved for
listing on NASDAQ under the symbols "CFAX" and "CFAXW", respectively, and on The
Boston Stock Exchange (the "Boston Exchange") under the symbols " " and
" ". There is no assurance that an active trading market in the
Company's Common Stock or Warrants will develop. The offering price of the
Common Stock and Warrants, as well as the exercise price and other terms of the
Warrants have been determined by negotiation between the Company and Barron
Chase Securities, Inc. (the "Underwriter") and bear no relationship to the
Company's asset value, net worth or other established criteria of value. See
"RISK FACTORS" and "UNDERWRITING."
------------------------
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS OF THE SECURITIES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share....................................................... $6.00 $.60 $5.40
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Per Warrant..................................................... $.125 $.0125 $.1125
- -------------------------------------------------------------------------------------------------------------------
Total (3)....................................................... $6,125,000 $612,500 $5,512,500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $183,750,
($211,312.50 if the Underwriter's over-allotment option is exercised in
full); (ii) Underwriter Warrants to purchase up to 100,000 shares of Common
Stock at $9.00 per Share (150% of the initial offering price) and 100,000
Underlying Warrants at $.1875 per warrant exercisable over a period of five
years and three years, respectively, commencing on the Effective Date (the
"Underwriter's Warrants"); and (iii) a financial advisory agreement for the
Underwriter to act as an investment banker for the Company for a period of
three years at a fee of $108,000, payable at the closing of the Offering. In
addition, the Company has agreed to indemnify the Underwriter against
certain civil liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company, estimated
at $310,212 including the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriter an option, exercisable within
thirty (30) days after the effective date of this Offering, to purchase up
to 150,000 additional shares of Common Stock and 150,000 additional Warrants
on the same terms and conditions as set forth above to cover over-
allotments, if any (the "Over-allotment Option"). If all such additional
Securities are purchased, the Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be increased to $7,043,750,
$704,375 and $6,339,375, respectively. See "Underwriting."
[LOGO] BARRON CHASE SECURITIES
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS TO LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Securities are being offered on a firm commitment basis, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and certain other
conditions. It is expected that delivery of certificates representing the
Securities will be made at the offices of Barron Chase Securities, Inc., 7700 W
Camino Real, Suite 200, Boca Raton, Florida 33433-5541, on or about
.
To the date hereof, the Company has not been required to file, and has not
filed, periodic reports with the Securities and Exchange Commission. Following
consummation of this Offering, the Company intends to furnish to its
stockholders annual reports containing financial statements audited and reported
on by independent auditors and may provide quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, information
in this Prospectus, including share and per share data, assumes no exercise of
(i) the Underwriter's Over-allotment Option and (ii) the Warrants.
THE COMPANY
The Company, a development stage company organized in August 1994, is
developing products to allow the facsimile transmission of color images from
computers equipped with the Company's software programs. Such color facsimiles
can then be viewed on the receiving computer's screen, stored and printed on a
color printer. Recipients equipped with black and white electronic fax software
or a black and white fax machine can still receive faxes sent via the software;
the faxes will simply appear in black and white. There are millions of computers
equipped with appropriate fax modems or boards, but such computers lack software
programs which will enable them to send and receive color fax images. The
Company believes that the recent price reductions of color peripherals will
result in substantial demand for the ability to transmit and receive color
facsimiles. The Company's initial color fax software product, not yet named but
being developed under the working name CHROMAFAX, is in the final stages of
development at this time. The Company expects to begin internal testing of the
finished product in August 1996 and release it for third party testing in
September 1996, with product release in the fourth quarter of 1996. Color images
contain very large quantities of data requiring a considerable amount of a
computer's data storage resources and resulting in a long transmission time. In
order to fax color images over standard phone lines in a short amount of time,
the data must be compressed. The International Telecommunications Union (ITU)
has recently recommended a standard for color image facsimile transmission (the
"International Standard"). The standard allows all machines meeting the standard
to communicate with each other. The Company's color fax software will
incorporate the new International Standard for color faxing. Use of the
International Standard is anticipated to result in transmission times of 4-8
minutes per typical page. The Company's second color fax product with the
working name, CHROMAFAX PLUS, which is currently in development, in addition to
complying with the International Standard for faxing, will contain the Company's
proprietary processes which will enable large quantities of color picture data
to be reduced by a significant factor, resulting in significantly reduced file
sizes and thereby making color fax transmission and storage more efficient. When
communicating with other computers equipped with CHROMAFAX PLUS software, the
Company's proprietary process will be used. The Company anticipates that with
its proprietary process CHROMAFAX PLUS software will be more efficient than the
International Standard and projects a transmission time under 2 minutes for a
typical page. The advanced features of the CHROMAFAX PLUS product, compression
and color correction, require additional development efforts. The compression
feature is currently being optimized to reduce its complexity and increase its
speed. The color correction feature is still being written.
The Company's color facsimile software products integrate new and existing
components into a system that the Company believes will provide competitively
priced, color facsimile capabilities. The Company is not aware of any competing
color fax products in distribution or under development but assumes that others,
including software and hardware companies, are working on color fax products.
See "Business of the Company -- Competition". However, there currently exists
products which allow the transmission of color images between computers. The
procedure of transmitting the image is generically known as "Binary File
Transfer" (BFT). Some companies provide BFT capabilities claiming to use
facsimile format, when in fact, these programs are not facsimile compatible.
Examples of such products are View Office Power Suite by Max Vision, Color Link
by Laser Today International and Hot Fax also by Laser Today International.
Although these products are advertised as providing color faxing, the products
use proprietary formats for the file transfer and, therefore, require that their
particular software be installed both at the sending and receiving computer.
Since they do not comply with the recommended standard from the International
Telecommunications Union, they are not able to communicate with other standards
compliant facsimile machines or computers using standard compliant programs. Of
course, since these other programs are proprietary and do not adhere to any
standard, especially to the proposed international standard, they also do not
communicate
3
<PAGE> 5
with each other. Even if non-standard products could communicate with each
other, as a matter of coincidence, there would be no assurance, lacking
adherence to a standard, that future versions of the products would retain the
communications capability.
The Company has not sold or licensed any of its products or technologies.
The Company's prospects must be considered in light of the risks associated with
the establishment of a new business in the evolving computer industry, as well
as further risks encountered in the shift from development to commercialization
of new products based on innovative technology. There can be no assurance that
the Company will be able to generate revenues or achieve profitable operations.
See "Risk Factors," "Business" and "Financial Statements."
The Company was incorporated under the laws of Florida on August 26, 1994.
The Company's corporate offices are located at 2105 Hamilton Avenue, Suite 140,
San Jose, California 95125. The Company's telephone number is (408) 879-6600.
SECURITIES OFFERED
The Offering............... 1,000,000 shares of Common Stock and 1,000,000
Warrants to purchase 1,000,000 shares of Common
Stock. See "Description of Securities" and
"Underwriting."
Offering price............. $6.00 per share of Common Stock and $.125 per
Warrant.
Common Stock outstanding:
Prior to the Offering...... 3,772,000 shares of Common Stock
After the Offering(1)...... 4,922,000 shares of Common Stock
Warrants outstanding after
the Offering(2)............ 1,000,000 warrants
Exercise price of Warrants
offered hereby........... $6.00 per share, subject to adjustment in certain
circumstances. See, "Description of
Securities -- Redeemable Warrants".
Exercise period of Warrants
offered hereby........... The three year period from the effective date
hereof.
Redemption of Warrants..... Redeemable by the Company at any time after the
date hereof on not less than 30 days prior
written notice to the holders of the Warrants,
provided the average closing bid quotation of the
Common Stock as reported on the NASDAQ Stock
Market, if traded thereon, or if not traded
thereon, the average closing sale price of the
Common Stock if listed on a national securities
exchange (or other reporting system that provides
last sale prices), has been at least $12.00 for a
period of 30 consecutive trading days ending
within 10 days prior to the date on which the
Company gives notice of redemption. The Warrants
may not be redeemed during the first year from
the effective date without the written consent of
Barron Chase Securities, Inc. The Warrants will
be exercisable until the close of business on the
day immediately preceding the date fixed for
redemption. See "Description of Securities
Redeemable Warrants." The Company is required to
maintain an effective registration statement with
respect to the Common Stock underlying the
Warrants prior to redemption of the Warrants.
Use of Proceeds............ The net proceeds to the Company, aggregating
approximately $5,202,288, will be applied to
redeem Preferred Stock for $450,000 and for
research and development; marketing; the purchase
of equip-
4
<PAGE> 6
ment and inventory; and the balance for working
capital and general corporate purposes. See "Use
of Proceeds."
Risk Factors............... The securities offered hereby involve a high degree
of risk and substantial immediate dilution to new
investors. Only investors who can bear the risk
of their entire investment should invest. See
"Risk Factors" and "Dilution".
Proposed NASDAQ symbols.... CFAX -- Common Stock
CFAXW -- Warrants
Proposed Boston Stock
Exchange Symbols........... -- Common Stock
-- Warrants
- ---------------
(1) Includes 1,000,000 shares of Common Stock offered hereby and 150,000 shares
of Common Stock issuable upon redemption of the Company's outstanding
Preferred Stock. Excludes (i) 1,000,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants; (ii) an aggregate of 200,000 shares
of Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; (iii) 150,000 shares of Common
Stock issuable upon exercise of the Underwriter's Over-allotment Option; and
(iv) 566,200 shares reserved for issuance upon exercise of other outstanding
options. See "Management -- Employment Agreements," "Certain Transactions,"
"Description of Securities" and "Underwriting."
(2) Includes (i) 1,000,000 Warrants offered hereby. Excludes (i) 100,000
Underwriter's Warrants to be issued to the Underwriter upon closing of the
Offering; and (ii) 150,000 Warrants issuable upon exercise of the
Underwriter's Over-allotment Option.
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below is derived from and should be
read in conjunction with the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA OF CABLE-SAT SYSTEMS, INC., A DEVELOPMENT STAGE
COMPANY:
<TABLE>
<CAPTION>
FROM INCEPTION
(AUGUST 26, 1994)
THROUGH MARCH 31, 1996
----------------------
(AUDITED)
<S> <C>
Revenues (interest income)............................................... $ 7,589
Net loss................................................................. $ (836,132)
Net loss per common share(1)............................................. $ (.36)
Weighted average number of shares(1)..................................... 2,291,111
</TABLE>
BALANCE SHEET DATA OF CABLE-SAT SYSTEMS, INC., A DEVELOPMENT STAGE COMPANY:
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------- PRO FORMA
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
--------- --------------- --------------
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Working capital....................................... $ 452,032 $ 1,564,032 $6,406,320
Total assets.......................................... $ 573,564 $ 1,685,564 $6,527,852
Total liabilities..................................... $ 43,473 $ 43,473 $ 43,473
Deficit accumulated during the development stage...... $(836,132) $ (836,132) $ (836,132)
Stockholders' equity.................................. $ 530,091 $ 1,642,091 $6,484,379
</TABLE>
- ---------------
(1) The net loss per common share has been computed in accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 64 ("SAB
64"). SAB 64 requires the net loss per common share to be computed based on
the weighted average number of shares of common stock outstanding, increased
for certain shares or stock options, including shares of Common Stock to be
issued upon redemption of the Preferred Stock, issued within one year or in
contemplation of the Company's filing of its registration statement, and
that such shares be treated as if outstanding for all periods presented.
(2) Gives effect to the issuance of 772,000 shares of Common Stock in exchange
for an aggregate net cash consideration of approximately $1,112,000 which
occurred after March 31, 1996. See "Recent Financing".
(3) Gives effect to the sale of the Common Stock and Warrants offered hereby and
the application of a portion of the estimated net proceeds therefrom to
redeem the Preferred Stock and payment of a stock subscription. See "Use of
Proceeds."
5
<PAGE> 7
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. Each
prospective investor should carefully consider the following risk factors before
making an investment decision.
Development Stage Company; Absence of Operating History. The Company was
incorporated in August 1994 and is in the development stage. Accordingly, the
Company has no significant operating history upon which an evaluation of the
Company's prospects can be made. Since inception, the Company has been engaged
primarily in the design and development of CHROMAFAX and CHROMAFAX PLUS (the
"Initial Color Fax Products") and related technology, the recruitment of key
management and technical personnel and raising capital to fund its operations.
The Company has produced technology prototypes of its initial color fax software
program, currently called CHROMAFAX, and is in the process of developing its
advanced color fax software product, currently called CHROMAFAX PLUS. It has not
licensed or sold any of its products or technologies. The Company's viability,
profitability and growth depend upon successful completion of the development
and commercialization of these products. There can be no assurance that any of
the Company's technologies or products will be successfully developed or
commercialized. The prospects for the Company's success must be considered in
light of the risks, expenses and difficulties often encountered in the
establishment of a new business in a continually evolving industry subject to
rapid technological and price changes, and characterized by an increasing number
of market competitors. The risks, expenses and difficulties often encountered in
a shift from the research and development of prototype products to the
commercialization of new products based on innovative technology must also be
considered. See "Business."
No Revenues; Accumulated Deficit; Anticipated Future Losses. To date, the
Company has had no operating revenue and does not anticipate any operating
revenue until such time as its relevant technology and one or more of its
Initial Color Fax Products are completely developed, manufactured in commercial
quantities and available for commercial distribution, none of which can be
assured. There can be no assurance that the Company's technology and products,
if developed and manufactured, will be able to compete successfully in the
marketplace and/or generate significant revenue. The Company anticipates
incurring significant costs in connection with the development of its
technologies and proposed Initial Color Fax Products and there is no assurance
that the Company will achieve sufficient revenues to offset anticipated
operating costs. As of March 31, 1996, the Company's deficit accumulated during
the developmental stage was $836,132. Further, the Company anticipates
continuing losses until its Initial Color Fax Products generate substantial
revenues, which cannot be assured. Included in such losses are research and
development expenses, marketing costs, production costs, and general and
administrative expenses. See "Summary Financial Information."
Significant Capital Requirements; Dependence on Offering Proceeds; Need for
Additional Financing. The Company's capital requirements in connection with its
development activities have been and will continue to be significant. The
Company has been dependent upon the proceeds of sales of its securities to
private investors to fund its initial development activities. The Company
anticipates that the proceeds of this offering will be sufficient to satisfy its
contemplated cash requirements for at least 12 months following the consummation
of this offering. After such time, the completion of the Company's development
activities relating to its Initial Color Fax Products and the commencement of
marketing and distribution activities in connection with such products may
require continued funding in excess of the proceeds of this offering or any
funds otherwise currently available to the Company. The Company has no current
arrangements with respect to sources of additional financing and there is no
assurance that other additional financing will be available to the Company in
the future on commercially reasonable terms, or at all. The inability to obtain
additional financing, when needed, would have a material adverse effect on the
Company, including possibly requiring the Company to curtail or cease
operations. To the extent that any future financing involves the sale of the
Company's equity securities, the Company's then existing stockholders, including
investors in this offering, could be substantially diluted. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operations."
6
<PAGE> 8
New Concept; Uncertainty of Market Acceptance; Lack of Marketing
Experience. The Initial Color Fax Products currently being developed by the
Company utilize new concepts and designs in image compression and processing.
The Company's prospects for success will therefore depend on its ability to
successfully license and sell its products to key manufacturers and distributors
who may be inhibited from doing business with the Company because of their
commitment to their own technologies and products. As a result, demand and
market acceptance for the Company's technologies and proposed products is
subject to a high level of uncertainty. The Company currently has limited
financial, personnel and other resources to undertake the extensive marketing
activities that will be necessary to market its technology and products once
their development is completed. There is no assurance that any of the Company's
potential customers will enter into any arrangements with the Company. There is
no assurance that the Company will be able to formalize any marketing
arrangements or that its marketing efforts will be successful. See
"Business -- Sales and Marketing" and "Business -- Research and Development."
Dependent on Hardware Manufacturers for Initial Product Distribution. The
Company intends to rely in part on the manufacturers of personal computers, fax
modems, color printers and scanners for initial distribution of its Initial
Color Fax Products as a software package included with such hardware purchase.
The Company is therefore dependent upon such firms to distribute its products.
To date, the Company does not have any agreements with any manufacturers to
distribute its color fax products. The failure of such manufacturers to
distribute copies of the Company's Initial Color Fax Products with their
products would have a material adverse effect on the Company's ability to market
its Initial Color Fax Products. See "Business of the Company -- Marketing and
Distribution."
Uncertainty of Product and Technology Development; Need for Product
Testing; Technological Factors. The Company has not completed development of any
of the Company's proposed Initial Color Fax Products in commercially salable
form. Technologies and proposed products being developed by the Company are in
various stages of development. Product development efforts are subject to all of
the risks inherent in the development of new technology and products (including
unanticipated delays, expenses, technical problems or difficulties, as well as
the possible insufficiency of funding to complete development). There can be no
assurance as to when, or whether, such developments will be successfully
completed. See "Business of the Company -- The Company's Color Fax Products."
Competition; Product Obsolescence. The markets for the technology and
products being developed by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or short
product life cycles. As a result, certain companies may be developing
technologies or products of which the Company is unaware which may be
functionally similar, or superior, to some or all of those being developed by
the Company. These companies may have substantially greater financial,
technical, personnel and other resources than the Company and may have
established reputations for success in developing, licensing and sales of their
products. The ability of the Company to compete will depend on its ability to
complete development and introduce to the marketplace in a timely and
cost-competitive manner its proposed products and technology, to continually
enhance and improve such products and technology, to adapt its proposed products
to be compatible with specific products manufactured by others, and to
successfully develop and market new products and technology. There is no
assurance that the Company will be able to compete successfully, that its
competitors or future competitors will not develop technologies or products that
render the Company's products and technology obsolete or less marketable or that
the Company will be able to successfully enhance its proposed products or
technology or adapt them satisfactorily. See "Business of the
Company -- Competition."
Dependence on Key Personnel. The success of the Company will be largely
dependent on its ability to hire and retain qualified executive, scientific and
marketing personnel. There is no assurance that the Company will be able to hire
or retain such necessary personnel. The Company has employment contracts with
several of its key personnel, including Abe Ostrovsky and John Douglas and
carries key man insurance on their lives in the amount of $1 million each. See
"Management."
Protection of Proprietary Information. The Company will apply for
copyrights relating to certain of its proposed Initial Color Fax Products and
may also apply for patent protection. There is no assurance that any
7
<PAGE> 9
patents will be obtained. If obtained, there is no assurance that any patents or
copyrights will afford the Company commercially significant protection of its
technologies or that the Company will have adequate resources to enforce its
patents and copyrights. The Company also intends to seek foreign patent and
copyright protection. With respect to foreign patents and copyrights, the laws
of other countries may differ significantly from those of the United States as
to the patentability of the Company's products or technology. Moreover, the
degree of protection afforded by foreign patents or copyrights may be different
from that in the United States. Patent applications in the United States are
maintained in secrecy until patents issue, and since publication of discoveries
in the scientific or patent literature tends to lag behind actual discoveries by
several months, the Company cannot be certain that it will be the first creator
of inventions covered by any patent applications it makes or the first to file
patent applications on such inventions.
Competitors in both the United States and foreign countries, many of which
have substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or otherwise interfere
with the Company's ability to make and sell its products. The Company has not
conducted an independent review of patents issued to third parties. In addition,
because of the developmental stage of the Company, claims that the Company's
products infringe on the proprietary rights of others are more likely to be
asserted after commencement of commercial sales incorporating the Company's
technology. Although the Company believes that its products do not infringe the
patents or other proprietary rights of third parties, there can be no assurance
that other third parties will not assert infringement claims against the Company
or that such claims will not be successful. There can also be no assurance that
competitors will not infringe the Company's patents. Defense and prosecution of
patent suits, even if successful, are both costly and time consuming. An adverse
outcome in the defense of a patent suit could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require the Company to cease selling its products.
The Company also relies on unpatented proprietary technology, and there can
be no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's unpatented technology. To
protect its trade secrets and other proprietary information, the Company
requires employees, consultants, advisors and collaborators to enter into
confidentiality agreements. There can be no assurance that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
If the Company is unable to maintain the proprietary nature of its technologies,
the Company could be adversely affected. See "Business -- Patents; Proprietary
Information."
In the desktop computer application market today, patents and copyrights
cannot give substantial protection against competitors determined to introduce
competing products since it is likely that such competitors will be able to
develop similar technology which does not infringe on the Company's proprietary
technology.
Control by Management. Upon consummation of the Offering, the directors
and officers of the Company will beneficially own 2,048,273 shares of Common
Stock, or approximately 42% of the Company's then outstanding shares of Common
Stock and have the right to acquire 230,000 additional shares pursuant to
outstanding options. Such directors and officers would in all likelihood be in a
position to control the election of the Company's directors and thereby select
the management, and direct the policies, of the Company. See "Management,"
"Principal Stockholders" and "Description of Securities."
No Dividends. The Company has paid no cash dividends to date. Payment of
dividends on the Common Stock is within the discretion of the Board of Directors
and will depend upon the Company's earnings, its capital requirements and
financial condition, and other relevant factors. The Company does not currently
intend to declare any dividends on its Common Stock in the foreseeable future.
Currently, the Company plans to retain any earnings it receives for development
of its business operations. See "Summary Financial Information."
8
<PAGE> 10
Redemption of Preferred Stock from Proceeds of Offering; Benefit to
Stockholder. $450,000 of the proceeds of this offering will be used to redeem
150,000 shares outstanding Preferred Stock from Call Now, Inc. and, accordingly,
such funds will not be available to fund future growth. Such Preferred Stock is
redeemable at $3.00 per share plus 1 share of the Company's Common Stock per
share. The Preferred Stock accrues dividends at $.21 per share on each
anniversary of its issuance. Accordingly, upon redemption of such Preferred
Stock from the proceeds herein no dividend will have accrued since the Preferred
Stock was issued in March 1996. See "Use of Proceeds."
Benefit to Selling Stockholders. The Selling Stockholders acquired their
shares at prices significantly below the price of the shares offered herein:
Call Now, Inc. was an early venture capital investor which purchased shares in
August 1995 for $.91 per share and in March 1996 at $.30 per share. Nineteen of
the Selling Stockholders were venture capital investors who purchased 372,000
shares in May 1996 for $2.50 per share. Eight of the Selling Stockholders
purchased 350,000 shares for $.60 per share in April 1996. One Selling
Stockholder received 50,000 shares for services valued at $30,000 in April 1996
and Abe Ostrovsky, the Company's Chairman, is a Selling Stockholder of 300,000
shares which were purchased in February 1996 for $.30 per share. Accordingly,
the Selling Stockholders will receive substantial profits if they are able to
sell their shares at the offering price herein. Mr. Ostrovsky will continue to
hold an option to acquire 180,000 shares for $2.50 per share.
Dilution. Investors purchasing shares of Common Stock in the Offering will
incur immediate and substantial dilution in the net tangible book value per
share of the Common Stock from the initial public offering price as compared to
the increase in net tangible book value per share that will accrue to existing
stockholders. Such dilution is estimated to be $4.69 per share (or approximately
78%). See "Dilution".
Shares Eligible for Future Sale; Registration Rights. Upon the
consummation of this offering, the Company will have 4,922,000 shares of Common
Stock outstanding, assuming no exercise of the Warrants or outstanding options.
All of the Company's presently issued and outstanding shares of Common Stock are
deemed to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act ("Rule 144") and may, in certain
circumstances, be sold without registration pursuant to such rule. All of such
"restricted" shares will become eligible for sale under Rule 144 beginning in
April 1997 (subject to certain recurring three-month volume limitations
prescribed by Rule 144). The possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect prevailing market
prices for the Common Stock and the Warrants and could impair the Company's
ability in the future to raise additional capital through the sale of its equity
securities. See "Principal Stockholders", "Underwriting", "Selling Stockholders"
and "The Distribution".
No Assurance of Public Market; Determination of Public Offering Price;
Possible Volatility of Market Price of Common Stock and Warrants. Prior to this
offering, there has been no public trading market for the shares of Common Stock
or the Warrants. Consequently, the initial offering price of the Common Stock
and the Warrants and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter and do not necessarily
reflect the Company's book value or other established criteria of valuation.
There can be no assurance that a regular trading market for either the Common
Stock or the Warrants will develop after this offering or that, if developed, it
will be sustained. In addition, the market price of the securities of
development-stage companies in high-technology industries has been highly
volatile. In addition, the market prices for securities of many emerging
companies have experienced wide fluctuations not necessarily related to the
operating performance of such companies. Factors such as the Company's operating
results, announcements by the Company of licensing of distribution contracts,
orders for its products and announcements by the Company or its competitors
concerning technological innovations, new products or systems may have a
significant impact on the market price of the Company's securities. See
"Underwriting."
Necessity of Future Registration of Warrants and State Blue Sky
Registration; Exercise of Warrants. The Warrants will trade separately upon the
closing of the Offering. Although the Warrants will not knowingly be sold to
purchasers in jurisdictions in which the Warrants are not registered or
otherwise knowingly be sold to purchasers in jurisdictions in which the Warrants
are not registered or otherwise qualified for sale or exempt, purchasers may buy
Warrants in the after-market or may move to jurisdictions in which the Warrants
9
<PAGE> 11
and the Common Stock underlying the Warrants are not so registered or qualified
or exempt. In this event, the Company would be unable lawfully to issue Common
Stock to those persons desiring to exercise their Warrants (and the Warrants
will not be exercisable by those persons) unless and until the Warrants and the
underlying Common Stock are registered or qualified for sale in jurisdictions in
which such purchasers reside or an exemption from such registration or
qualification requirements exists in such jurisdictions. There can be no
assurance that the Company will be able to effect any required registration or
qualification.
The Warrants offered hereby will not be exercisable unless the Company
maintains a current registration statement on file with the Commission either by
filing post-effective amendments to the Registration Statement of which this
Prospectus is a part or by filing a new registration statement with respect to
the exercise of such Warrants. The Company has agreed to use its best efforts to
file and maintain, so long as the Warrants offered hereby are exercisable, a
current registration statement with the Commission relating to such Warrants and
the shares of Common Stock underlying such Warrants. However, there can be no
assurance that it will do so or that such Warrants or such underlying Common
Stock will be or continue to be so registered.
The value of the Warrants could be adversely affected if a then current
prospectus covering the Common Stock issuable upon exercise of the Warrants is
not available pursuant to an effective registration statement or if such Common
Stock is not registered or qualified for sale or exempt from registration or
qualification in the jurisdictions in which the holders of Warrants reside. See
"Description of Securities -- Redeemable Warrants."
Adverse Effect of Redemption of Warrants. The Warrants are subject to
redemption by the Company at a price of $.25 per Warrant at any time, on at
least 30 days prior written notice, if the average closing bid quotation of the
Common Stock as reported on the NASDAQ Stock Market, if traded thereon, or if
not traded thereon, the average closing sale price of the Common Stock if listed
on a national securities exchange (or other reporting system that provides last
sale prices), has been at least 200% of the then current exercise price of the
Warrants (initially, $12.00 per share), for a period of 30 consecutive trading
days ending on the 10th day prior to the date on which the Company gives notice
of redemption. If the Company gives such notice of redemption, holders of the
Warrants will lose their rights to exercise the Warrants after the date fixed
therein for their redemption. Upon the receipt of a notice of redemption of the
Warrants, the holders thereof would be required to (i) exercise the warrants and
pay the exercise price at a time when it may disadvantageous for them to do so,
(ii) sell the Warrants at the then market price, if any, when they might
otherwise wish to hold the Warrants or (iii) accept the redemption price, which
is likely to be substantially less than the market value of the Warrants at the
time of redemption. The Warrants may not be redeemed during the first year from
the effective date without the written consent of Barron Chase Securities, Inc.,
or at any time that a current registration statement is not in effect. See
"Description of Securities -- Redeemable Warrants."
Anti-Takeover Statutes. Florida has enacted legislation which prohibits a
publicly-held Florida corporation from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the prior three years did own) 15% or
more of a corporation's voting stock. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
"interested stockholder." See "Description of Securities -- Anti-Takeover
Provisions of Florida Law."
Tax Loss Carryforwards. At March 31, 1996 the Company had available unused
net operating loss carryforwards ("NOLs") aggregating approximately $836,132 to
offset future taxable income. Under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"), utilization of prior NOLs is limited after an
ownership change, as defined in such Section 382, to an amount equal to the
value of the loss corporation's outstanding stock immediately before the date of
the ownership change, multiplied by the federal long-term tax-exempt rate in
effect during the month that the ownership change occurred. Upon the
consummation of this offering, the Company may be subject to limitations on the
use of its NOLs as provided
10
<PAGE> 12
under Section 382. Accordingly, there can be no assurance that a significant
amount of the Company's existing NOLs will be available to the Company following
the Offering. In the event that the Company achieves profitability, as to which
there can be no assurance, such limitation would have the effect of increasing
the Company's tax liability and reducing the net income and available cash
resources of the Company in the future. See "Financial Statements."
Possible Delisting and Risk of Low-Priced Securities. The Company has
applied for quotation of the Common Stock and the Warrants on NASDAQ and has
applied for listing of the Common Stock and the Warrants on the Boston Stock
Exchange. No assurance can be given that the Common Stock and the Warrants will
continue to qualify for listing or that the Company will continue to be able to
satisfy certain specified financial tests and market related criteria required
for continued quotation on NASDAQ and continued listing on the Boston Stock
Exchange following the Offering. If the Company is unable to satisfy such
maintenance criteria in the future, the Common Stock and the Warrants may be
delisted from trading on NASDAQ and/or the Boston Stock Exchange, as the case
may be, and consequently an investor could find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
In addition, if the Company's securities are not quoted on NASDAQ or the
Boston Stock Exchange, or if the Company does not meet the other exceptions to
the penny stock regulations cited above, trading in the Company's securities
would be covered by Rule 15g-9 promulgated under the Exchange Act for non-NASDAQ
and non-national securities exchange listed securities. Under such rule,
broker/dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities also are exempt from this rule if the
market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Company's securities could be
adversely affected. In such event, the regulations on penny stocks could limit
the ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities in
the secondary market.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Warrants offered hereby are estimated to be $5,202,288. The Company anticipates
that these proceeds will be used as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Research and development(1)................................. $ 1,400,000 26.9%
Redemption of preferred stock(2)............................ 450,000 8.7
Marketing(3)................................................ 2,600,000 50.0
Purchase of equipment and inventory(4)...................... 200,000 3.8
Working capital and general corporate purposes(5)........... 552,288 10.6
------------- ------
Total............................................. $ 5,202,288 100.0%
=========== ==========
</TABLE>
- ---------------
(1) Includes estimated costs to continue the development of the CHROMAFAX and
CHROMAFAX PLUS. See "Management's Discussion and Analysis of Financial
Condition" and "Plan of Operation."
11
<PAGE> 13
(2) Represents the redemption of Preferred Stock issued to Call Now, Inc. in
February 1996 for $450,000. The Company used the net proceeds from the sale
of such stock to pay for research and product development and operating
expenses. See Note 2 and 6 of Notes to Financial Statements.
(3) Includes estimated expenses associated with participation in trade shows,
business travel, advertising in trade magazines, the preparation of sales
presentations and brochures and market research and related payroll
expenses of marketing personnel and consultants. See "Business -- Marketing
and Distribution."
(4) Includes the estimated costs associated with the purchase of equipment and
the purchase of inventories of the CHROMAFAX and CHROMAFAX PLUS. The
Company has no commitments to date for the purchase of any inventory. See
"Plan of Operation."
(5) Includes anticipated payment of the salaries of the Company's current
personnel. The remainder will be used for working capital and general
corporate purposes.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this offering will be
sufficient to satisfy the Company's contemplated cash requirements for at least
12 months following the consummation of this offering. In the event the
Company's plans change or its assumptions change or prove to be inaccurate or
the proceeds of this offering prove to be insufficient to fund operations (due
to unanticipated expenses, delays, problems or otherwise), the Company may find
it necessary or advisable to reallocate some of the proceeds within the
above-described categories or to use portions thereof for other purposes and
could be required to seek additional financing sooner than currently
anticipated. See "Plan of Operation."
Proceeds not immediately required for the purposes described above will be
invested principally in government securities and/or short-term certificates of
deposit.
DILUTION
As of March 31, 1996, the net tangible book value of the Company was
$502,433 or approximately $.17 per share of Common Stock. After giving
retroactive effect to the Pro Forma Adjustments (see "Prospectus
Summary -- Summary Financial Information"), the pro forma net tangible book
value of the Company was $1,614,433 or $.43 per share of Common Stock. After
also giving effect to the sale of the 1,000,000 shares of Common Stock and
1,000,000 Warrants being offered hereby (less underwriting discounts and
commissions and estimated expenses of this offering), the adjusted net tangible
book value of the Company as of March 31, 1996, would have been approximately
$6,456,721, or $1.31 per share, representing an immediate increase in net
tangible book value of $.88 per share of Common Stock to existing stockholders
and an immediate dilution of $4.69 per share (78%) to new investors. The
following table illustrates this dilution to new investors on a per share basis:
<TABLE>
<S> <C>
Public offering price........................................................ $6.00
Net tangible book value before Pro Forma Adjustments......................... .17
Increase attributable to Pro Forma Adjustments............................. .26
-----
Pro Forma net tangible book value before Offering.......................... .43
Increase attributable to new investors..................................... .88
-----
Adjusted net tangible book value after Offering.............................. 1.31
-----
Dilution to new investors.................................................... $4.69
=====
</TABLE>
The above table assumes no exercise of outstanding stock options and
warrants. As of the date of this Prospectus, there are outstanding stock options
and warrants to purchase an aggregate of 566,200 shares of Common Stock having
exercise prices of $.10 per share to $2.75 per share. To the extent that stock
options or warrants are exercised at prices below the public offering price per
share, there will be further dilution to new investors. See "Risk Factors,"
"Plan of Operation," "Certain Transactions," "Description of Securities" and
"Underwriting."
12
<PAGE> 14
The following table sets forth with respect to existing common stockholders
and new investors in this offering, a comparison of the number of shares of
Common Stock acquired from the Company, the percentage of ownership of such
shares, the total consideration paid, the percentage of total consideration paid
and the average price per share.
<TABLE>
<CAPTION>
SHARES TOTAL
------------------- -----------------------
PURCHASED CONSIDERATION
NUMBER NUMBER PERCENT AMOUNT PERCENT CONSIDERATION
- -------------------------------------------- --------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... 3,772,000 79% $ 2,176,250 26.6% $ .58
New investors............................... 1,000,000 21% 6,000,000 73.4% 6.00
--------- ------- ------------- -------
Total............................. 4,772,000 100% $ 8,176,250 100%
</TABLE>
The above tables assume no exercise of the Underwriter's Over-allotment
Option. If such option is exercised in full, the new investors will have paid
$6,900,000 for 1,150,000 shares of Common Stock, representing approximately 76%
of the total consideration for 23% of the total number of shares of Common Stock
outstanding.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth capitalization of the Company as of March
31, 1996 and as adjusted to reflect the sale of the 1,000,000 shares offered
hereby and the application of the net proceeds and issuance of additional shares
since March 31, 1996.
CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT-STAGE COMPANY)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
AUDITED UNAUDITED
<S> <C> <C> <C>
Stockholder's Equity:
Series A Preferred Stock, $.001 par value 150,000
shares authorized............................. $ 450,000 $ 450,000 $ -0-
Common Stock, $.001 par value, 50,000,000 shares
authorized; 3,000,000 shares issued and
outstanding; 4,922,000 shares to be outstanding
as adjusted...................................... $ 3,000 $ 3,772 $ 4,922
Additional Paid-in Capital......................... $1,003,223 $2,114,451 $ 7,315,589
Subscription Note Receivable....................... $ (90,000) $ (90,000) $ -0-
Deficit Accumulated During Development Stage....... $ (836,132) $ (836,132) $ (836,132)
Total Stockholders' Equity......................... $ 530,091 $1,642,091 $ 6,484,379
Total Capitalization..................... $1,456,223 $2,568,223 $ 7,326,511
</TABLE>
The pro-forma and as adjusted capitalization gives effect to issuance of
772,000 shares of common stock after March 31, 1995.
The as adjusted capitalization gives effect to the redemption of the Series
A Preferred Stock, including the issuance of 150,000 shares of common stock in
connection with such redemption, sale of 1,000,000 shares of common stock in the
underwritten offering herein and collection of the subscription note receivable.
14
<PAGE> 16
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, the Company's Financial Statements, the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Plan of Operations" contained elsewhere in this Prospectus. The selected
financial data for each of the two years ended September 30, 1995 and 1994 are
derived from Company's audited financial statements, and the selected financial
data for the six-month periods ended March 31, 1996 and 1995 are derived from
the Company's audited financial statements.
CABLE-SAT SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
(AUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
MARCH 31, SEPTEMBER 30,
------------------- -------------------
1996 1995 1995 1994
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ -0- $ -0- $ -0- $ -0-
General and administrative expenses..................... 587,167 -0- 256,554 -0-
Income (loss) from operations........................... (587,167) -0- (256,554) -0-
Other income (expense).................................. 5,800 -0- 1,789 -0-
Income (loss) before income taxes....................... (581,367) -0- (254,765) -0-
Provision for income taxes.............................. -0- -0- -0- -0-
Net income (loss)....................................... (581,367) -0- (254,765) -0-
Earnings (loss) per share............................... (.25) -0- (.12) -0-
Weighted average shares outstanding..................... 2,291,111 -0- 2,200,000 -0-
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................ $ 495,505 $ 425,319
Working capital....................................................... 452,032 382,383
Total assets.......................................................... 573,564 488,394
Current liabilities................................................... 43,473 42,936
Stockholders' equity (deficit)........................................ 530,091 445,458
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
Since inception of its organizational activities in April 1995, the
Company, a development stage company, has been engaged primarily in the design
and development of its Initial Color Fax Products and related technology, the
recruitment of key management and technical personnel, including outside
consultants, researching the patentability of its products and technology and
raising capital to fund its operations. The Company has produced prototypes of
the CHROMAFAX computer program, but not the CHROMAFAX PLUS. It has not licensed
or sold any of its products or technologies. The Company requires the proceeds
of this offering to continue to develop its Initial Products and (in the event
the Company is able to successfully complete certain additional research and
development, prototypes and product testing relating thereto) to commence the
commercialization of the Initial Color Fax Products.
As of March 31, 1996, the Company had an accumulated deficit of $836,132.
Significant additional losses have been incurred since such date. The Company
will continue to have a high level of operating expenses and will be required to
make significant expenditures in connection with its research and development
activities and the production and marketing of its proposed products and
technologies following the consummation of this offering. Although the Company
anticipates deriving some revenue from the sale of its CHROMAFAX and CHROMAFAX
PLUS computer programs within the next 12 months, no assurance can be given that
these products will be successfully developed, tested and brought to market
during such period, and the Company has projected its expenses based on the
assumption that it will receive no revenues from the sale of its products during
the 12 months after the conclusion of this offering. Even if revenues are
produced from the sale of such Initial Color Fax Products, the Company expects
to continue to incur substantial losses for at least the next 12 months, and
thereafter until the Company is able to attain revenues from sales, licensing or
other arrangements sufficient to support its operations, which cannot be
assured.
RESEARCH AND DEVELOPMENT
From inception though March 31, 1996, substantially all of the Company's
activities related to research and development. During the 12 months following
the Offering, the Company intends to spend approximately $1,400,000 on research
and development. In the event the Company is able to generate revenues from
sales of its Initial Color Fax Products during such 12-month period, it
anticipates it will increase its expenditures for research and development.
MARKETING AND DISTRIBUTION
Achieving significant market acceptance and commercialization of the
Company's Initial Color Fax Products will require substantial marketing efforts
and the expenditure of significant funds to establish market awareness of the
Company and the Initial Color Fax Products. The Company anticipates spending
$2,250,000 over the 12 months following the Offering to develop and implement a
formal marketing, advertising and public relations program. The Company
initially intends to market the Initial Color Fax Products through manufacturers
of personal computers, fax modems, scanners and color printers. It also may
license to third parties the rights to manufacture the products, either through
direct licensing, OEM arrangements or otherwise. See "Business Manufacturing."
The Company does not currently have a sales force to implement the sale
and/or licensing of its products or related technology. The Company has
determined that it will need to employ an internal sales staff of at least four
people by December 31, 1996. See "Business -- Marketing and Distribution."
MANUFACTURING
The Company does not contemplate that it will directly manufacture any of
its products. It intends to contract with third parties to manufacture its
proposed Initial Color Fax Products. The Company has not
16
<PAGE> 18
made any manufacturing arrangements for such products. However, the Company
believes that there are a large number of firms equipped to copy and package the
Initial Color Fax Products.
EMPLOYEES
The Company currently has eight employees and four consultants. Depending
on its level of business activity, the Company expects to hire additional
employees in the next 12 months, including marketing and sales personnel, and
has allocated $1,215,000 of the proceeds of this offering for the recruitment
and related payroll expenses for approximately 9 additional employees over the
next 12-month period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has relied for all of its funding
(approximately $2,568,000 in cash) on private sales of its equity securities.
The Company intends to use $450,000 of the proceeds of this offering to redeem
Preferred Stock issued to Call Now, Inc. in connection with such financings.
The Company's plan of operation over the 12 months following the
consummation of this offering focuses primarily on the continued design,
development and patent and/or copyright protection of its proposed products and
in particular, the production of prototypes, testing and the marketing of the
CHROMAFAX and CHROMAFAX PLUS. The Company anticipates, based on its current
proposed plans and assumptions relating to its operations, that the proceeds of
this offering will be sufficient to satisfy the contemplated cash requirements
of the Company for at least 12 months following the consummation of this
offering. In the event that the Company's plans change or its assumptions prove
to be inaccurate or the proceeds of this offering prove to be insufficient to
fund operations (due to unanticipated expenses, delays, problems, or otherwise),
the Company would be required to seek additional funding sooner than
anticipated. Depending upon the Company's progress in the development of its
products and technology, their acceptance by third parties, and the state of the
capital markets, the Company may also determine that it is advisable to raise
additional equity capital, possibly within the next 12 months. In addition, in
the event that the Company receives a larger than anticipated number of initial
purchase orders upon introduction of its Initial Color Fax Products, it may
require resources substantially greater than the proceeds of this offering or
than are otherwise available to the Company. In such event the Company may be
required to raise additional capital. The Company has no current arrangements
with respect to, or sources of, any such capital, and there can be no assurance
that such additional capital will be available to the Company when needed, on
commercially reasonable terms or at all. The inability of the Company to obtain
additional capital would have a material adverse effect on the Company and could
cause the Company to be unable to implement its business strategy, to postpone
or cancel the development of certain of its proposed products, or to otherwise
significantly curtail or cease its operations. Additional equity financing may
involve substantial dilution to the interests of the Company's then existing
stockholders.
The Company's future performance will be subject to a number of business
factors, including those beyond the Company's control, such as economic
downturns and evolving industry needs and preferences and the availability of
competing products, as well as the ability of the Company to successfully market
its products and technology and to effectively monitor and control its costs.
There can be no assurance that the Company will be able to successfully
implement a marketing strategy, generate significant revenues or ever achieve
profitable operations. In addition, because the Company has had only limited
operations to date, there can be no assurance that its estimates will prove to
be accurate or that unforeseen events will not occur.
FISCAL YEAR ENDED SEPTEMBER 30, 1995
The Company began its operations in April 1995 at which time it received
its initial venture capital funding. Initial operations were geared towards
establishing its business operations in San Jose, California, hiring its initial
staff, primarily computer software developers, and undertaking development of
its initial color fax software products. Accordingly, primary expenses were
research and development expenses consisting of salaries and benefits.
17
<PAGE> 19
SIX MONTHS ENDED MARCH 31, 1996
Research and Development continued to be the major expense at $368,736. The
Company expanded the scope of its operations adding additional equipment and
administrative personnel. As a result the travel expense required by founders of
the Company diminished substantially. Depreciation increased as a result of new
equipment acquisitions and full six-months of depreciation recorded on existing
equipment. Rent increase is reflective of six months of rent versus three months
for the period ended September 30, 1995. Wage increase is a result of the
addition of administrative personnel.
RECENT FINANCING
In April 1996 the Company sold 350,000 shares of Common Stock at $.60 per
share to private investors and issued 50,000 shares for services valued at
$30,000.
In May 1996 the Company completed a private placement of 372,000 shares of
its Common Stock at $2.50 per share to certain accredited investors. The Company
received cash proceeds of approximately $902,000 after expenses.
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<PAGE> 20
BUSINESS OF THE COMPANY
Facsimile transmission, better known as "fax", has become a major means of
communication in today's business community. A fax machine can be found in
almost every organization and is a standard office tool.
Facsimile machines convert text or graphics into digital form that can be
electronically transmitted and received across telephone lines. When sending
images, fax machines operate as scanners, converting images into a series of
dots which are then digitally encoded. The digital signal is then converted to a
voiceband ("audio") signal for transmission over the telephone network. When
receiving images, the machines affix images to paper through a variety of means.
The image is converted to a series of dots (either by scanning, in the case of a
fax machine, or electronically, in the case of a computer). Many technologies
employed in facsimile imaging are similar to those used in computer printers and
photocopiers.
Individual personal computers can be utilized as fax machines by the
addition of special circuitry known as a modem with fax capabilities. This
allows the computer to send and receive faxes directly without utilizing a
freestanding fax machine. Using a computer as a fax machine requires that a
telephone line be available during fax transmission and receiving. A fax
received directly by a computer can be immediately viewed on screen or stored
for later viewing. If the computer is connected to printer, the fax transmission
can be printed.
The Company believes that the recent price reduction of color printers and
scanners and their commensurate sales increase will result in demand for color
fax capabilities so that the color images that are being utilized by computer
users can impact their facsimile transmissions.
A communications software program controls the exchange of information
between the computer and the remote computer or facsimile machine at the other
end of the phone line. Current communications software packages do not allow a
computer generated fax to be sent other than in black and white.
Such communications software operates in accordance with international
standards adopted by an international telecommunications standard-making
organization. Such standards assure that faxes can be sent and received all over
the world regardless of the fax machine manufacturer or publisher of the fax
software.
The Company believes that the demand for color fax capabilities will be
substantial for the following reasons:
1. The price of color printers is declining rapidly which the Company
believes will result in color printers being the standard printer used with
personal computers rather than a high priced luxury.
2. The price of color scanners is declining making them reasonably
available to users of personal computers.
3. The Windows 95 operating system has built-in color management
capabilities thereby making color easier to use in applications.
4. Newer computers are generally equipped with faster processors and
larger storage devices thereby making it more practical to work with
image-intensive applications.
5. A boom in small office and work-at-home sector.
6. The surge in computer sales for home use.
The Company believes that the foregoing trends will result in a substantial
demand for color technology, including fax.
THE COMPANY'S COLOR FAX PRODUCTS
The Company's first product which is currently in technology testing is
currently internally called CHROMAFAX. It is a communications software program
designed to allow facsimile transmission of color images. It incorporates the
new international standard for color faxing established by the International
Telecommunications Union (ITU) and includes the Joint Photographic Experts Group
(JPEG) standard for image compression. It enables users to send and receive
color faxes to and from their personal computer.
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<PAGE> 21
To the Company's knowledge, CHROMAFAX will be the first commercially
available fax product that will be compliant with the international color fax
standard established in 1995 by the ITU, providing assurance that the product
will be compatible with other standards -- compliant fax applications and
machines produced in the future, regardless of manufacturer. This will give
users a fax software package that will work in both color and black and white.
A color page creates a very large raw data file when scanned into a color
fax program. A file size of 10 Mb is not uncommon. To manage such files within
the computer's memory and to transmit them in a reasonable amount of time, files
of this size are usually compressed. The ITU color fax standard specifies how a
file is to be managed. This specification imposes certain limitations on file
management within the color fax product. The standard requires the use of JPEG
compression. This compression algorithm has a large inherent structural
overhead, and results in a file, depending upon the data within the page, that
will require 4 to 8 minutes to transmit using V.17 (14.4 kb/s) transmission
protocols as specified within the ITU color fax standard. Implementing this
standard assures compatibility with all other standards-based products that are
issued in the future, whether by the Company or any other vendor.
To make color faxing even more desirable, the Company's advanced version
which is in development will contain several transmission modes. In addition to
complying with the JPEG standard, this second version, currently internally
called CHROMAFAX PLUS (PRO) will incorporate a proprietary compression process.
This compression process reduces large color files by a significant factor
resulting in image file sizes that make transmission and storage more efficient.
When communicating with a remote PRO-equipped system, the proprietary
compression process and V.34 (28.8 kb/s) transmission protocols are
automatically utilized. The Company's compression process and the communications
protocol are more efficient and will result in faster transmission, estimated at
2 minutes for a typical high resolution (300 dpi), 24-bit, full-color page.
The PRO version will use one of three modes, all transparent to the user:
(1) ITU Standard. This enables operation with any fax machine or
software (black and white or color) that is compliant with the
international standard;
(2) Company Proprietary. For fast transmission that works with only
the Company fax software package; or
(3) Black and White. Compliant with the black and white faxes that
operate under the current international standards for black and white fax
operation.
In addition to the proprietary compression process, the Company expects to
implement a color calibration/correction process within PRO for accurate color
reproduction of the original document at varied resolutions. The Company
believes that successful integration of color correction, compression and
communications technologies is required to make color fax software products
popular. The Company is investigating potential patents for parts of the
process.
CHROMAFAX includes a color scanner interface standard which allows a
variety of color scanners to be used for input. The software also supports
Windows-compatible color printers.
CHROMAFAX is in final development. The coding is either complete or near
completion for all parts of the product. The graphical user interface has been
specified and is in coding. Current schedule calls for alpha testing (internal
testing of the finished product) beginning approximately August 15, 1996 with
beta testing thirty days later, and first customer ship during the fourth
quarter of 1996. The exact date of first customer ship will depend on the
results of beta testing (testing by selected third party users) necessary
product adjustments will be made to correct minor defects or to make the product
easier to use and understand based upon input from beta testers. The "PLUS"
version of the product will be an extension of the basic product and will
include a more sophisticated compression engine as well as color correction. The
basic design for the compression engine has been finished. This basic design is
undergoing a procedure called code optimization. This procedure generally
results in a reduced number of lines of code as well as faster execution of the
code. The color correction software is in the coding process with encouraging
initial results. The Company expects to apply for patents related to data
compression and color correction. As of the date hereof, neither the basic nor
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<PAGE> 22
the "PRO" version of the products have been publicly announced although the
products have been discussed with several potential OEM and other distribution
partners and the product will continue to be discussed and shown to other
potential business partners in the hardware, software, and distribution areas.
The product has also been discussed with some industry experts and analysts from
consulting organizations.
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<PAGE> 23
The following diagram illustrates the color faxing process from start to
finish.
chart
THE COMPANY'S OTHER POTENTIAL PRODUCTS
The Company is considering investigation, research and development
activities with respect to several other products relating to digital
compression. These activities may give rise to additional products which may be
commercialized by the Company. However, there can be no assurance that its
efforts will result in marketable products or products which can be produced at
commercially acceptable costs.
RESEARCH AND DEVELOPMENT
From inception though March 31, 1996, substantially all of the Company's
activities related to research and development. The Company's research and
development expenses for the fiscal year ended September 30, 1995 and the six
months ended March 31, 1996 were $191,931 and $368,736, respectively. Such
research and development activities were conducted by the Company's employees
and consultants. Over the next twelve months the Company intends to spend
approximately $1,400,000 of the proceeds from the recent financings and this
Offering on research and development, primarily to complete the development of
CHROMAFAX and to complete the development of CHROMAFAX PLUS into commercial
products. The Company believes that such goal is likely to be accomplished based
upon the current status of development of these products. However, there can be
no assurance that the Company will successfully be able to complete such
development efforts. See, "Risk Factors -- Uncertainty of Product and Technology
Development; Need for Product Testing; Technological Factors."
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<PAGE> 24
MARKETING AND DISTRIBUTION
The Company initially intends to market the CHROMAFAX to persons working at
home or in small office environments and computer hobbyists. The Company's
marketing strategy, as currently formulated, emphasizes the rapid introduction
of its CHROMAFAX software via all possible channels of distribution in order to
garner public awareness of the product and to encourage usage. The Company will
offer the product to manufacturers of color printers, scanners, computers,
modems and other software applications to distribute with their products. The
Company will have the product available for downloading from the Internet and
may market it directly by telephone sales.
In order to establish a large base of users, this initial marketing
strategy will entail distribution for little or no revenue to the Company. For
example, the Company will distribute a receive-only version of its program. In
many cases this version will be provided free of charge such as being
downloadable from the Internet. In other cases, it will be bundled with other
products such as color peripherals for only the cost of production and shipping.
In addition, the Company will also package a limited send module along with the
receive-only version. It is anticipated that the send module, however, will be
usable only for a limited number of uses. If the user desires to continue to use
the product to send color faxes after the limited usage has expired, a fee would
be payable to the Company. The Company will attempt to continually improve the
product and introduce upgrades. Users would be required to upgrade to obtain the
latest version of the software.
The Company believes that this marketing strategy will result in reviews in
computer magazines, television shows highlighting new technology and other media
for computer users. The Company intends to undertake an aggressive public
relations campaign to obtain further publicity and public awareness of the
product.
Eventually the Company will attempt to expand its market for the product
into the retail environment through distribution to wholesalers and retailers.
The Company has not entered into any agreement with respect to the
inclusion of CHROMAFAX with any manufacturer's product or for wholesale or
retail distribution, and there can be no assurance that such distribution will
occur as projected or at all.
The Company does not currently have a sales force to implement the sale
and/or licensing of its products or related technology. The Company has
determined that it will need to employ an internal sales staff of at least four
people by December 31, 1996.
MANUFACTURING
The Company does not contemplate that it will directly manufacture any of
its color fax software products. It intends to contract with third parties to
copy and package the products. Although the Company has not entered into any
contracts with potential manufactures, it is aware of a significant number of
firms which have the capability of providing the services necessary to
manufacture the programs. It also may license to third parties the rights to
manufacture the products, either through direct licensing, OEM arrangements or
otherwise.
PATENTS; PROPRIETARY INFORMATION
To the extent practicable, the Company intends to file U.S. patent and/or
copyright applications on certain aspects of its technology and to file
corresponding applications in key industrial countries worldwide. In addition to
general legal protection for its technologies and products, the Company's
strategy is designed to make it difficult for competitors to assess the
specifics of the Company's technology. The Company also intends to gain
additional protection for its technology and products through the addition of
improvement Patents and/or Copyrights.
The Company has not conducted an independent review of patents issued to
third parties to determine if the Company's technology may infringe upon patents
owned by others. Accordingly, there can be no assurance that other parties will
not assert infringement claims against the Company. The litigation of any such
claim
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<PAGE> 25
would likely involve considerable expense and management time. In addition, if
any such claim were successful, the Company could be required to pay monetary
damages and may be required to either refrain from distributing the infringing
product or obtain a license from the party asserting the claim, which license
may not be available, and if so, on reasonable terms.
To the extent the Company determines to keep certain aspects of its
technology as trade secrets rather than as patents, the Company intends to
protect these developments by programming techniques that make it more difficult
to reverse-engineer the Company's software.
The Company believes that due to the rapid pace of technological innovation
in software applications, the Company's ability to establish and maintain a
position of leadership in color fax software will depend more upon the skills of
its development personnel than upon any legal protections afforded its products.
COMPETITION
There currently exists products which allow the transmission of color
images between computers. The procedure of transmitting the image is generically
known as "Binary File Transfer" (BFT). Some companies provide BFT capabilities
claiming to use facsimile format, when in fact, these programs are not facsimile
compatible. Examples of such products are View Office Power Suite by Max Vision,
Color Link by Laser Today International and Hot Fax also by Laser Today
International. Although these products are advertised as providing color faxing,
the products use proprietary formats for the file transfer and, therefore,
require that their particular software be installed both at the sending and
receiving computer. Since they do not comply with the recommended standard from
the International Telecommunications Union, they are not able to communicate
with other standards compliant facsimile machines or computers using standard
compliant programs. Of course, since these other programs are proprietary and do
not adhere to any standard, especially to the proposed international standard,
they also do not communicate with each other. Even if non-standard products
could communicate with each other, as a matter of coincidence, there would be no
assurance, lacking adherence to a standard, that future versions of the products
would retain the communications capability.
The markets that the Company intends to enter are characterized by intense
competition. Most successful software products are eventually subject to
competing products from other developers. The markets for the technology and
products being developed by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or short
product life cycles. As a result, the Company assumes that certain companies are
developing technologies or products of which the Company is unaware which may be
functionally similar, or superior, to some or all of those being developed by
the Company. Such companies may have substantially greater financial, technical,
personnel and other resources than the Company and have established reputations
for success in the development, licensing, sale and service of their products
and technology. Certain of these potential competitors dominate their industries
and have the financial resources necessary to enable them to withstand
substantial price competition or downturns in the market for fax products.
The ability of the Company to compete successfully will depend on its
ability to complete development and introduce to the marketplace in a timely and
cost-competitive manner the initial color fax products and technology, to
continually enhance and improve such products and technology, and to
successfully develop and market new products and technology. There can be no
assurance that the Company will be able to compete successfully, that its
competitors or future competitors will not develop technologies or products that
render the Company's products and technology obsolete or less marketable or that
the Company will be able to successfully enhance its proposed products or
technology or adapt them satisfactorily.
EMPLOYEES
The Company currently has eight full-time employees, 2 of whom are in
management, 1 administrative and 5 technical.
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<PAGE> 26
FACILITIES
The Company has established its headquarters in San Jose, California.
Pursuant to the lease relating to such facility, the Company is obligated to
make monthly rental payments of $4,660. The lease is through June 3, 1998. The
Company's facility is approximately 2,511 square feet.
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<PAGE> 27
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Abraham (Abe) Ostrovsky................ 53 Chief Executive Officer and Chairman
Wil F. Zarecor......................... 51 President and Director(1)
Benjamin T. Maltby..................... 46 Secretary and Treasurer
William M. Allen....................... 67 Director
E. T. Kalinoski........................ 41 Director
John L. Douglas........................ 55 Director(1)
Fred Chanowski......................... 45 Director Nominee(1)
Stanley A. Young....................... 69 Director Nominee(1)
Peter A. Whealton...................... 50 Director Nominee(1)
</TABLE>
- ---------------
(1) The term of Wil F. Zarecor and John L. Douglas as directors of the Company
will end at the closing of the offering herein and Fred Chanowski, Stanley
A. Young and Peter A. Whealton will become directors at that time.
ABRAHAM (ABE) OSTROVSKY, CHIEF EXECUTIVE OFFICER AND CHAIRMAN. Mr.
Ostrovsky was appointed as Chairman and Chief Executive Officer in February
1996. He has served as Chairman of JetForm Corporation, a public form printing
company, since 1993. He joined JetForm in 1991 as Chief Operating Officer and
was Chief Executive Officer from 1991 to 1995. Prior to joining JetForm in 1991,
Mr. Ostrovsky was concurrently the Senior Vice President of Erskine House PLC,
an office equipment dealership and the Chairman of Savin Florida, a subsidiary
of Erskine House from 1988 to 1990.
WIL F. ZARECOR, PRESIDENT AND DIRECTOR. Mr. Zarecor has been President and
a director since September 1995. From 1988 to September 1995 he was Director of
Special Products for PanAmSat division of Alpha Lyracom, Inc. Mr. Zarecor holds
a BS in Mathematics from California State Fullerton.
BENJAMIN T. MALTBY, SECRETARY AND TREASURER. Mr. Maltby has been Secretary
and Treasurer since 1995. He also serves as Controller of Call Now, Inc., a
public long distance telephone company, since 1995. From 1990 to 1992 he was
Chief Financial Officer of College Housing of America. From 1992 to 1994 he was
President of Omegatel.
WILLIAM M. ALLEN, DIRECTOR. Mr. Allen, director since 1995, has been
President and director of Call Now, Inc. since June 1992. He has been managing
partner of Black Chip Stables from 1982 to date and President of Doric, Inc.
from 1985 until its merger with the Call Now, Inc. in 1994. He has served as
President of Kamm Corporation from 1985 to date and President of Kamm Life from
1985 to date. He was Chairman and CEO of Academy Insurance Group from 1975 to
1984. In May 1995 Call Now, Inc. made a subordinated loan to the Underwriter
which matures in March 1997.
E. T. KALINOSKI, DIRECTOR. Mr. Kalinoski has been a director since 1995
and served as President until September 1995. He has been a financial consultant
since 1986 with Southern Capital Consultants, a consulting firm, (1986-1991) and
MSH Capital, a consulting firm, since 1991.
JOHN L. DOUGLAS, DIRECTOR. Mr. Douglas has been a director and chief
scientist since 1995. From 1992 to 1995 he was a self-employed computer analyst.
From 1988 to 1992 he was employed as a computer analyst for C-Cube Microsystems,
a public computer chip company. He holds a BS in Mathematics from Cal Poly, and
an MS in Applied Mathematics from the University of Santa Clara.
Fred Chanowski has been a managing member of Alpha Ventures LLC, a venture
capital firm, since January 1996. Since 1991 he has been a self employed
consultant in the fields of telecommunications and computing equipment. He also
serves on the Board of Directors of Augment Systems, Inc.
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<PAGE> 28
Stanley A. Young has been active as a consultant and venture capital
investor for the past five years. He is President and Chairman of Young
Management Group, Inc., consultants. He also serves on the Board of Directors of
Jetform, Inc. and Andyne Computer, Inc.
Peter A. Whealton has been Chairman and Chief Executive Officer of Core
Business Technologies, an office products dealer, since 1983.
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors.
Executive Compensation
The Company did not pay any executive officers or key employees total
compensation in excess of $100,000 per year in either of the Company's two
fiscal years from inception (August 26, 1994) to September 30, 1994 or the
fiscal year ended September 30, 1995. It paid total compensation of $36,000 to
Wil F. Zarecor, its President and Chief Executive Officer during the fiscal year
ended September 30, 1995 and $17,000 to E.T. Kalinoski during the period ended
August 31, 1995. There were no retirement, bonus, profit sharing or other
compensation payments during such periods.
Employment and Consulting Agreements
Abe Ostrovsky's employment with the Company is pursuant to an Employment
Agreement dated March 1, 1996 with Ostrovsky Consulting, Inc., a corporation
organized to market the services of Mr. Ostrovsky. Pursuant to the agreement,
Mr. Ostrovsky will serve as Chairman and Chief Executive Officer through
February 28, 1998. The agreement provides for an initial salary of $240,000 per
year and an annual bonus as determined by the Company's Board of Directors.
Pursuant to the agreement, Mr. Ostrovsky purchased 300,000 shares of the
Company's common stock at $.30 per share. Mr. Ostrovsky was granted an Incentive
Stock Option for 180,000 shares at $2.50 per share. Pursuant to the agreement,
Mr. Ostrovsky was appointed as a director of the corporation and is entitled to
nominate two additional independent directors for the Board and shall be
entitled to approve one of the other directors.
Wil F. Zarecor serves as President pursuant to a two year employment
agreement which terminates on August 30, 1997. Such agreement provides for a
base salary of $144,000 per year.
John L. Douglas serves as senior scientist pursuant to a two year
employment agreement which terminates on May 30, 1997. Such agreement provides
for a base salary of $120,000 per year.
Glenn Crepps serves as director of software development pursuant to a two
year employment agreement which terminates on May 30, 1997. Such agreement
provides for a base salary of $100,000 per year.
Stock Option Plan
On April 4, 1996, the Board of Directors adopted, and the stockholders of
the Company have approved, the Company's Stock Option Plan (the "Stock Option
Plan" or the "Plan"). The Plan provides for the granting of options on up to an
aggregate of 780,000 shares of Common Stock.
The Plan provides for the granting to eligible participants of options to
purchase Common Stock that qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("ISO"). ISOs are sometimes collectively referred to as "Options."
Employees of the Company are eligible to participate in the Plan. The Plan is
administered by the Board of Directors or a Committee appointed by the Board of
Directors, which determines the persons who are to receive Options, the terms
and number of shares subject to each Option.
ISOs may not be granted at a purchase price less than the fair market value
of the Common Stock on the date of the grant (or, for an Option granted to a
person holding more than 10% of the Company's voting stock, at less than 110% of
fair market value). Aside from the maximum number of shares of Common Stock
reserved under the Plan, there is no minimum or maximum number of shares that
may be subject to Options. However, the aggregate fair market value of the stock
subject to ISOs granted to any optionee that are
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<PAGE> 29
exercisable for the first time by an optionee during any calendar year may not
exceed $100,000. ISOs generally expire three months after the optionee is no
longer an employee of the Company. Options may not be transferred other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee may be exercised only by the optionee. The term of each Option, which
is fixed by the Board of Directors at the time of grant, may not exceed five
years from the date the option is granted.
As of May 29, 1996, the Company had granted options for 458,000 shares with
an exercise price of $2.50 per share. As of May 29, 1996, 180,000 of such
granted options were vested and exercisable. Options were granted to directors
and officers as follows:
<TABLE>
<S> <C>
Abe Ostrovsky................................................ 180,000 shares @ $2.50
John Douglas................................................. 30,000 shares @ $2.50
Wil Zarecor.................................................. 20,000 shares @ $2.50
</TABLE>
In addition, two employees have received stock options for 40,000 shares
each exercisable at $.10 per share which are not ISO options.
CERTAIN TRANSACTIONS
In connection with the organization of the Company in April 1995, the
Company issued shares of its Common Stock at $.001 per share to the following
persons:
<TABLE>
<S> <C>
Dave Olsen................................................................. 320,000
Wil F. Zarecor............................................................. 235,000
Robert D. Widergren........................................................ 230,000
John L. Douglas............................................................ 100,000
Glenn Crepps............................................................... 100,000
E. T. Kalinoski............................................................ 100,000
Ed Martin.................................................................. 61,000
Patrick Kalinoski.......................................................... 60,000
Michael G. Widergren....................................................... 50,000
John McCracken............................................................. 30,000
Charles Gerber............................................................. 25,000
Benjamin T. Maltby......................................................... 20,000
Landis McHaffey............................................................ 5,000
</TABLE>
On June 1, 1995 the Company loaned $89,000 to E. T. Kalinoski, a founder
and director of the Company. Such loan, which was repayable January 12, 1997,
was forgiven in May 1996 and Mr. Kalinoski recognized $89,000 in compensation
income as a result of such forgiveness, In addition, Mr. Kalinoski has an
agreement with the Company under which he was paid $7,000 per month for
executive services (including serving as President from April 1995 to September
1995) until May 1996 and will receive a final payment of $30,000 one month after
closing of this offering.
On June 1, 1995 the Company loaned $10,000 to John Douglas, a shareholder
and director of the Company. This loan was forgiven on January 12, 1996 and Mr.
Douglas recognized $10,000 in compensation income as a result. On January 16,
1996 the Company sold Mr. Douglas 120,000 shares of its common stock for
$120,000 which was considered the fair market value on such date.
In August 1995 the Company sold 540,000 shares of its Common Stock to Call
Now, Inc. for $496,800 and an option to acquire 320,000 shares for $.92 per
share for a warrant price of $3,200. In September 1995 the number of shares
issued to Call Now, Inc. was adjusted to 550,000 due to additional shares issued
to other shareholders. William M. Allen, President of Call Now, Inc., was then
elected to the Board of Directors of the Company.
In January 1996 Call Now, Inc. lent the Company $50,000 for sixty (60) days
with interest at 8%. Such proceeds were used for working capital.
28
<PAGE> 30
In March 1996 Call Now, Inc. purchased 320,000 shares of Common Stock for
$96,000 ($.30 per share), including the principal and accrued interest on the
foregoing loan with the balance in cash. The exercise price of the warrant
purchased in August 1995 was reduced to $.30 per share and was exercised in this
transaction.
In March 1996 Call Now, Inc. purchased 150,000 shares of the Company's
Preferred Stock for $3.00 per share. These shares will be redeemed at the
closing of this offering for $3.00 per share plus one share of the Company's
common stock per share. Such Preferred Stock accrues a cumulative dividend of
$.21 per share annually on the anniversary of its issuance with the first such
dividend accruing in March 1997.
The Company believes that all transactions with officers, directors and
shareholders were made on terms no less favorable to the Company than those
available from unaffiliated parties. The Company will have all transactions with
affiliates approved by a majority of disinterested directors.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the
beneficial ownership of the Company's Common Stock by (i) the only persons who
own of record or are known to own, beneficially, more than 5% of the Company's
Common Stock; (ii) each director and executive officer of the Company; and (iii)
all directors and officers as a group adjusted to reflect the sale of shares
offered herein, but do not reflect any shares issuable on the exercise of
Warrants, the Underwriters' Over-Allotment Option and other outstanding options.
<TABLE>
<CAPTION>
NUMBER OF PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS SHARES OFFERING(1) OFFERING(2)
- -------------------------------------------------------- --------- -------------- -------------
<S> <C> <C> <C>
Call Now, Inc.(3)....................................... 870,000 23% 6%
P.O.Box 531399
Miami Shores, FL 33153
William M. Allen(4)..................................... 870,000 23 13.7
Abe Ostrovsky (5)....................................... 480,000 12.7 9.8
E. T. Kalinoski (6)..................................... 420,000 11.1 8.5
Wil Zarecor............................................. 235,000 6.2 4.8
Robert Widergren........................................ 230,000 6.1 4.7
John Douglas............................................ 220,000 5.8 4.5
Benjamin T. Maltby...................................... 20,000 * *
Officers and Directors as a group (5 persons)........... 2,245,000 59.5% 41.6%
</TABLE>
- ---------------
* Less than 1%
(1) Based on 3,772,000 shares outstanding.
(2) Based on 4,922,000 shares to be outstanding, including 150,000 shares to be
issued to Call Now, Inc. in connection with the redemption of the Company's
Preferred Stock.
(3) Does not include 150,000 shares of Preferred Stock which will be redeemed
for $450,000 and 150,000 shares of Common Stock upon closing of this
offering.
(4) Represents shares owned by Call Now, Inc. of which Mr. Allen is an
affiliate. Mr. Allen and his spouse will receive 377,643 of such shares as
a dividend from Call Now, Inc. See "The Distribution".
(5) Includes 180,000 shares which may be acquired pursuant to outstanding stock
options.
(6) Includes 320,000 shares owned by Dave Olson, a relative.
29
<PAGE> 31
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock with
$.001 par value. The holders of the Common Stock are entitled to one vote per
each share held and have the sole right and power to vote on all matters on
which a vote of stockholders is taken. Voting rights are non-cumulative. The
holders of shares of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors, out of funds legally available therefore
and to share pro-rata in any distribution to stockholders. The Company
anticipates that any earnings will be retained for use in its business for the
foreseeable future. Upon liquidation, dissolution, or winding up of the Company,
the holders of the Common Stock are entitled to receive the net assets held by
the Company after distributions to the holders of the Preferred Stock. The
holders of Common Stock do not have any preemptive right to subscribe for or
purchase any shares of any class of stock. The outstanding shares of Common
Stock and the shares offered hereby will not be subject to further call or
redemption and will be fully paid and non-assessable.
REDEEMABLE STOCK PURCHASE WARRANTS
Each Redeemable Stock Purchase Warrant will entitle the registered holder
to purchase one share of the Company's Common Stock for $6.00. The exercise
prices of the Warrants and the number of shares issuable upon exercise of such
Warrants will be subject to adjustment to protect against dilution in the event
of stock dividends, stock splits, combinations, subdivisions and
reclassification. Warrants may be exercised by payment of the exercise price in
United States funds by cash or certified or bank check. No fractional shares of
Common Stock will be issued in connection with the exercise of Warrants.
Warrants may not be exercised unless a registration statement pursuant to the
Securities Act, as amended, covering the underlying shares of Common Stock is
current and such shares have been qualified, or there is an exemption from
qualification requirements under the securities laws of the state of residence
of the holder of the Warrants. In the event that there is no such registration
statement or exemption from registration, the holder will not be able to
exercise the Warrants.
The Company may redeem the Warrants at a price of $.25 per Warrant by
giving not less than 30 days prior written notice to the record holders if the
average closing bid price of the Common Stock as reported on NASDAQ or the last
trade price of the Common Stock (if the Common Stock is then traded on a
national securities exchange) equals or exceeds $12.00 for the 30 consecutive
trading days ending on the 10th day prior to the date on which the notice of
redemption is given. In the event the Company notifies record holders of its
intent to redeem any Warrants, the record holders may exercise same at any time
prior to the close of business on the day immediately preceding the date fixed
for redemption provided that there is a registration statement in effect or
there is an exemption from such registration. The Warrants may not be redeemed
during the first year from the effective date without the written consent of
Barron Chase Securities, Inc.
Unless extended by the Company at its discretion, the Warrants will expire
at 3:00 p.m. Eastern time on , the third anniversary of the date of
this Prospectus. In the event a holder of Warrants fails to exercise the
Warrants prior to their expiration, the Warrants will expire and the holder
thereof will have no further rights with respect to the Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current
30
<PAGE> 32
prospectus relating thereto until the expiration of the Warrants, subject to the
terms of the Warrant Agreement. While it is the Company's intention to do so,
there can be no assurance that it will be able to do so.
DIVIDENDS
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment by the Company of dividends, if any, is within the discretion
of the Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, as well as other relevant factors.
The Board of Directors does not intend to declare any dividends in the
foreseeable future, but instead intends to retain earnings for use in the
Company's business operations.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, New York, NY.
REPORTS TO STOCKHOLDERS
The Company intends to file an application with the Securities and Exchange
Commission to register its Common Stock under the provisions of Section 12(g) of
the Exchange Act and has agreed with the Underwriter that it will use its best
efforts to continue to maintain such registration. Such registration will
require the Company to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The Common Stock of the Company is subject to the "affiliated
transactions" and "control-share acquisition" provisions of the Florida Business
Corporation Act. These provisions require, subject to certain exceptions, that
an "affiliated transaction" be approved by the holders of two-thirds of the
voting shares other than those beneficially owned by an "interest shareholder"
or by a majority of disinterested directors and that voting rights be conferred
on "control shares" acquired in specified control share acquisitions only to the
extent conferred by resolution approved by the stockholders, excluding holders
of shares defined as "interested shares."
LIMITED LIABILITY AND INDEMNIFICATION
The Articles of Incorporation of the Company provides that, to the fullest
extent permitted by applicable law, as amended from time to time, the Company
will indemnify its officers, directors, employees and agents incurred in
connection with the Company's affairs against liabilities, damages, settlements
and expenses (including attorneys' fees). This indemnification includes the
right to advancement of expenses when allowed pursuant to applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 4,922,000
shares of Common Stock outstanding, assuming no exercise of the Warrants or
other outstanding options and warrants. Subject to the contractual restrictions
described below, 3,092,000 of these shares, including all 1,000,000 of the
shares being
31
<PAGE> 33
offered hereby and the 2,092,000 shares of Common Stock being registered by the
Company concurrently with this offering (the Selling Stockholders Shares and the
Distribution shares) will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company), which shares will be subject to the resale limitations,
described below, of Rule 144 promulgated under the Securities Act. The remaining
1,830,000 shares (the "Restricted Shares") are deemed to be "restricted
securities," as that term is defined under Rule 144, in that such shares were
issued and sold by the Company in private transactions not involving a public
offering and, as such, may only be sold pursuant to an effective registration
under the Securities Act, in compliance with the exemption provisions of Rule
144 or pursuant to another exemption under the Securities Act. Such "restricted"
shares will become eligible for sale under Rule 144 beginning in April 1997. See
"Selling Stockholders" and "The Distribution".
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on NASDAQ, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months immediately
preceding the sale and who has beneficially owned shares of Common Stock for at
least three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above.
Company stockholders beneficially owning 1,942,000 of the "restricted"
shares of Common Stock referred to above have agreed not to sell or otherwise
dispose of any of their shares for a period of 12 months from the date of this
Prospectus. without the written consent of the Underwriter. Holders of 1,242,000
shares being registered concurrently with this offering have agreed not to sell
or otherwise dispose of any of their shares for a period of six months from the
date of this Prospectus and the holders of the balance of 700,000 of the Selling
Stockholders Shares have agreed not to sell or otherwise dispose of any of their
shares for a period of twelve months from the date of this Prospectus without
the written consent of the Underwriter. See "Underwriting", "Selling
Stockholders" and "The Distribution".
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices of the Common Stock and the Warrants prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for the
Common Stock and the Warrants and could impair the Company's ability in the
future to raise additional capital through the sale of its equity securities.
32
<PAGE> 34
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Barron
Chase Securities, Inc. (the "Underwriter") has agreed to purchase from the
Company an aggregate of 1,000,000 Shares of Common Stock ("Shares") and
1,000,000 Warrants (collectively the "Securities") at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Securities are offered by the Underwriter subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and certain other conditions. The Underwriter
is committed to purchase all Securities offered by this Prospectus, if any are
purchased.
The Company has been advised that the Underwriter proposes to offer the
Securities to the public at the offering price set forth on the cover page of
this Prospectus. The Underwriter may offer the Securities through certain
selected dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD"), and who agree to sell the Securities in conformity with
the NASD Rules of Conduct. The Underwriter may allow a concession to such
selected dealers, however, such concession shall not exceed the amount of the
underwriting discount that the Underwriter is to receive.
The Company has granted options to the Underwriter, exercisable for 30 days
from the date of this Prospectus, to purchase up to an additional 150,000 Shares
and an additional 150,000 Warrants at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus (the "Over-
Allotment Option"). The Underwriters may exercise this option solely to cover
over-allotments in the sale of the Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Underwriter to
persons to consider this offering. Officers and directors of the Company may
purchase Securities either through the Underwriter or through participating
dealers. In this connection, officers and directors will not receive any
commissions or any other compensation.
The Company has agreed to pay the Underwriter a commission of ten percent
(10%) of the gross proceeds of the offering (the "Underwriting Discount"),
including the gross proceeds from the sale of the Over-Allotment Option, if
exercised. In addition, the Company has agreed to pay to the Underwriter a non-
accountable expense allowance of three percent (3%) of the gross proceeds of
this Offering, including proceeds from any Securities purchased pursuant to the
Over-Allotment Option. The Underwriter's expenses in excess of the
non-accountable expense allowance will be paid by the Underwriter. To the extent
that the expenses of the Underwriter are less than the amount of the
non-accountable expense allowance received, such excess shall be deemed to be
additional compensation to the Underwriter.
The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales in excess of 5% of the Common Stock and Warrants offered
in the underwritten offering to any account over which it exercises
discretionary authority.
The Company has agreed to engage the Underwriter as a financial advisor for
a period of three (3) years from the consummation of this Offering, at a fee of
$108,000, all of which is payable to the Underwriter on the closing date.
Pursuant to the terms of a financial advisory agreement, the Underwriter has
agreed to provide, at the Company's request, advice to the Company concerning
potential merger and acquisition and financing proposals, whether by public
financing or otherwise.
Prior to the Public Offering, there has been no public market for the
shares of Common Stock or Warrants of the Company. Consequently, the initial
public offering price for the Securities, and the terms of the Warrants
(including the exercise price of the Warrants), have been determined by
negotiation between the Company and the Underwriter. Among the factors
considered in determining the public offering price were the history of, and the
prospects for, the Company's business, an assessment of the Company's
management, its past and present operations, the Company's development and the
general condition of the securities market at the time of the offering. The
initial public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criterion of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Shares
and/or Warrants will develop after the close of the Public Offering, or if a
public
33
<PAGE> 35
market in fact develops, that such public market will be sustained, or that the
Shares and/or Warrants can be resold at any time at the public offering or any
other price. See "Risk Factors."
At the closing of the Public Offering, the Company will issue to the
Underwriter and/or persons related to the Underwriter, for nominal
consideration, Common Stock Underwriter Warrants and Warrant Underwriter
Warrants (the "Underwriter's Warrants") to purchase up to 100,000 Shares and
100,000 Warrants ("Underlying Warrants"). The Underwriter's Warrants will be
exercisable for a five year period commencing on the date of this Prospectus.
The initial exercise price of each Common Stock Underwriter Warrant shall be
$9.00 per share (150% of the public offering price). The initial exercise price
of each Warrant Underwriter Warrant shall be $.1875 per Underlying Warrant (150%
of the public offering price). Each Underlying Warrant will be exercisable for a
three (3) year period commencing on the date of this Prospectus to purchase one
share of Common Stock at an exercise price of $9.00 per share of Common Stock.
The Underwriter's Warrants will not be transferable for one year from the date
of this Prospectus, except (i) to officers of the Underwriter, and members of
the selling group and officers and partners thereof; (ii) by will; or (iii) by
operation of law.
The Underwriter's Warrants contain provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Underwriter's Warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the Underwriter's Warrants in whole or in part and
instruct the Company to withhold from the securities issuable upon exercise, a
number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the effect
of requiring the Company to issue shares of Common Stock without a corresponding
increase in capital. A net exercise of the Underwriter's Warrants will have the
same dilutive effect on the interests of the Company's shareholders as will a
cash exercise. The Underwriter's Warrants do not entitle the holders thereof to
any rights as a shareholder of the Company until such Underwriter's Warrants are
exercised and shares of Common Stock are purchased thereunder.
The Underwriter's Warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act of 1933. The Company has agreed that if it shall cause a
post-effective amendment, a new registration statement, or similar offering
document to be filed with the Commission, the holders shall have the right, for
seven years from the date of this Prospectus, to include in such registration
statement or offering statement the Underwriter's Warrants and/or the securities
issuable upon their exercise at no expense to the holders. Additionally, the
Company has agreed that, upon request by the holders of 50% or more of the
Underwriter's Warrants and Registrable Securities during the period commencing
one year from the date of this Prospectus and expiring four years thereafter,
the Company will, under certain circumstances, register the Underwriter's
Warrants and/or any of the securities issuable upon their exercise.
The Company has also agreed that if the Company participates in any merger,
consolidation or other such transactions which the Underwriter has brought to
the Company during a period of five years after the closing of this offering,
and which is consummated after the closing of this offering (including an
acquisition of assets or stock for which it pays, in whole or in part, with
Shares or other securities), or if the Company retains the services of the
Underwriter in connection with any merger, consolidation or other such
transaction, then the Company will pay for the Underwriter's services an amount
equal to 5% of up to one million dollars of value paid or received in the
transaction, 4% of the next million dollar of such value, 3% of the next million
dollars of such value, 2% of the next million dollars of such value and 1% of
the next million dollars and of all such value above $4,000,000.
The Company has agreed to indemnify the Underwriter against any costs or
liabilities incurred by the Underwriter by reasons of misstatements or omissions
to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriter has in turn agreed to
indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriter. To the extent that this section may purport to
provide exculpation from possible
34
<PAGE> 36
liabilities arising from the federal securities laws, in the opinion of the
Commission, such indemnification is contrary to public policy and therefore
unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
SELLING STOCKHOLDERS
The Selling Stockholders may from time to time sell or otherwise dispose of
a total of 1,942,000 shares of Common Stock on their own behalf at market prices
then prevailing or otherwise at prices then available. None of these shares are
being sold in the offering which is being underwritten by the Underwriter, and
the Company will not receive any of the proceeds from the sale of these Selling
Stockholders' Shares. The Company is paying substantially all of the expenses of
registration of the Selling Stockholders' Shares. Brokers' commissions, taxes
and other selling expenses are to be borne by the Selling Stockholders and are
not expected to exceed normal selling expenses. Sales of the Selling
Stockholders' Shares will be subject to the prospectus delivery requirements and
other requirements of the Securities Act. The following tables sets forth
certain information with respect to the Selling Stockholders.
35
<PAGE> 37
The following Selling Stockholders have agreed not to sell their shares for
six months from the date of this Prospectus without the written consent of the
Underwriter:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
NAME OF SELLING STOCKHOLDER OWNED PRIOR TO SALE OFFERING(1)
------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
Call Now, Inc......................................... 870,000 -0-
Alpha Ventures LLP.................................... 60,000 -0-
Martin Goldman........................................ 40,000 -0-
Peter Markle.......................................... 30,000 -0-
Fred and Linda Chanowski.............................. 20,000 -0-
Richard L. Tuch....................................... 20,000 -0-
Frog Hollow Partners.................................. 20,000 -0-
Jay Goldman Partnership............................... 20,000 -0-
Allen Goodman......................................... 20,000 -0-
Guy A. Naggar......................................... 20,000 -0-
Anders Ulegard........................................ 20,000 -0-
William R. and Jean Thompson.......................... 12,000 -0-
Barney R. Stephens.................................... 10,000 -0-
John F. Special....................................... 10,000 -0-
Mark Levine and Sara Imershein........................ 10,000 -0-
Ira Margolies......................................... 10,000 -0-
Irene Fradet.......................................... 10,000 -0-
Stan Fridstan......................................... 10,000 -0-
Hanna Nelson Kelly.................................... 10,000 -0-
Laurence Weinstein.................................... 10,000 -0-
</TABLE>
The following Selling Stockholders have agreed not to sell their shares for
twelve months from the date of this Prospectus without the written consent of
the Underwriter:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
NAME OF SELLING STOCKHOLDER OWNED PRIOR TO SALE OFFERING(1)
------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
Abe Ostrovsky......................................... 480,000 180,000
David A. and Carol Smith.............................. 75,000 -0-
Fidelity Investments.................................. 50,000 -0-
Joel Bernstein........................................ 50,000 -0-
Stanley A. Young...................................... 10,000 -0-
Barbara E. Young...................................... 50,000 -0-
Adam Young............................................ 27,500 -0-
Gregory Dwyer......................................... 37,500 -0-
Eugene B. and Charlotte Davis......................... 10,000 -0-
Helayne Young......................................... 10,000 -0-
SAY Family Limited Partnership........................ 79,412 -0-
</TABLE>
- ---------------
(1) Assumes that all shares offered are sold by the Selling Stockholders.
THE DISTRIBUTION
BACKGROUND AND REASON FOR DISTRIBUTION
Call Now, Inc. acquired shares of the Company's common stock in 1995 and
1996. See "Certain Transactions". Call Now's Board of Directors declared a
dividend of 1 share of the Company's common stock for each 10 shares of Call Now
outstanding to Call Now's stockholders of record on March 12, 1996 (the "Record
Date"). As a result Call Now is distributing 724,370 shares of the Company's
common stock to Call
36
<PAGE> 38
Now's shareholders as of the Record Date. The Distribution will provide the
shareholders of Call Now, Inc. with a source of potential profit in addition to
their direct investment in Call Now.
METHOD OF DISTRIBUTION
Certificates representing shares of the Common Stock will be distributed by
mail to holders of Call Now, Inc. common stock of record as of the close of
business on the Record Date on or about six months after the date of this
Prospectus. Copies of the Prospectus will be mailed to all shareholders of
record of Call Now as of the Record Date. The Distribution of the Company's
shares are subject to applicable securities laws and regulations (commonly
called Blue Sky Laws and regulations) of the states of residence of the persons
receiving shares.
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for the
Company by Joel Bernstein, 9701 Biscayne Boulevard, Miami, Florida. Mr.
Bernstein is the owner of 50,000 shares of the Company's Common Stock.
Certain legal matters will be passed upon for the Underwriter by David A.
Carter, P.A., 355 West Palmetto Park Road, Boca Raton, Florida 33432.
EXPERTS
The financial statements of Cable-Sat Systems, Inc. appearing in this
Prospectus and Registration Statement have been audited by Grant Schwartz
Associates, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
securities offered hereby. This Prospectus, filed as a part of the Registration
Statement, does not contain certain information set forth in or annexed as
exhibits to the Registration Statement, and reference is made to such exhibits
to the Registration Statement for the complete text thereof For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and to the exhibits filed as
part thereof, which may be inspected at the office of the Commission without
charge, or copies thereof may be obtained therefrom upon payment of a fee
prescribed by the Commission.
37
<PAGE> 39
GRANT-SCHWARTZ ASSOCIATES, CPA'S
40 SOUTHEAST 5TH STREET, SUITE 500
BOCA RATON, FL 33432
(407) 394-8977
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
CABLE-SAT SYSTEMS, INC.
We have audited the accompanying balance sheet of Cable-Sat Systems,
formerly Cable-Sat Compression, Inc. (a development stage company) as of March
31, 1996 and September 30, 1995 and the related statements of income,
shareholders' equity and cash flows for the six months ended March 31, 1996 and
the year ended September 30, 1995 and from August 26, 1994 (date of inception)
to March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cable-Sat Systems, formerly
Cable-Sat Compression, Inc. (a development stage company) as of March 31, 1996
and its income and cash flows for the six months then ended, and the year ended
September 30, 1995 and from August 26, 1994 (date of inception) to March 31,
1996, in conformity with generally accepted accounting principles.
GRANT-SCHWARTZ ASSOCIATES, CPA's
Boca Raton, Florida
May 31, 1996
F-1
<PAGE> 40
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................... $ 380,523 $ 314,078
Notes receivable -- Related parties................................ 89,000 109,000
Receivables -- Other............................................... 4,462 2,241
Deferred Registration Costs........................................ 21,520 -0-
---------- -------------
Total Current Assets....................................... 495,505 425,319
---------- -------------
Fixed Assets
Office Furniture................................................... 21,353 19,329
Computer Equipment................................................. 65,876 40,195
---------- -------------
87,229 59,524
Less: Accumulated Depreciation..................................... 15,308 2,700
---------- -------------
Net Fixed Assets........................................... 71,921 56,824
---------- -------------
Other Assets
Organization Costs (Net of $228 and $115 Amortization)............. 1,493 1,606
Security Deposits.................................................. 4,645 4,645
---------- -------------
Total Other Assets......................................... 6,138 6,251
---------- -------------
Total Assets............................................... $ 573,564 $ 488,394
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable................................................... $ 2,011 $ 600
Due to Affiliate................................................... 1,520 -0-
Payroll Taxes Payable.............................................. 13,221 42,336
Wages Payable...................................................... 26,721 -0-
---------- -------------
Total Current Liabilities.................................. $ 43,473 $ 42,936
---------- -------------
Shareholders' Equity
Preferred Stock, Par Value $.001, Cumulative, Authorized Issued and
Outstanding 150,000 Shares...................................... $ 450,000 -0-
Common Stock, Par Value $.001 Per Share; Authorized 50,000,000
Shares; Issued and Outstanding 3,000,000 and 2,200,000 Shares... 3,000 2,200
Paid in Capital.................................................... 1,003,223 698,023
Deficit Accumulated During Development Stage....................... (836,132) (254,765)
Stock Subscription Receivable...................................... (90,000) -0-
---------- -------------
Total Shareholders' Equity................................. 530,091 445,458
---------- -------------
Total Liabilities and Shareholders' Equity................. $ 573,564 $ 488,394
========= ==========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 41
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
MARCH 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING
------------------ ------------------ PAID IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
------- -------- --------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of Common Stock
May 1995 --
$.12/Share............. -0- $ -0- 1,650,000 $1,650 $ 198,573 $ -0- $ 200,223
Sale of Common Stock
September 1995 --
$.91/Share............. -0- -0- 550,000 550 499,450 $ -0- 500,000
Loss -- Year Ended
9/30/95................ -0- -0- -0- -0- -0- (254,765) (254,765)
------- -------- --------- ------ ---------- ----------- ---------
BALANCE -- 9/30/95....... -0- -0- 2,200,000 2,200 698,023 (254,765) 445,458
Sale of Preferred Stock
March 1996 --
$3/Share............... 150,000 450,000 -0- -0- -0- -0- 450,000
Sale of Common Stock
January 1996 --
$.50/Share............. -0- -0- 420,000 420 209,580 -0- 210,000
Sale of Common Stock
March 1996 --
$.25/Share............. -0- -0- 380,000 380 95,620 -0- 96,000
Subscription Receivable
January 1996........... -0- -0- -0- -0- -0- -0- (90,000)
Loss for the Six Months
ended March 31, 1996... -0- -0- -0- -0- -0- (581,367) (581,367)
------- -------- --------- ------ ---------- ----------- ---------
BALANCE -- March 31,
1996................... 150,000 $450,000 3,000,000 $3,000 $1,003,223 $(836,132) $(530,091)
======= ======== ======== ====== ========= ========= =========
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 42
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF INCOME AND EXPENSES
MARCH 31, 1996
<TABLE>
<CAPTION>
FROM
AUGUST 26, 1994
SIX MONTHS YEAR (DATE OF
ENDED ENDED INCEPTION TO)
MARCH 31, 1996 SEPTEMBER 30, 1995 MARCH 31, 1996
-------------- ------------------- ----------------
<S> <C> <C> <C>
Sales............................................ $ -0- $ -0- $ -0-
Expenses
Consulting Fees................................ 35,000 17,000 52,000
Depreciation and Amortization.................. 12,721 2,815 15,536
Research and Development....................... 368,736 191,931 560,667
Travel......................................... 7,532 23,466 30,998
Rent Expense................................... 28,381 13,472 41,853
Wages.......................................... 119,500 -0- 119,500
Other Operating Expenses....................... 15,297 7,870 23,167
-------------- ------------------- ----------------
Total Expenses......................... 587,167 256,554 843,721
-------------- ------------------- ----------------
Operating Loss................................... (587,167) (256,554) (843,721)
-------------- ------------------- ----------------
Other Income (Expense)
Interest Income................................ 5,800 1,789 7,589
-------------- ------------------- ----------------
Net Loss....................................... $ (581,367) $(254,765) $ (836,132)
=========== ============== ============
Net Loss Per Share -- Primary.................... $ (.25) $ (.12) $ (.36)
=========== ============== ============
Net Loss Per Share -- Dilutive................... $ (.25) $ (.11) $ (.36)
=========== ============== ============
Weighted Average of Shares -- Primary............ 2,291,111
============
Weighted Average of Shares -- Dilutive........... 2,330,889
============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 43
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
MARCH 31, 1996
<TABLE>
<CAPTION>
FROM
8/26/94
SIX MONTHS YEAR (DATE OF
ENDED ENDED INCEPTION TO)
3/31/96 9/30/95 MARCH 31, 1996
---------- --------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Loss from Operations.................................... $ (581,367) $(254,765) $ (836,132)
Depreciation and Amortization........................... 12,721 2,815 15,536
(Increase) Decrease -- Receivables...................... 17,779 (111,241) (93,462)
Increase (Decrease) -- Payables......................... 537 42,936 43,473
---------- --------- --------------
Net Cash Used in Operating Activities........... (550,330) (320,255) (870,585)
---------- --------- --------------
Cash Flows from Investing Activities
Purchase of Property and Equipment...................... (27,705) (59,524) (87,229)
Deposits and Other Assets............................... -0- (6,366) (6,366)
---------- --------- --------------
Net Cash Used in Investing Activities........... (27,705) (65,890) (93,595)
---------- --------- --------------
Cash Flows from Financing Activities
Sale of Preferred Stock................................. 450,000 -0- 450,000
Sale of Common Stock.................................... 216,000 700,223 916,223
Increase -- Deferred Registration Costs................. (21,520) -0- (21,520)
---------- --------- --------------
Net Cash Provided in Financing Activities....... 644,480 700,223 1,344,703
---------- --------- --------------
Net Increase in Cash............................ 66,445 314,078 380,523
Cash -- Beginning....................................... 314,078 -0- -0-
---------- --------- --------------
Cash -- Ending $ 380,523 $ 314,078 $ 380,523
========= ========= ===========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 44
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 -- THE COMPANY
The Company was organized in the State of Florida on August 26, 1994. It is
engaged in the development of digital image coding and data compression
products.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE COMPANY
The Company's primary operations since inception have been devoted to
developing digital image coding and data compression products. No significant
operating revenue has yet been generated. As a result, the financial statements
are presented in accordance with Statement of Financial Accounting Standards
(SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises."
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid debt
instruments with a maturity of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
rates based upon the estimated useful lives of the assets.
ORGANIZATION COSTS
Organization costs have been capitalized and are being amortized over a
sixty month period.
DEFERRED REGISTRATION COSTS
Deferred registration costs, incurred in connection with a private
placement, will be deducted from the proceeds of such offering, if successful.
If the private placement is unsuccessful, the deferred costs will be charged to
operations.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
NET LOSS PER SHARE
Net loss per share has been computed in accordance with SAB 64 which
requires the net loss per common share be computed based on the weighted average
number of shares of common stock outstanding, increased for certain shares or
stock options, including shares of preferred stock, issued within one year or in
contemplation of the Company's filing of its registration statement, and that
such shares be treated as if outstanding for all periods presented.
PREFERRED STOCK
The preferred stock shall be entitled to receive a dividend of $.21 per
share on the twelfth month following its original issuance and then $.21 per
share each year.
F-6
<PAGE> 45
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- CASH
<TABLE>
<CAPTION>
<S> <C>
Cash consists of:
Cash in Bank................................................. $ 58,883
Money Market Funds........................................... 321,640
--------
$380,523
========
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
The useful lives of property and equipment for purposes of depreciation
are:
<TABLE>
<CAPTION>
<S> <C>
Office Equipment................................................. 7 years
Computers........................................................ 5 years
</TABLE>
NOTE 5 -- RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE -- RELATED PARTIES
A shareholder of the company has been advanced funds. These advances are
evidenced by a promissory note bearing interest at the rate of 6% per annum and
were payable on September 1, 1995. The Company has extended the time for
payment. During May 1996, the Company forgave the indebtedness. The total amount
will be charged to operations in the period of forgiveness.
DUE TO AFFILIATES
A shareholder has advanced funds for certain costs relating to the private
placement memorandum.
NOTE 6 -- INCOME TAXES
The Company has available at March 31, 1996, unused operating loss carry
forwards which may provide future tax benefits expiring as follows:
<TABLE>
<CAPTION>
YEARS OF EXPIRATION
---------------------------------------------------------------
<S> <C>
2010...................................................... $254,765
2011...................................................... 581,367
--------
$836,132
========
</TABLE>
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The company has entered into a three year operating lease for office space
with minimal annual rent of:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
<S> <C>
September 30, 1996.............................................. $20,038
September 30, 1997.............................................. 40,075
September 30, 1998.............................................. 26,715
-------
$86,828
=======
</TABLE>
Rent expense was $28,381 and $13,360 respectively.
The Company will pay $30,000 to a shareholder/director one month after the
completion of the proposed public offering referred to in Note 8.
F-7
<PAGE> 46
CABLE-SAT SYSTEMS, INC.
FORMERLY CABLE-SAT COMPRESSION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- SUBSEQUENT EVENTS
SALES TO PRIVATE INVESTORS
During April 1996, the Company issued 350,000 shares of its common stock
for cash of $210,000 and 50,000 shares for services valued at $30,000.
PRIVATE PLACEMENT
During May 1996, the Company completed a private placement of 372,000
shares of its common stock. The Company received net proceeds of $902,000.
PROPOSED PUBLIC OFFERING
The Company has entered into an agreement with an underwriter to sell
1,000,000 shares of its common stock and 1,000,000 redeemable common stock
purchase warrants. Under the terms of the agreement, the securities are being
offered on a firm commitment basis.
STOCK OPTION PLAN
On April 4, 1996, the Board of Directors adopted an incentive stock option
plan available for key employees. The plan provides for granting of options on
up to an aggregate of 780,000 shares of common stock at a price no less than
fair market value at the date of grant (as determined by the Board of
Directors). The options generally expire five years after date of grant and may
require a certain minimum employment period before they may be exercised. The
Board also granted options for 40,000 shares each to two employees which were
not under the plan. As a result, the Company will recognize compensation expense
as follows:
<TABLE>
<S> <C>
Six months ended September 30, 1996............................... $ 48,000
Year ended September 30, 1997..................................... 96,000
Year ended September 30, 1998..................................... 48,000
--------
Total................................................... $192,000
</TABLE>
Transactions involving the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
INCENTIVE OTHER
PLAN OPTIONS
--------- ------
<S> <C> <C>
Shares under option:
Granted -- April 4, 1996...................... 458,000 80,000
Exercised..................................... -0- -0-
--------- ------
Options Available for Exercise................ 458,000 80,000
======== ======
Option Price Per Share............................. $ 2.50 $ .10
--------- ------
</TABLE>
The Company also has outstanding warrants to purchase 28,200 shares as of
March 31, 1996. These warrants are exercisable at a price of $2.75.
None of the granted options and warrants have been exercised.
In October 1995, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" which permits either the recording of the estimated value of stock
based compensation over the applicable vesting period or disclosing the
unrecorded cost and the related effect on earnings per share in the Notes to the
Consolidated Financial Statements. The Company does not intend to adopt the new
standard at this time but compliance with the new requirements will be made for
the year ended September 30, 1997.
F-8
<PAGE> 47
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, REPRESENTATIVE OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION 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 OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY, ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OR ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Dilution.............................. 12
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Plan of
Operations.......................... 16
Recent Financing...................... 18
Business of the Company............... 19
Management............................ 26
Certain Transactions.................. 28
Principal Shareholders................ 29
Description of Securities............. 30
Shares Eligible for Future Sale....... 31
Underwriting.......................... 33
Selling Stockholders.................. 35
The Distribution...................... 36
Legal Matters......................... 37
Experts............................... 37
Available Information................. 37
Financial Statements.................. F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
CABLE-SAT SYSTEMS, INC.
1,000,000 SHARES
OF COMMON STOCK
1,000,000 REDEEMABLE WARRANTS
TO PURCHASE COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
(LOGO) BARRON CHASE SECURITIES
7700 W. CAMINO REAL
SUITE 200
BOCA RATON, FLORIDA 33433
(561) 347-1200
ATLANTA, GEORGIA
BEVERLY HILLS, CALIFORNIA
BOSTON, MASSACHUSETTS
CHICAGO, ILLINOIS
CLEARWATER, FLORIDA
DALLAS, TEXAS
DENVER, COLORADO
EAST BOCA RATON, FLORIDA
HOOPESTON, ILLINOIS
MIAMI, FLORIDA
MIDDLETOWN, NEW JERSEY
MINNEAPOLIS, MINNESOTA
OKLAHOMA CITY, OKLAHOMA
PHOENIX, ARIZONA
SARASOTA, FLORIDA
TAMPA, FLORIDA
TULSA, OKLAHOMA
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the issuance
and distribution of the securities offered hereby.
<TABLE>
<S> <C>
Registration Fee........................................................ $ 7,112.12
Listing Fee -- Boston Stock Exchange.................................... 15,250.00
NASD Filing Fee*........................................................ 1,850.00
Printing Expenses*...................................................... 20,000.00
Legal Fees and Expenses*................................................ 35,000.00
Accounting Fees and Expenses*........................................... 15,000.00
Blue Sky Fees and Expenses*............................................. 30,000.00
Transfer/Warrant Agent Fees and Expenses*............................... 1,000.00
Misc.*.................................................................. 1,250.00
-----------
Total......................................................... $126,462.12
==========
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is hereby made to the provisions of Section 607.0850 of the
Florida Business Corporation Act which provides for indemnification of directors
and officers under certain circumstances.
Reference is hereby made to Section of the Underwriting Agreement filed
herewith as Exhibit 1(a). Reference is hereby made to Article 4 of the Company's
Amended and Restated Articles of Incorporation filed herewith as Exhibit 3(a).
Reference is hereby made to Article IV of the Company's Bylaws which are filed
herewith as Exhibit 3(b).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following provides information concerning all sales of outstanding
stock which were not registered.
In connection with the organizational activities of the Company in April
1995, the following shares were issued at par value ($.001):
<TABLE>
<S> <C>
Dave Olsen................................................................. 320,000
Wil F. Zarecor............................................................. 235,000
Robert D. Widergren........................................................ 230,000
John L. Douglas............................................................ 100,000
Glenn Crepps............................................................... 100,000
E. T. Kalinoski............................................................ 100,000
Ed Martin.................................................................. 61,000
Patrick Kalinoski.......................................................... 60,000
Michael G. Widergren....................................................... 50,000
John McCracken............................................................. 30,000
Charles Gerber............................................................. 25,000
Benjamin T. Maltby......................................................... 20,000
Landis McHaffey............................................................ 5,000
</TABLE>
II-1
<PAGE> 49
In May 1995, 494,000 shares were sold to four private investors for
proceeds of $320,063.
In August 1995 the Company sold 540,000 shares of its Common Stock to Call
Now, Inc. for $496,800 and an option to acquire 320,000 shares for $.92 per
share for a warrant price of $3,200. In September 1995 the number of shares
issued to Call Now, Inc. was adjusted to 550,000 due to additional shares issued
to other shareholders. William M. Allen, President of Call Now, Inc., was then
elected to the Board of Directors of the Company.
In January 1996 Call Now, Inc. lent the Company $50,000 for sixty (60) days
with interest at 8%. Such proceeds were used for working capital.
In January 1996 the Company sold John Douglas 120,000 shares of Common
Stock for $1.00 per share.
In March 1996 Call Now, Inc. purchased 320,000 shares of Common Stock for
$96,000 ($.30 per share), including the principal and accrued interest on the
foregoing loan with the balance in cash. The exercise price of the warrant
purchased in August 1995 was reduced to $.30 per share and was exercised in this
transaction.
In March 1996 Call Now, Inc. purchased 150,000 shares of the Company's
Preferred Stock for $3.00 per share. These shares will be redeemed at the
closing of this offering for $3.00 per share plus one share of the Company's
common stock per share.
In February 1996, 300,000 shares were sold to Abe Ostrovsky for $90,000.
In April 1996, 350,000 shares were sold to 8 private investors for $210,000
and 50,000 shares were issued to Joel Bernstein for services valued at $30,000.
In May 1996, 372,000 shares were issued to 24 private investors for
$930,000.
None of the securities discussed above were registered under the Securities
Act of 1933, exemption being claimed in each case pursuant to Section 4(2)
thereof. All of such shares were taken for investment and not with a view
towards their distribution and contain a restrictive legend. Furthermore, stop
transfer orders have been lodged against such shares.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
1(a) -- Underwriting Agreement* (revised)
1(c) -- Selected Dealer Agreement* (revised)
3(a) -- Amended and Restated Articles of Incorporation of the Registrant
3(b) -- Bylaws of the Registrant
4.1 -- Form of Warrant Certificate
4.2 -- Form of Common Stock Certificate
5.1 -- Opinion of counsel*
10.1 -- Financial Advisory Agreement
10.2 -- Merger and Acquisition Agreement
10.3 -- Warrant Agreement
10.4 -- Underwriter's Warrant Agreement* (revised)
10.5 -- Incentive Stock Option Plan
10.5(a) -- Employment Agreement -- Ostrovsky Consulting, Inc.*
10.5(b) -- Employment Agreement -- Wil F. Zarecor*
10.5(c) -- Employment Agreement -- John L. Douglas*
10.5(d) -- Employment Agreement -- Glenn Crepps*
11 -- Computation of Earnings per Share*
23 -- Consent of counsel is contained in Exhibit 5.1*
23.1 -- Independent Auditors Consent
24 -- Powers of Attorney -- See signature page
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Filed with Amendment No. 1
II-2
<PAGE> 50
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denomination and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions 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.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(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
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in San Jose,
California on the 2nd day of August, 1996.
CABLE-SAT SYSTEMS, INC.
By: /s/ ABE OSTROVSKY
------------------------------------
Abe Ostrovsky
Chairman and Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Abe Ostrovsky and Joel Bernstein, Esq., or either of them, as his
attorney-in-fact, with full power of substitution and resubstitution, to sign
and file on his behalf individually and in each such capacity stated below any
and all amendments and post-effective amendments to this Registration Statement,
as fully as such person could do in person, hereby verifying and confirming all
that said attorney-in-fact, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ ABE OSTROVSKY Chairman of the Board, Chief August 2, 1996
- --------------------------------------------- Executive Officer, Chief
Abe Ostrovsky Financial Officer
/s/ WIL F. ZARECOR President and Director August 2, 1996
- ---------------------------------------------
Wil F. Zarecor
/s/ WILLIAM M. ALLEN Director August 2, 1996
- ---------------------------------------------
William M. Allen
/s/ E. T. KALINOSKI Director August 2, 1996
- ---------------------------------------------
E. T. Kalinoski
/s/ JOHN DOUGLAS Director August 2, 1996
- ---------------------------------------------
John Douglas
/s/ BENJAMIN T. MALTBY Treasurer and Secretary (Chief August 2, 1996
- --------------------------------------------- Accounting Officer)
Benjamin T. Maltby
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1(a)
CABLE-SAT SYSTEMS, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 1996
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Gentlemen:
Cable-Sat Systems, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to Barron Chase Securities, Inc. (the
"Underwriter"), pursuant to the terms of this Underwriting Agreement (the
"Agreement"), on a "firm commitment" basis, 1,000,000 shares of Common Stock
(the "Shares") at $6.00 per Share and 1,000,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") at $.125 per Warrant. The Shares and the
Warrants are collectively referred to as the "Securities". Each Warrant is
exercisable to purchase one (1) share of Common Stock (the "Common Stock") at
$6.00 per share at any time during the period between the Effective Date and
three (3) years from the Effective Date. The date upon which the Securities
and Exchange Commission ("Commission") shall declare the Registration Statement
of the Company effective shall be the "Effective Date". The Warrants are
subject to redemption under certain circumstances. In addition, the Company
proposes to grant to the Underwriter the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 150,000 additional Shares and/or
150,000 additional Warrants (the "Option Securities").
You have advised the Company that you desire to purchase the
Securities, and that you are authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the
Securities by the Underwriter, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with the
Underwriter as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
<PAGE> 2
(a) A registration statement (File No. 333-6121) on Form S-1
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration
statement, including a final form of Prospectus, copies of which shall be
delivered to you. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to the Rules and Regulations under the Act prior to the Effective
Date. The registration statement (including all financial schedules and
exhibits) as amended at the time it becomes effective and the final prospectus
included therein are respectively referred to as the "Registration Statement"
and the "Prospectus", except that (i) if the prospectus first filed by the
Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from
said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b), and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up
to the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriter or Selected Dealers: (i) the Registration Statement and Prospectus
will in all respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that the Company makes no representations,
warranties or agreement as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriter specifically
for use in the preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, under the heading
"Underwriting" and regarding the identity of counsel to the Underwriter under
the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriter for inclusion in the Prospectus.
2
<PAGE> 3
(c) Each of the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full power and
authority (corporate and other) to own its properties and conduct its business
as described in the Prospectus and is duly qualified to do business as a
foreign corporation and is in good standing in all other jurisdictions in which
the nature of its business or the character or location of its properties
requires such qualification, except where failure to so qualify will not
materially affect the Company's business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the
Company as of the date of the Prospectus is as set forth in the Prospectus
under "Capitalization"; all of the issued and outstanding securities of the
Company have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non- assessable; the issuances
and sales of all such securities complied in all material respects with
applicable Federal and state securities laws; the holders thereof have no
rights of rescission against the Company with respect thereto, and are not
subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for
or relating to the registration of any securities of the Company, except as
described in the Registration Statement.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in
3
<PAGE> 4
the form filed as an exhibit to the Registration Statement. The shares of
Common Stock issuable upon exercise of the Warrants have been reserved for
issuance and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized, validly issued, fully
paid and non-assessable, free of pre-emptive rights and no personal liability
will attach to the ownership thereof. The Warrant exercise period and the
Warrant exercise period may not be changed or revised by the Company, without
the prior written consent of the Underwriter. The Warrant Agreement has been
duly authorized and, when executed and delivered pursuant to this Agreement,
will have been duly executed and delivered and will constitute the valid and
legally binding obligation of the Company enforceable in accordance with its
terms.
The Common Stock Underwriter Warrants, the Warrant Underwriter
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Underwriter Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Underwriter's Warrant Agreement described in Section 12 herein), have been duly
authorized and, when issued, delivered and paid for, will be validly issued,
fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Underwriter's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Underwriter's Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company, and assuming due execution of this Agreement by
the other party hereto, constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and lawful
authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is
required in connection with such authorization, execution and delivery or with
the authorization, issue and sale of the Securities or the securities to be
issued pursuant to the Underwriter's Warrant Agreement, except such as may be
required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, neither the Company nor
any subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a
4
<PAGE> 5
material default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of the Company or each
subsidiary or any of the terms or provisions of any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the Company
or each subsidiary is a party or by which the Company or each subsidiary may be
bound or to which any of the property or assets of the Company or each
subsidiary is subject, nor will such action result in any material violation of
the provisions of the articles of incorporation or by-laws of the Company or
each subsidiary, as amended, or any statute or any order, rule or regulation
applicable to the Company or subsidiary of any court or of any regulatory
authority or other governmental body having jurisdiction over the Company or
each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all properties
and assets described in the Prospectus as owned by each of them, free and clear
of all liens, charges, encumbrances or restrictions, except such as are not
materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or each subsidiary is the
lessor or sublessor of properties or assets or under which the Company or each
subsidiary holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor each subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to rights
of the Company or each subsidiary as lessor, sublessor, lessee, or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or each subsidiary to continued possession
of the leased or subleased premises or assets under any such lease or sublease
except as described or referred to in the Prospectus; and the Company and each
subsidiary owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise
stated in the Prospectus, as proposed to be conducted as set forth in the
Prospectus.
(i) Grant Schwartz Associates, who have given their reports on
certain financial statements filed and to be filed with the Commission as part
of the Registration Statement, and which are included in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present
fairly the financial position and results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement, at the respective dates
5
<PAGE> 6
and for the respective periods to which they apply. Said statements and
related notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during
the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during
the periods involved. During the preceding five (5) year period, nothing has
been brought to the attention of the Company's management that would result in
any reportable condition relating to the Company's internal accounting
procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and the Prospectus and to and including
the Option Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) neither the Company nor any
subsidiary has incurred and will not have incurred any material liabilities or
obligations, direct or contingent, and has not entered into and will not have
entered into any material transactions other than in the ordinary course of
business and/or as contemplated in the Registration Statement and the
Prospectus; (ii) neither the Company nor any subsidiary has and will not have
paid or declared any dividends or have made any other distribution on its
capital stock; (iii) there has not been any change in the capital stock of, or
any incurrence of long-term debt by, the Company or any subsidiary; (iv)
neither the Company nor any subsidiary has issued any options, warrants or
other rights to purchase the capital stock of the Company or any subsidiary;
and (v) there has not been and will not have been any material adverse change
in the business, financial condition or results of operations of the Company or
any subsidiary, or in the book value of the assets of the Company or any
subsidiary, arising for any reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the
6
<PAGE> 7
Company or any subsidiary that has not been provided for in the financial
statements.
(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use
all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights,
and licenses necessary for the conduct of such business and has not received
any notice of conflict with the asserted rights of others in respect thereof.
To the best of the Company's knowledge, none of the activities or business of
the Company or any subsidiary are in violation of, or cause the Company or any
subsidiary to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or body of the United States or
of any state, county or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other
taxes (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and
Prospectus, no holders of Common Stock or of any other securities of the
Company have the right to include such Common Stock or other securities in the
Registration Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor
7
<PAGE> 8
any subsidiary has any material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed
in the Registration Statement and Prospectus, nor has it any equity interest in
any partnership, joint venture, association or other entity except as disclosed
in the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus with respect to the offer and
sale of the Securities and each Preliminary Prospectus, as of its date, has
conformed fully in all material respects with the requirements of the Act and
the Rules and Regulations and did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of
its officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 15 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter against any losses, claims, damages
or liabilities, which shall include, but not be limited to, all costs to defend
against any such claim, so long as such claim arises out of agreements made or
allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Underwriter in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed
8
<PAGE> 9
to the Underwriter in writing. The Company will advise the Underwriter and the
NASD if any five percent (5%) or greater shareholder of the Company or any
subsidiary is or becomes an affiliate or associated person of an NASD member
participating in the distribution.
(z) The Company and each subsidiary is in compliance in all
material respects with all federal, state and local laws and regulations
respecting the employment of its employees and employment practices, terms and
conditions of employment and wages and hours relating thereto. There are no
pending investigations involving the Company or any subsidiary by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state or local 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 to the knowledge of the
Company, threatened against or involving the Company or any subsidiary or any
predecessor entity. No question concerning representation exists respecting
the employees of the Company or any subsidiary and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
or any subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any
subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to 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"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section
3(35) of ERISA.
(ab) Based upon written representations received from the officers
and directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of
the Company or any subsidiary have been:
(1) Subject of a petition under the Federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which either or them was a general
partner at or within two years before the time of such filing,
or any corporation or business association of which either of
them was an executive officer at or within two years before
the time of such
9
<PAGE> 10
filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree
not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily
enjoining either of them from, or otherwise limiting, any of
the following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
Federal or State securities law or Federal Commodity
laws.
(4) The subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated of any Federal
or State authority barring, suspending or otherwise limiting
for more than sixty (60) days either of their right to engage
in any activity described in paragraph (3)(i) above, or be
associated with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in
a civil action or by the Securities and Exchange Commission to
have violated any Federal or State securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any Federal Commodities Law,
10
<PAGE> 11
and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently
reversed, suspended or vacated.
(ac) Based upon written representations received from the officers
and directors of the Company, each of the officers and directors of the Company
has reviewed the sections in the Prospectus relating to their biographical data
and equity ownership position in the Company, and all information contained
therein is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to issue and sell to the Underwriter an aggregate of
1,000,000 Shares at $5.40 per Share and 1,000,000 Warrants at $.1125 per
Warrant (the public offering price less ten percent (10%)), at the place and
time hereinafter specified. The price at which the Underwriter shall sell the
Securities to the public shall be $6.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place
at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite
200, Boca Raton, Florida 33433 (or at such other place as may be designated by
the Underwriter) at 10:00 a.m., Eastern Time, on such date after the
Registration Statement has become effective as the Underwriter shall designate,
but not later than ten (10) business days (holidays excepted) following the
first date that any of the Securities are released to you, such time and date
of payment and delivery for the Securities being herein called the "Closing
Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 150,000 Shares and
150,000 Warrants at the same price per Share and Warrant as the Underwriter
shall pay for the Securities being sold pursuant to the provisions of
subsection (a) of this Section 2 (such additional Securities being referred to
herein as the "Option Securities"). This option may be exercised within thirty
(30) days after the Effective Date of the Registration Statement upon notice by
the Underwriter to the Company advising as to the amount of Option Securities
as to which the option is being exercised, the names and denominations in which
the certificates for such Option Securities are to be registered and the time
and date when such certificates are to be delivered. Such time and date shall
be determined by the Underwriter but shall not be later than ten (10) full
business days after the exercise of said option, nor in any event prior to the
Closing Date, and such
11
<PAGE> 12
time and date is referred to herein as the "Option Closing Date". Delivery of
the Option Securities against payment therefor shall take place at the offices
of the Underwriter. The Option granted hereunder may be exercised only to
cover overallotments in the sale by the Underwriter of the Securities referred
to in subsection (a) above. In the event the Company declares or pays a
dividend or distribution on its Common Stock, whether in the form of cash,
shares of Common Stock or any other consideration, prior to the Option Closing
Date, such dividend or distribution shall also be paid on the Option Closing
Date.
(c) The Company will make the certificates for the Securities to
be sold hereunder available to you for inspection at least two (2) full
business days prior to the Closing Date at the offices of the Underwriter, and
such certificates shall be registered in such names and denominations as you
may request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to the Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the purchase prices by
the Underwriter, by certified or bank cashier's checks in New York Clearing
House funds, payable to the order of the Company or by wire transfer in New
York Clearing House funds.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made payable in New York Clearing House funds at the offices of the
Underwriter, or by wire transfer in New York Clearing House funds, at the time
and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities
by the Underwriter for the account of the Underwriter registered in such names
and in such denominations as the Underwriter may request.
It is understood that the Underwriter proposes to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement is declared
effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or
12
<PAGE> 13
supplement to the Prospectus of which you shall not previously been advised and
furnished with a copy or to which you or your counsel shall have objected in
writing, acting reasonably, or which is not in compliance with the Act and the
Rules and Regulations. At any time prior to the later of (i) the completion by
the Underwriter of the distribution of the Securities as contemplated hereby;
or (ii) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary or advisable in
connection with the distribution of the Securities and as mutually agreed by
the Company and the Underwriter.
After the Effective Date and as soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of the
receipt of any comments of the Commission, of the effectiveness of any post-
effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop order or
other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such
purposes, and will use its best efforts to prevent the issuance of any such
order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary and Final Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and Selected Dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of counsel to the Underwriter the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriter or Selected
Dealers, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion
of counsel for the Company or counsel for the Underwriter, should be set forth
in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to
be delivered to a purchaser of the Securities, or in case it shall be necessary
to amend or supplement the Prospectus to comply with law or with the
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<PAGE> 14
Act and the Rules and Regulations, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or
supplemented, will not contain any untrue statement of a material fact or omit
to state any material facts necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be
attached to the Prospectus shall be without expense to the Underwriter.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will act in good faith and use its best efforts
and cooperate with you and your counsel to qualify to register the Securities
for sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriter may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and either (i)
the out-of-pocket expenses of the Underwriter, not to exceed the $50,000
previously paid if the Underwriter elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Underwriter if the Company
elects to terminate the offering for any reason. For the purposes of this
sub-paragraph, the Underwriter shall be deemed to have assumed such expenses
when they are billed or incurred, regardless of whether such expenses have been
paid. The Underwriter shall not be responsible for any expenses of the Company
or others, or for any charges or claims relative to the proposed public
offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date
two signed copies of the Registration Statement, including all financial
statements and exhibits filed therewith, and of each
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<PAGE> 15
amendment or supplement thereto. The Company will deliver to or upon the order
of the Underwriter, from time to time until the Effective Date of the
Registration Statement, as many copies of any Preliminary Prospectus filed with
the Commission prior to the Effective Date of the Registration Statement as the
Underwriter may reasonably request. The Company will deliver to the
Underwriter on the Effective Date of the Registration Statement and thereafter
for so long as a Prospectus is required to be delivered under the Act, from
time to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented as the Underwriter may from time to time reasonably
request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Underwriter during the period ending five (5) years from the Effective
Date, (i) as soon as practicable after the end of each fiscal year, a balance
sheet of the Company and any of its subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all non-confidential documents, including annual reports,
periodic reports and financial statements, furnished to or filed with the
Commission under the Act and the 1934 Act; (iv) copies of each press release,
news item and article with respect to the Company's affairs released by the
Company; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will make generally available to its stockholders
and to the registered holders of its Warrants and deliver to you as soon as it
is practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the
necessary action to become a reporting company under Section 12 of the 1934
Act, and the Company will make all filings required to, and will have obtained
approval for, the listing of the Shares and Warrants on The NASDAQ Small Cap
Market System, and the Boston or Pacific Stock Exchange, and will use its best
efforts to maintain
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<PAGE> 16
such listing for at least seven (7) years from the date of this Agreement.
(i) For such period as the Company's securities are registered
under the 1934 Act, the Company will hold an annual meeting of stockholders for
the election of Directors within 180 days after the end of each of the
Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years will provide the Company's stockholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
Rule 14a-3 under the 1934 Act and shall be included in an annual report
pursuant to the requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application of
the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the
1934 Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriter and the Company
may be reasonably necessary or advisable in connection with the distribution of
the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to
you the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement
and Warrant Certificates will be substantially in the form of the Underwriter's
Warrant Agreement filed as an Exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the Underwriter's Warrants outstanding from time to time.
(n) All existing beneficial owners of the Company's securities
(including warrants, options and Common Stock of the Company) holding in excess
of 70,000 shares as the Effective Date shall agree in writing, in a form
satisfactory to the Underwriter, not to sell, transfer or otherwise dispose of
any of such securities (or underlying securities) for a period of twelve (12)
months form the Effective Date or any longer period required by any state,
without the prior written consent of the Underwriter; provided however that
such period shall be six (6) months with
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<PAGE> 17
respect to those stockholders who purchased shares pursuant to the Company's
private placement memorandum dated March 15, 1996, and twelve (12) months for
Stan Young and his affiliates (300,000 shares) however such shares are issued.
Call Now, Inc. shall agree in writing, as of the Effective Date, not
to distribute, sell, transfer or otherwise dispose of any such securities for a
period of six (6) months from the Effective Date or any longer period required
by any State, without the prior written consent of the Underwriter.
All sales of the Company's securities by executive officers and/or
directors of the Company shall be effected through the Underwriter for a period
of eighteen (18) months from the Effective Date; provided that such requirement
shall expire as to orders which have not been filled at market prices within
forty-eight (48) hours of entry (excluding weekends and market holidays).
(o) The Company will obtain, on or before the Closing Date, key
person life insurance on each of the lives of Abraham Ostrovsky and John
Douglas in an amount of not less than $1,000,000 each, and will use its best
efforts to maintains such insurance for a period of at least five (5) years
from the Effective Date.
(p) At the Closing Date, the Company will engage the Underwriter
as a non-exclusive financial advisor to the Company for a period of thirty-six
(36) months commencing on the first day of the month following the Company's
receipt of the proceeds of this offering, at an aggregate fee of $108,000, all
of which shall be payable to the Underwriter on the Closing Date. The
financial advisory agreement will provide that the Underwriter shall, at the
Company's request, provide advice and consulting services to the Company
concerning potential merger and acquisition proposals and the obtaining of
short or long-term financing for the Company, whether by public financing or
otherwise.
(q) Prior to the Closing Date, the Company shall, at its own
expense, undertake to list the Company's securities in the appropriate
recognized securities manual or manuals published by Standard & Poor's
Corporation and such other manuals as the Underwriter may designate, such
listings to contain the information required by such manuals and the Uniform
Securities Act. The Company hereby agrees to use its best efforts to maintain
such listing for a period of not less than five (5) years. The Company shall
take such action as may be reasonably requested by the Underwriter to obtain a
secondary market trading exemption in such states as may be reasonably
requested by the Underwriter.
(r) During the one hundred eighty (180) day period commencing on
the Closing Date, the Company will not, without the prior written consent of
the Underwriter, grant options or warrants to purchase the Company's Common
Stock at a price less than the initial per share public offering price.
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<PAGE> 18
(s) Prior to the Closing Date, neither the Company nor any
subsidiary will issue, directly or indirectly, without your prior consent, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering of the Securities other than
routine customary advertising of the Company's products and services, and
except as required by any applicable law or the directives of any relevant
regulatory authority in any relevant jurisdiction.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the
financial statements to be included in any registration statement or similar
disclosure document to be filed by the Company hereunder, or any amendment or
supplement thereto. For a period of five (5) years from the Effective Date,
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report and the mailing of quarterly financial information to
stockholders.
(u) The Company shall retain American Stock Transfer & Trust
Company as the transfer agent for the securities of the Company, or such other
transfer agent as you may agree to in writing. In addition, the Company shall
direct such transfer agent to furnish the Underwriter with daily transfer
sheets as to each of the Company's securities as prepared by the Company's
transfer agent and copies of lists of stockholders and warrantholders as
reasonably requested by the Underwriter, for a five (5) year period commencing
from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Underwriter on a daily and weekly basis at the expense
of the Company, for a five (5) year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole
cost and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Underwriter shall designate and the Company may reasonably
agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Underwriter shall have the opportunity to invite an observer to attend Board of
Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and
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<PAGE> 19
deliver to you a non-exclusive M/A Agreement with the Underwriter in a form
satisfactory to the Underwriter, providing:
(1) The Underwriter will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
in writing by the Underwriter (including mergers, acquisitions, joint
ventures, and any other business for the Company introduced by the
Underwriter) consummated by the Company, as an "Introduced,
Consummated Transaction", by which the Underwriter introduced the
other party to the Company during a period ending five (5) years from
the date of the M/A Agreement; and
(2) That any such finder's fee due to the Underwriter
will be paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
(aa) For such period as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement or a new Registration Statement to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of any such post-effective amendments and cause a copy of each Prospectus, as
then amended, to be delivered to each holder of record of a Warrant and to
furnish to the Underwriter and each dealer as many copies of each such
Prospectus as the Underwriter or such dealer may reasonably request. Such
post-effective amendments or new Registration Statements shall also register
the Underwriter's Warrants and all the securities underlying the Underwriter's
Warrants. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least
until the date fixed for redemption. In addition, the Warrants shall not be
redeemable during the first year after the Effective Date without the written
consent of the Underwriter.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange,
the Company shall engage the Company's legal counsel to deliver to the
Underwriter a written opinion detailing those states in which the Shares and
Warrants of the Company may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Opinion"). The
19
<PAGE> 20
initial Secondary Market Trading Opinion shall be delivered to the Underwriter
on the Effective Date, and the Company shall continue to update such opinion
and deliver same to the Underwriter on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Underwriter or counsel to the Underwriter.
4. Conditions of Underwriters' Obligations. The obligations of
the Underwriter to purchase and pay for the Securities which they have agreed
to purchase hereunder from the Company are subject, as of the date hereof and
as of each Closing Date, to the continuing accuracy of, and compliance with,
the representations and warranties of the Company herein, to the accuracy of
statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) (i) The Registration Statement shall have become effective
not later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at
such later time or on such later date as you may agree to in writing; (ii) at
or prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the Commission;
(iii) no stop order suspending the effectiveness of the qualification or
registration of the Securities under the securities or "blue sky" laws of any
jurisdiction (whether or not a jurisdiction which you shall have specified)
shall be threatened or to the knowledge of the Company contemplated by the
authorities of any such jurisdiction or shall have been issued and in effect;
(iv) any request for additional information on the part of the Commission or
any such authorities shall have been complied with to the satisfaction of the
Commission and any such authorities, and to the satisfaction of counsel to the
Underwriter; and (v) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Underwriter and the Underwriter did not
object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not
20
<PAGE> 21
have been any material adverse change in the general affairs, business,
properties, condition (financial or otherwise), management, or results of
operations of the Company or any subsidiary, whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in or contemplated by the Registration Statement or Prospectus; (iii)
neither the Company nor any subsidiary shall have sustained any material
interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and Prospectus; and (iv)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstance under which they are made, not
misleading.
(c) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date shall have been duly performed, fulfilled or complied with.
(e) At each Closing Date, you shall have received the opinion,
dated as of each Closing Date, from Joel Bernstein, Esq., counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter, to
the effect that:
(i) the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, with full
corporate power and authority to own its properties and conduct its
business as described in the Registration
21
<PAGE> 22
Statement and Prospectus and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each
other jurisdiction in which the ownership or leasing of its properties
or conduct of its business requires such qualification except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized, validly issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock of the Company and
other securities have not been issued in violation of the preemptive
rights of any shareholder and the shareholders of the Company do not
have any preemptive rights or, to such counsel's knowledge, other
rights to subscribe for or to purchase securities of the Company, nor,
to such counsel's knowledge, are there any restrictions upon the
voting or transfer of any of the securities of the Company, except as
disclosed in the Prospectus; the Common Stock, the Shares, the
Warrants, and the securities contained in the Underwriter's Warrant
Agreement conform to the respective descriptions thereof contained in
the Prospectus; the Common Stock, the Shares, the Warrants, the shares
of Common Stock to be issued upon exercise of the Warrants and the
securities contained in the Underwriter's Warrant Agreement, have been
duly authorized and, when issued, delivered and paid for, will be duly
authorized, validly issued, fully paid, non-assessable, free of
pre-emptive rights and no personal liability will attach to the
ownership thereof; all prior sales by the Company of the Company's
securities have been made in compliance with or under an exemption
from registration under the Act and applicable state securities laws
and no shareholders of the Company have any rescission rights against
the Company with respect to the Company's securities; a sufficient
number of shares of Common Stock has been reserved for issuance upon
exercise of the Warrants and the Underwriter Warrants, and to the best
of such counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated
by this Agreement gives rise to any registration rights or other
rights, other than those which have been waived or satisfied or
described in the Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement, the Financial Advisory Agreement and the M/A
Agreement have been duly and validly authorized, executed and
delivered by the Company and,
22
<PAGE> 23
assuming the due authorization, execution and delivery of this
Agreement by the Underwriter, are the valid and legally binding
obligations of the Company, enforceable in accordance with their
terms, except (a) as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws
from time to time in effect which effect creditors' rights generally;
and (b) no opinion is expressed as to the enforceability of the
indemnity provisions or the contribution provisions contained in this
Agreement;
(iv) the certificates evidencing the outstanding
securities of the Company, the Shares, the Common Stock and the
Warrants are in valid and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or, to the knowledge of
the Company, threatened, any material action, suit, proceeding,
inquiry, arbitration or investigation against the Company or any
subsidiary or any of the officers of directors of the Company or any
subsidiary, nor any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth, or properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a
violation of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary; (b) to
the best of such counsel's knowledge, any material obligations,
agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or
instrument to which the Company or any subsidiary is a party or by
which it or any of its properties is bound; or (c) to the best of such
counsel's knowledge, any material order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality
or court, domestic or foreign;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data
23
<PAGE> 24
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with
the applicable requirements of the Act and the Rules and Regulations;
and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company, in connection with the
execution, delivery and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Underwriter's Warrants or the Securities
underlying the Underwriter's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law, upon opinions of
counsel satisfactory to you and counsel to the Underwriter. The opinion of
such counsel to the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriter is
justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained 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 are made, not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which
they are made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion).
(f) You shall have received on each Closing Date a certificate
dated as of each Closing Date, signed by the Chief Executive Officer and the
Chief Financial Officer of the Company
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<PAGE> 25
and such other officers of the Company as the Underwriter may request,
certifying that:
(i) No Order suspending the effectiveness of the
Registration Statement or stop order regarding the sale of the
Securities in effect and no proceedings for such purpose are pending
or are, to their knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to
their knowledge, threatened against the Company or any subsidiary or
any officer or director of the Company or any subsidiary of a
character required to be disclosed in the Registration Statement which
is not disclosed therein; they do not know of any contracts which are
required to be summarized in the Prospectus which are not so
summarized; and they do not know of any material contracts required to
be filed as exhibits to the Registration Statement which are not so
filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any
amendment or supplement to either of the foregoing contains an untrue
statement of any material fact or omits to state any material fact
required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they are made, not
misleading; and since the Effective Date, to the best of their
knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or
any subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus and except as so reflected or
contemplated since such date, there has not been any material
transaction entered into by the Company or any subsidiary;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the
Company has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and municipal tax return or the
payment of any federal, state or municipal taxes; they know of no
proposed redetermination or re-assessment of taxes, adverse to the
Company or any subsidiary,
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<PAGE> 26
and the Company and each subsidiary has paid or provided by adequate
reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in
the Registration Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement, the Financial Advisory Agreement and the M/A
Agreement, the consummation of the transactions therein contemplated,
and the fulfillment of the terms thereof, will not result in a breach
by the Company of any terms of, or constitute a default under, its
Articles of Incorporation or By-Laws, any indenture, mortgage, lease,
deed or trust, bank loan or credit agreement or any other material
agreement or undertaking of the Company or any subsidiary including,
by way of specification but not by way of limitation, any agreement or
instrument to which the Company or any subsidiary is now a party or
pursuant to which the Company or any subsidiary has acquired any right
and/or obligations by succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted principles of accounting applied on a consistent
basis throughout the periods involved. Since the respective dates of
such financial statements, there have been no material adverse change
in the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
except as may otherwise be indicated therein, neither the Company nor
any subsidiary has, prior to the Closing Date, either (i) issued any
securities or incurred any material liability or obligation, direct or
contingent, for borrowed money, or (ii) entered into any material
transaction other than in the ordinary course of business. The
Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus
relating to their biographical data and equity ownership position in
the Company, and all information contained therein is true and
accurate; and
(xii) Except as disclosed in the Prospectus, during the past
five years, they have not been:
(1) Subject of a petition under the Federal
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<PAGE> 27
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which either or them was a general
partner at or within two years before the time of such filing,
or any corporation or business association of which either of
them was an executive officer at or within two years before
the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree
not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily
enjoining either of them from, or otherwise limiting, any of
the following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
Federal or State securities law or Federal Commodity
laws.
(4) The subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated of any Federal
or State authority barring, suspending or otherwise limiting
for more than sixty (60) days either of their right to engage
in any activity described in paragraph (3)(i) above, or be
associated with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in
a civil action or by the Securities and Exchange
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<PAGE> 28
Commission to have violated any Federal or State securities
law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended or
vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any Federal Commodities Law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriter shall have received from Grant Schwartz
Associates, independent auditors to the Company, certificates or letters, one
dated and delivered on the Effective Date and one dated and delivered on the
Closing Date, in form and substance satisfactory to the Underwriter, stating
that:
(i) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) the financial statements and the schedules included
in the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form S-1;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
causes them to believe that:
(a) during the period from (and including) the
date of the financial statements in the Registration Statement
and the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current
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<PAGE> 29
assets, net assets, shareholder's equity, working capital or
in any other item appearing in the Company's financial
statements as to which the Underwriter may request advice, in
each case as compared with amounts shown in the balance sheet
as of the date of the financial statement in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or will occur;
(b) during the period from (and including) the
date of the financial statements in the Registration Statement
and the Prospectus to such specified date there was any
material decrease in revenues or in the total or per share
amounts of income or loss before extraordinary items or net
income or loss, or any other material change in such other
items appearing in the Company's financial statements as to
which the Underwriter may request advice, in each case as
compared with the fiscal period ended as of the date of the
financial statement in the Prospectus, except in each case for
increases, changes or decreases which the Prospectus discloses
have occurred or will occur;
(c) the unaudited interim financial statements of
the Company appearing in the Registration Statement and the
Prospectus (if any) 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 accepted accounting principles
and practices on a basis substantially consistent with the
audited financial statements included in the Registration
Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company 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
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; and
(v) they have not during the immediately preceding five
(5) year period brought to the attention of the Company's management
any reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
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<PAGE> 30
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the
Underwriter, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the Underwriter
hereunder.
(h) Upon exercise of the option provided for in Section 2(b)
hereof, the obligation of the Underwriter to purchase and pay for the Option
Securities referred to therein will be subject (as of the date hereof and as of
the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriter.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Joel Bernstein, Esq., counsel
for the Company, dated as of the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriter, which opinion
shall be substantially the same in scope and substance as the opinion
furnished to you at the Closing Date pursuant to Section 4(e) hereof,
except that such opinion, where appropriate, shall cover the Option
Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to counsel to the Underwriter,
substantially the same in scope and substance as the certificate
furnished to you at the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from Grant Schwartz Associates, independent auditors to the Company,
dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were
30
<PAGE> 31
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriter, and
the Underwriter and counsel to the Underwriter shall have been
furnished with all such documents, certificates, and opinions as you
may request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of
the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Common Stock and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the Underwriter or
the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise
the Underwriter of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with paragraph 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to
the Company, dated as of the Effective Date, in form and substance satisfactory
to counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the Underwriter, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Underwriter shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriter, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this
31
<PAGE> 32
Agreement may be canceled at, or at any time prior to, the Closing Date and/or
the Option Closing Date by the Underwriter notifying the Company of such
cancellation in writing or by telegram or facsimile at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of
the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation
of the Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become
effective not later than 5:00 p.m., Eastern Time, on the date of this
Agreement, or on such later time or date as the Company and the
Underwriter may agree in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefore
initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled
after the Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of the
option provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds
harmless the Underwriter and each person, if any, who controls the Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include but not
be limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which the Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein
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<PAGE> 33
not misleading; provided, however, that the Company will not be liable in any
such cases to the extent, but only to the extent, that any such losses, claim,
damages or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of the Underwriter specifically for use in the preparation of the
Registration Statement or any such amendment or supplement thereof or any such
Blue Sky Application or any such Preliminary Prospectus or the Prospectus or
any such amendment or supplement thereto. Notwithstanding the foregoing, the
Company shall have no liability under this section if such untrue statement or
omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability
upon which indemnification is being sought. This indemnity will be in addition
to any liability which the Company may otherwise have.
(b) The Underwriter indemnifies and holds harmless the Company, each
of its directors, each nominee (if any) for director named in the Prospectus,
each of its officers who have signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of the Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statements or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by you or by any Underwriter through you specifically
for use in the preparation thereof. Notwithstanding the foregoing, the
Underwriter shall have no liability under this section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability
upon which indemnification is being sought through no fault of the Underwriter.
This indemnity agreement will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
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<PAGE> 34
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the Underwriter or such controlling person and the
indemnifying party and in the reasonable judgment of the Underwriter, it is
advisable for the Underwriter or controlling persons to be represented by
separate counsel (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of the Underwriter or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for all such Underwriter
and controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter makes claim
for indemnification pursuant to Section 6 hereof but it
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<PAGE> 35
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 Section 6 provide
for indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Underwriter, then the Company and each person who
controls the Company, in the aggregate, and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which it may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees) in either such case (after contribution from others) in such
proportions that the Underwriter is responsible in the aggregate for that
portion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discount per Share and per Warrant appearing
on the cover page of the Prospectus bears to the public offering price
appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company, or
the Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriter and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section. No
person ultimately determined to be guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not ultimately determined to be guilty of
such fraudulent misrepresentation. As used in this paragraph, the term
"Underwriter" includes any officer, director, or other person who controls the
Underwriter within the meaning of Section 15 of the Act, and the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriter and
each person who controls the Underwriter shall be entitled to contribution from
the Company, its officers, directors and
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<PAGE> 36
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement
becomes effective or the sale of the Securities to the Underwriter is
consummated, the Company will pay all costs and expenses incident to the
performance of this Agreement by the Company including but not limited to the
fees and expenses of counsel to the Company and of the Company's accountants;
the costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented; the fee
of the National Association of Securities Dealers, Inc. ("NASD") in connection
with the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and
legal fees of counsel to the Underwriter who shall serve as Blue Sky counsel to
the Company in connection with the filing of applications to register the
Securities under the state securities or blue sky laws (which legal fees shall
be payable by the Company in the sum of $20,000, of which $10,000 has been
paid); the cost of printing and furnishing to the Underwriter copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selected Dealers Agreement, and the Blue Sky Memorandum; the
cost of printing the certificates evidencing the securities comprising the
Securities; the cost of preparing and delivering to the Underwriter and its
counsel bound volumes containing copies of all documents and appropriate
correspondence filed with or received from the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and all
closing documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including any
original issue, transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to the Underwriter hereunder. The Company will also pay
all costs and expenses incident to the furnishing of any amended Prospectus or
of any supplement to be attached to the Prospectus. The Company shall also
engage the Company's counsel to provide the Underwriter with a written
Secondary Market Trading Opinion in accordance with paragraphs 3(ab) and 4(j)
of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at
the Closing Date pay to the Underwriter a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds
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<PAGE> 37
received from the sale of the Securities, of which an advance of $50,000 has
been paid to date. In the event the overallotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount equal to three percent (3%) of the gross proceeds received upon exercise
of the overallotment option.
(c) Other than as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Underwriter or from any other person for services as a finder
in connection with the proposed offering, and the Company agrees to indemnify
and hold harmless the Underwriter against any losses, claims, damages or
liabilities, which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees,
to which the Underwriter may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee in
connection with the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering by the Underwriter of any of the Securities.
The time of the public offering shall mean the time after the effectiveness of
the Registration Statement when the Securities are first generally offered by
you to the Selected Dealers. This Agreement may be terminated by you at any
time before it becomes effective as provided above, except that Sections 3(c),
6, 7, 8, 12, 13, 14, 15, 16 and 17 shall remain in effect notwithstanding such
termination.
10. Termination. (a) This Agreement, except for Sections
3(c), 6, 7, 8, 12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time
prior to the Closing Date, and the option referred to in Section 2(b) hereof,
if exercised, may be cancelled at any time prior to the Option Closing Date, by
you if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Securities agreed to be
purchased hereunder by reason of: (i) the Company having sustained a material
adverse loss, whether or not insured, by reason of fire, earthquake, flood,
accident or other calamity, or from any labor dispute or court or government
action, order or decree; (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or limited; (iii)
material governmental restrictions having been imposed on trading
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in securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by Federal or New York or Florida state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred involving the United States;
(vi) the passage by the Congress of the United States or by any state
legislative body of similar impact, of any act or measure, or the adoption of
any orders, rules or regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is
reasonably believed likely by the Underwriter to have a material adverse impact
on the business, financial condition or financial statements of the Company or
the market for the securities offered hereby; (vii) any material adverse change
in the financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement; (viii) any material adverse change
having occurred, since the respective dates as of which information is given in
the Registration Statement and Prospectus, in the earnings, business prospects
or general condition of the Company, financial or otherwise, whether or not
arising in the ordinary course of business; (ix) a pending or threatened legal
or governmental proceeding or action relating generally to the Company's
business, or a notification having been received by the Company of the threat
of any such proceeding or action, which could, in the reasonable judgment of
the Underwriter, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (xi) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section, the Company shall
be promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
11. Underwriter's Warrant Agreement. At the Closing Date, the
Company will issue to the Underwriter and/or persons related to the
Underwriter, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Underwriter's Warrant Agreement annexed as
an exhibit to the Registration Statement, Underwriter Warrants to purchase up
to an aggregate of 100,000 Shares and 100,000 Warrants, in such denominations
as the Underwriter shall designate. In the event of conflict in the terms of
this Agreement and the Underwriter's Warrant Agreement, the language of the
form of Underwriter's Warrant Agreement shall control.
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12. Representations, Warranties and Agreements to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company and its principal officers, where
appropriate, and the Underwriter set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment
for the Securities and the termination of this Agreement.
13. Notice. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telegraphed and confirmed:
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
355 West Palmetto Park Road
Boca Raton, Florida 33432
If to the Company: Abraham Ostrovsky, Chairman
Cable-Sat Systems, Inc.
2105 Hamilton Avenue, Suite 140
San Jose, California 95125
Copy to: Joel Bernstein, Esq.
9701 Biscayne Blvd.
Miami, Florida 33138
14. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the Underwriter, the Company and, to the extent
expressed, any person controlling the Company or the Underwriter, and directors
of the Company, nominees for directors (if any) named in the Prospectus, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors, assigns and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the Underwriter.
15. Applicable Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Florida applicable to
contracts made and to be performed entirely within the State of Florida. The
parties agree that any action brought by any party against another party in
connection with any rights or obligations arising out of this Agreement shall
be instituted properly in a federal or state court of competent jurisdiction
with venue only in the Fifteenth Judicial Circuit Court in and for Palm
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<PAGE> 40
Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division. A party to this Agreement named
as a Defendant in any action brought in connection with this Agreement in any
court outside of the above named designated county or district shall have the
right to have the venue of said action changed to the above designated county
or district or, if necessary, have the case dismissed, requiring the other
party to refile such action in an appropriate court in the above designated
county or federal district.
16. 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.
17. Entire Agreement. This Agreement and the agreements referred
to within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the Underwriter in accordance with
its terms.
Very truly yours,
CABLE-SAT SYSTEMS, INC.
BY:
----------------------------------------
Wil F. Zarecor, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:
----------------------------------------
Robert T. Kirk, President
40
<PAGE> 1
EXHIBIT 1(c)
CABLE-SAT SYSTEMS, INC.
1,000,000 Shares of Common Stock and
1,000,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
________________ , 1996
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering
for sale an aggregate of 1,000,000 Shares of Common Stock (the "Shares") and
1,000,000 Warrants (the "Warrants") (collectively the "Firm Securities") of
Cable-Sat Systems, Inc. (the "Company"), which the Underwriter has agreed to
purchase from the Company, and which are more particularly described in the
Registration Statement, Underwriting Agreement and Prospectus. In addition,
the Underwriter has been granted an option to purchase from the Company up to
an additional 150,000 Shares and an additional 150,000 Warrants (the "Option
Securities") to cover overallotments in connection with the sale of the Firm
Securities. The Firm Securities and any Option Securities purchased are herein
called the "Securities". The Securities and the terms under which they are to
be offered for sale by the Underwriter is more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the
Underwriter at the price per Share and price per Warrant set forth on the cover
page of the Prospectus (the "Public Offering Price"), in accordance with the
terms of offering set forth in the Prospectus.
3. The Underwriter, subject to the terms and conditions hereof,
is offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who are
either (a) members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of
business located outside the United States, its territories and its possessions
and not registered as brokers or dealers under the Securities Exchange Act of
1934, as amended (the "1934 Act"), who have agreed not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein (such dealers who shall agree to sell
Securities hereunder being herein called "Selected Dealers") at the public
offering price, less a selling concession (which may be changed) of not in
excess of $______ per Share and/or $_______ per Warrant payable as hereinafter
provided, out of which concession an amount not exceeding $_____ ____ per Share
and/or $_________ per
1
<PAGE> 2
Warrant may be reallowed by Selected Dealers to members of the NASD or foreign
dealers qualified as aforesaid. The Selected Dealers who are members of the
NASD agree to comply with all of the provisions of the Conduct Rules of the
NASD. Foreign Selected Dealers agree to comply with the provisions of Section
2740 of the Conduct Rules of the NASD, and, if any such dealer is a foreign
dealer and not a member of the NASD, such Selected Dealer also agrees to comply
with the NASD's Interpretation with Respect to Free-Riding and Withholding, and
to comply, as though it were a member of the NASD, with the provisions of
Sections 2730 and 2750 of the Conduct Rules, and to comply with Section 2420
thereof as that section applies to non-member foreign dealers. The Underwriter
has agreed that, during the term of this Agreement, it will be governed by the
terms and conditions hereof.
4. Barron Chase Securities, Inc. shall act as Underwriter and
shall have full authority to take such action as we may deem advisable in
respect to all matters pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of
the Securities, your application should reach us promptly by facsimile or
telegraph at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Suite 200, Boca Raton, Florida 33433. We reserve the right to reject
subscriptions in whole or in part, to make allotments, and to close the
subscription books at any time without notice. The Securities allotted to you
will be confirmed, subject to the terms and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to
you only on the condition that the Underwriter may lawfully sell the Securities
to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities purchased
by you hereunder which, prior to the completion of the public offering as
defined in paragraph 8 below, we may purchase or contract to purchase for our
account and, in addition, we may charge you with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
Certificates for Securities delivered on such repurchases need not be the
identical certificates originally purchased.
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<PAGE> 3
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to
make delivery of the Securities sold or overallotted for the account of the
Underwriter, you will, forthwith upon our request, grant to us for the account
of the Underwriter the right, exercisable promptly after receipt of notice from
you that such right has been granted, to purchase, at the Public Offering Price
less the selling concession or such part thereof as we shall determine, such
number of Securities owned by you as shall have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you will
be paid when such Securities are delivered to you. However, you shall pay any
transfer tax on sales of Securities by you and you shall pay your proportionate
share of any transfer tax (other than the single transfer tax described above)
in the event that any such tax shall from time to time be assessed against you
and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate
when we shall have determined that the public offering of the Securities has
been completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the
30th full business day after the date hereof; provided, however, that we shall
have the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities,
we have been authorized to make purchases and sales of the Securities of the
Company, in the open market or otherwise, for long or short account, and, in
arranging for sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and
will comply therewith.
3
<PAGE> 4
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but we shall not assume any obligation or responsibility
as to the right of any Selected Dealer to sell the Securities in any state or
other jurisdiction or as to the eligibility of the Securities for sale therein.
We will, if requested, file a Further State Notice in respect of the Securities
pursuant to Article 23-A of the General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make any
representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter, or with each other, but
you will be responsible for your share of any liability or expense based on any
claim to the contrary. We shall not be under any liability for or in respect
of value, validity or form of the Securities, or the delivery of the
certificates for the Securities, or the performance by anyone of any agreement
on its part, or the qualification of the Securities for sale under the laws of
any jurisdiction, or for or in respect of any other matter relating to this
Agreement, except for lack of good faith and for obligations expressly assumed
by us or by the Underwriter in this Agreement and no obligation on our part
shall be implied herefrom. The foregoing provisions shall not be deemed a
waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made
at the Public Offering Price less the above-mentioned selling concession on
such time and date as we may advise, at the office of Barron Chase Securities,
Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433, by a
certified or official bank check or wire transfer in current New York Clearing
House funds, payable to the order of Barron Chase Securities, Inc., as
Underwriter, against delivery of certificates for the Securities so purchased.
If such payment is not made at such time, you agree to pay us interest on such
funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of
Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton,
Florida 33433, Attention: Robert T. Kirk. Notices to you shall be deemed to
have been duly given if telephoned,
4
<PAGE> 5
telefaxed, telegraphed or mailed to you at the address to which this letter is
addressed.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to the
choice of law or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of this letter enclosed herewith, even
though you may have previously advised us thereof by telephone or telegraph.
Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
------------------------------
Authorized Officer
5
<PAGE> 6
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
We hereby subscribe for __________ Shares and/or ___________ Warrants
of Cable-Sat Systems, Inc. in accordance with the terms and conditions stated in
the foregoing Selected Dealers Agreement and letter. We hereby acknowledge
receipt of the Prospectus referred to in the Selected Dealers Agreement and
letter. We further state that in purchasing said Shares and/or Warrants we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
or (ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As a
member of the NASD, we hereby agree to comply with all of the provisions of
Conduct Rules of the NASD. If we are a foreign Selected Dealer, we agree to
comply with the provisions of Section 2740 of the Conduct Rules, and if we are a
foreign dealer and not a member of the NASD, we agree to comply with the NASD's
interpretation with respect to free-riding and withholding, and agree to comply,
as though we were a member of the NASD, with provisions of Sections 2730 and
2750 of such Conduct Rules, and to comply with Section 2420 thereof as that
Section applies to non-member foreign dealers.
Firm:
-------------------------------
By:
-------------------------------
(Name and Position)
Address:
-------------------------------
-------------------------------
Telephone No.:
-------------------------------
Dated: , 1996
------------------
6
<PAGE> 1
EXHIBIT 5.1
Law Offices
JOEL BERNSTEIN
Area Code 305
P.O. Box 330072 Telephone: 751-3008
Miami, Florida 33233 Facsimile: 751-4928
July 24, 1996
Cable-Sat Systems, Inc.
2105 Hamilton Avenue, Suite 140
San Jose, CA 95125
Gentlemen:
I have acted as special counsel to Cable-Sat Systems, Inc., a Florida
corporation (the "Corporation"), in connection with the offering of 4,594,000
shares of Common Stock, 1,150,000 Redeemable Common Stock Purchase Warrants,
100,000 Underwriters Warrants and 100,000 Underlying Underwriters Warrants.
The offering of the shares and warrants is to be made pursuant to Registration
Statement on Form S-1 filed with the Securities and Exchange Commission, File
No. 333-06121 (the "Registration Statement").
I have acted as special counsel to the Corporation in connection with the
preparation of the above-referenced Registration Statement.
Please be advised that I am of the opinion that the Corporation's Common Stock,
Redeemable Stock Purchase Warrants, Underwriters Warrants, and Underlying
Underwriters Warrants have been duly authorized by the Corporation, and when
sold in accordance with the terms and conditions set forth in the Registration
Statement, will be validly issued by the Corporation and fully paid and
non-assessable.
I consent to the use of my name in the Registration Statement in the section of
the Prospectus entitled "Legal Matters" and the filing of this letter as an
exhibit to the Registration Statement.
Yours very truly,
/s/ Joel Bernstein
------------------
JB:jk
<PAGE> 1
EXHIBIT 10.4
UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement"
or "Agreement"), dated as of __________ , 1996, between CABLE-SAT SYSTEMS, INC.
(the "Company"), and BARRON CHASE SECURITIES, INC. (the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between
the Company and the Underwriter, to act as the Underwriter in connection with
the Company's proposed public offering of 1,000,000 shares of the Company's
Common Stock at $6.00 per share and 1,000,000 Warrants ("Public Warrants") at
$.125 per warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Underwriter and/or
persons related to the Underwriter as those persons are defined in Rule 2710 of
the NASD Conduct Rules (the "Holder"), 100,000 warrants ("Common Stock
Underwriter Warrants") to purchase 100,000 shares of the Company's Common stock
(the "Shares") and 100,000 warrants ("Warrant Underwriter Warrants") to
purchase 100,000 Common Stock Purchase Warrants ("Underlying Warrants")
exercisable to purchase 100,000 shares of the Company's Common Stock. The
"Common Stock Underwriter Warrants" and the "Warrant Underwriter Warrants" are
collectively referred to as the "Warrants". The "Shares" and the "Underlying
Warrants" are collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Underwriter acting as Underwriter
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of TEN DOLLARS AND NO CENTS ($10.00), 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 and Period.
The Public Offering has been registered under a Registration Statement
on Form S-1 (File No. 333-6121) and declared effective by the Securities and
Exchange Commission (the "SEC" or "Commission") on _________, 1996 (the
"Effective Date"). This Agreement, relating to the purchase of the Warrants,
is entered into pursuant to the Underwriting Agreement between the Company and
the Underwriter in connection with the Public Offering.
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<PAGE> 2
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 100,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $9.00 per share (150% of the public offering
price) and/or 100,000 non-redeemable Underlying Warrants at an initial exercise
price of $.18175 per warrant (150% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $9.00 per share during the three (3) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption
"Description of Securities" in the Registration Statement, and as designated in
the Company's Articles of Incorporation and any amendments thereto, and the
Underlying Warrants shall be governed by the terms of the Warrant Agreement
executed in connection with the Company's public offering (the "Warrant
Agreement"), except as provided herein, and the Holders shall have registration
rights under the Securities Act of 1933, as amended (the "Act"), for the
Warrants, the Shares, the Underlying Warrants, and the shares of Common Stock
underlying the Underlying Warrants, as more fully described in paragraph seven
(7) of this Underwriter's Warrant Agreement. In the event of any extension of
the expiration date or reduction of the exercise price of the Public Warrants,
the same such changes to the Underlying Warrants shall be simultaneously
effected, except that the Underlying Warrants shall expire no later than five
(5) years from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, 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 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the
Common Stock Underwriter Warrants and/or the Warrant Underwriter
Warrants and/or the Underlying Warrants by surrendering the Warrant
Certificate, together with a Subscription in the form of Exhibit "A"
attached thereto, duly
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<PAGE> 3
executed by such Holder to the Company, at any time prior to the
Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the
order of the Company in the amount of the aggregate purchase price
(the "Aggregate Price"), subject to any adjustments provided for in
this Agreement. The aggregate price hereunder for each Holder shall
be equal to the exercise price as set forth in Section six (6) hereof
multiplied by the number of Warrants, Underlying Warrants or Shares
that are the subject of each Holder's Warrant (as adjusted as
hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of
the Common Stock Underwriter Warrants and/or the Underlying Warrants
by delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly
executed by such Holder, in which case no payment of cash will be
required. Upon such cashless exercise, the number of Shares to be
purchased by each Holder hereof shall be determined by dividing: (i)
the number obtained by multiplying the number of Shares that are the
subject of each Holder's Warrant Certificate by the amount, if any, by
which the then Market Value (as hereinafter defined) exceeds the
Purchase Price; by (ii) the then per share Market Value or purchase
price, whichever is greater. In no event shall the Company be
obligated to issue any fractional securities and, at the time it
causes a certificate or certificates to be issued, it shall pay the
Holder in lieu of any fractional securities or shares to which such
Holder would otherwise be entitled, by the Company check, in an amount
equal to such fraction multiplied by the Market Value. The Market
Value shall be determined on a per Share basis as of the close of the
business day preceding the exercise, which determination shall be made
as follows: (a) if the Common Stock is listed for trading on a
national or regional stock exchange or is included on the NASDAQ
National Market or Small-Cap Market, the average closing sale price
quoted on such exchange or the NASDAQ National Market or Small-Cap
Market which is published in The Wall Street Journal for the ten (10)
trading days immediately preceding the date of exercise, or if no
trade of the Common Stock shall have been reported during such period,
the last sale price so quoted for the next day prior thereto on which
a trade in the Common Stock was so reported; or (b) if the Common
Stock is not so listed, admitted to trading or included, the average
of the closing highest reported bid and lowest reported ask price as
quoted on the National Association of Securities Dealer's OTC Bulletin
Board or in the "pink sheets" published by the National Daily
Quotation Bureau for the first day immediately preceding the date of
exercise on which the Common Stock is traded.
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<PAGE> 4
3.2 Partial Exercise. The securities referred to in paragraph
3.1 above also may be exercised from time to time in part by surrendering the
Warrant Certificate in the manner specified in Section 3.1 hereof, except that
with respect to a cash exercise, the Purchase Price payable shall be equal to
the number of securities being purchased hereunder multiplied by the per
security Purchase Price, subject to any adjustments provided for in this
Agreement. Upon any such partial exercise, the Company, at its expense, will
forthwith issue to the Holder hereof a new Warrant Certificate or Warrants of
like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) 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
of Common Stock and/or other securities 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 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 Effective
4
<PAGE> 5
Date of the Public Offering, except (a) to officers of the Underwriter or to
officers and partners of Selected Dealers participating in the Public Offering;
(b) by will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Underwriter Warrant
shall be $9.00 per share (150% of the public offering price). The initial
exercise price of each Warrant Underwriter Warrant shall be $.18175 per
Underlying Warrant (150% of the public offering price). The initial exercise
price of each Underlying Warrant shall be $9.00 per share. 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. The Warrant Underwriter Warrants and the
Underlying Warrants are exercisable during the three (3) year period commencing
on the Effective Date.
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 Registration Under the Securities Act of 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively
the "Registrable Securities") have been registered under the Securities Act of
1933, as amended (the "Act"). Upon exercise, in part or in whole, of the
Warrants, certificates representing the Shares, the Underlying Warrants and/or
the shares of Common Stock issuable upon exercise of the Underlying Warrants
shall bear the following legend in the event there is no current registration
statement effective with the Securities and Exchange Commission at such time as
to such securities:
The securities represented by this certificate 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 and applicable state securities laws
is
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available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the offering
and expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement, under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the Underwriter
and to all other Holders of the Registrable Securities of its intention to do
so. If the Underwriter and/or other Holders of the Registrable Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Underwriter and such
Holders of such Registrable Securities the opportunity to have any Registrable
Securities registered under such Registration Documents or any other available
Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (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.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date
of the Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 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/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and 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 nine (9) consecutive months (or such longer period of time as
permitted by the Act) by such Holders and any other Holders of any of the
Registrable Securities who notify the Company within ten (10) days after being
given notice from the
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Company of such request. A Demand Registration shall not be counted as a
Demand Registration hereunder until such Demand Registration has been declared
effective by the SEC and maintained continuously effective for a period of at
least nine months or such shorter period when all Registrable Securities
included therein have been sold in accordance with such Demand Registration,
provided that a Demand Registration shall be counted as a Demand Registration
hereunder if the Company ceases its efforts in respect of such Demand
Registration at the request of the majority Holders making the demand for a
reason other than a material and adverse change in the business, assets,
prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the 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 or any
other appropriate disclosure document so as to permit a public offering and
sale for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by any such Holder of Registrable Securities; provided,
however, that the provisions of Section 7.4(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 Holders participating in the offering
pro-rata.
(d) Any written request by the Holders made pursuant to this
Section 7.3 shall:
(i) specify the number of Registrable Securities which
the Holders intend to offer and sell and the minimum price at which
the Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable
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<PAGE> 8
requirements of the Commission and to obtain acceleration of the
effective date of the registration statement.
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for
such offering, the Company shall, as soon as practicable, effect such
registration as would permit or facilitate the sale and distribution of the
Registrable Securities as are specified in the request. All expenses incurred
in connection with a registration requested pursuant to this Section shall be
borne by the Company. Registrations effected pursuant to this Section 7.3(e)
shall not be counted as registrations pursuant to Section 7.3(a) and 7.3(c)
hereof.
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company
will promptly notify each seller of such Registrable Securities and confirm
such advice in writing, (i) when such registration statement becomes effective,
(ii) when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement
to such registration statement or any prospectus relating thereto or for
additional information.
The Company shall furnish to each seller of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including each preliminary
prospectus and summary prospectus) in conformity with the requirements of the
Act, and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, and fees and expenses of Holder(s)' counsel and the Holder's pro-rata
portion of the selling discount or commissions), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay
all costs, fees and expenses in connection with any registration statement
filed pursuant to Section 7.3(c).
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If the Company shall fail to comply with the provisions of Section 7.3(a), the
Company shall, in addition to any other equitable or other relief available to
the Holder(s), be liable for any or all special and consequential damages
sustained by the Holder(s) requesting registration of their Registrable
Securities.
(c) The Company shall prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be reasonably necessary to keep such
registration statement effective for at least nine months (or such longer
period as permitted by the Act), and to comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller or sellers of Registrable Securities set forth in
such registration statement. If at any time the SEC should institute or
threaten to institute any proceedings for the purpose of issuing a stop order
suspending the effectiveness of any such registration statement, the Company
will promptly notify each seller of such Registrable Securities and will use
all reasonable efforts to prevent the issuance of any such stop order or to
obtain the withdrawal thereof as soon as possible. The Company will use its
good faith reasonable efforts and take all reasonably 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 required 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. The Company shall use its
good faith reasonable efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any State thereof
as may be reasonably necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(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 as contained in the
Underwriting Agreement.
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<PAGE> 10
(e) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each of 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 written
information furnished by such Holder, 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 the Underwriting Agreement
pursuant to which the Underwriter has agreed to indemnify the Company, except
that the maximum amount which may be recovered from each Holder pursuant to
this paragraph or otherwise shall be limited to the amount of net proceeds
received by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants or Underlying Warrants prior
to the filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof without the prior written
consent of the Holders of the Registrable Securities representing a majority of
such securities.
(h) The Company shall furnish 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.
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(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriter 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 the registration statement and permit each Holder and 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 National
Association of Securities Dealers, Inc. ("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 shall reasonably request.
(j) With respect to a registration statement filed pursuant to
Section 7.3, the Company, if requested, shall enter into an underwriting
agreement with the managing underwriter, reasonably satisfactory to the
Company, selected for such underwriting by Holders holding a majority of the
Registrable Securities requested to be included in such underwriting. 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, if required by the Underwriter to be parties to any underwriting
agreement relating to an underwritten sale of their Registrable Securities,
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) Notwithstanding the provisions of paragraph 7.2 or paragraph
7.3 of this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have
issued a no-action position, in form and substance satisfactory to counsel for
the Holder(s) requesting registration of such
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<PAGE> 12
Registrable Securities, to the effect that the entire number of Registrable
Securities proposed to be sold by such Holder(s) may be sold by it, in the
manner proposed by such Holder(s), without registration under the Securities
Act.
(l) After completion of the Public Offering, the Company shall
not, directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would
be entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within
the definition of "Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into
a greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of
the Company, the Board of Directors of the Company (whose determination shall
be conclusive) shall determine the allocation of the adjusted Exercise Price
between or
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<PAGE> 13
among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or 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
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such reorganization, consolidation,
merger, conveyance, sale or transfer. Such supplemental Warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8 and such registration rights and other rights as provided
in this Agreement. The Company shall not effect any such consolidation,
merger, or similar transaction as contemplated by this paragraph, unless prior
to or simultaneously with the consummation thereof, the successor corporation
(if other than the Company) resulting from such consolidation or merger or the
corporation purchasing, receiving, or leasing such assets or other appropriate
corporation or entity shall assume, by written instrument executed and
delivered to the Holders, the obligation to deliver to the Holders, such shares
of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase, and to perform the other
obligations of the Company under this Agreement. The above provision of this
Subsection shall similarly apply to successive consolidations or successively
whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants
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distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than a distribution made as a cash dividend
payable out of earnings or out of any earned surplus legally available for
dividends under the laws of the jurisdictions of incorporation of the Company),
whether issued by the Company or by another, the Holders of the unexercised
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 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 distribution as if the
Warrants had been exercised immediately prior to such distribution. At the
time of any such distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this subsection or an
adjustment to the Exercise Price, which shall be effective as of the day
following the record date for such distribution.
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 securities issuable upon the exercise of each
Warrant and/or Underlying 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 securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment
and dividing the product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of
said adjustment shall be less than 5 cents ($.05) per Share, 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 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company
(who may be the independent certified public accountants then auditing the
books of the Company) to compute such adjustment or readjustment in accordance
herewith and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail,
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<PAGE> 15
postage prepaid, to any Holder of the Warrants and/or Underlying Warrants at
the Holder's address as shown on the Company's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based including, but not limited to, a
statement of (i) the Exercise Price at the time in effect, and (ii) the number
of additional securities and the type and amount, if any, of other property
which at the time would be received upon exercise of the Warrants and/or
Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
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 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 Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding
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<PAGE> 16
any fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants 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 Warrants and/or the Underlying Warrants, and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants and/or Underlying Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants and the Underlying Warrants to be listed and
quoted (subject to official notice of issuance) on all securities Exchanges and
Systems on which the Common Stock and/or the Public Warrants may then be listed
and/or quoted, including NASDAQ.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants 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 Warrants and/or Underlying Warrants and
their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
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(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 of 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 notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of
the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in the exhibits to the Warrant
Agreement. Subject to the terms of this Agreement, one (1) Underlying Warrant
shall evidence the right to initially purchase one (1) fully-paid and
non-assessable share of Common Stock at an initial purchase price of $9.00
during the three (3) year period commencing on the Effective Date of the
Registration Statement, at which time the Underlying Warrants, unless the
exercise period has been extended, 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 Warrants have been exercised and the Underlying Warrants have been issued,
in the manner and upon the occurrence of the events set forth in the Warrant
Agreement, which is hereby incorporated herein 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 in the Warrant Agreement) set forth in such Warrant
Certificate, 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
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<PAGE> 18
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
shares of Common Stock so purchased. Except as otherwise provided herein and
in this Agreement, the Underlying Warrants shall be governed in all respects by
the terms of the Warrant Agreement. The Underlying Warrants shall be
transferrable 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 send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required
by the Warrant Agreement to be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, 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 below or
to such other address as the Company may designate by notice to the
Holders.
Abraham Ostrovsky, Chairman
Cable-Sat Systems, Inc.
2105 Hamilton Avenue, Suite 140
San Jose, California 95125
With a copy to: Joel Bernstein, Esq.
9701 Biscayne Blvd.
Miami, Florida 33138
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement
to the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or
18
<PAGE> 19
amendment shall be promptly provided to any Holder not consenting to such
modification, waiver or amendment.
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
_________, 2003. Notwithstanding the foregoing, the indemnification provisions
of Section 7 shall survive such termination.
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 Florida 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 the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to
be served upon any of the Company, the Underwriter and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
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.
19. 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.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
19
<PAGE> 20
21. 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 Registrable Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and
any other Holder(s) of the Warrant Certificates or Registrable Securities.
22. 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 HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
CABLE-SAT SYSTEMS, INC.
By:
-----------------------------------
Wil F. Zarecor, President
Attest:
- -----------------------------
Benjamin T. Maltby, Secretary
BARRON CHASE SECURITIES, INC.
By:
-----------------------------------
Robert Kirk, President
20
<PAGE> 21
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
5:30 P.M, EASTERN TIME ON , 200
-------------- ---
NO. W- Common Stock
----- -------- Underwriter
Warrants and/or
Warrant
-------- Underwriter
Warrants
This Warrant Certificate certifies that ________________, or registered
assigns, is the registered holder of _______ Common Stock Underwriter Warrants
and/or _______ Warrant Underwriter Warrants. Each Common Stock Underwriter
Warrant permits the Holder hereof to purchase initially, at any time from
______, 1996 ("Purchase Date") until 5:30 p.m. Eastern Time on ________, 2001
("Expiration Date"), one (1) share of Cable-Sat Systems, Inc. (the "Company")
Common Stock at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $9.00 per share (150% of the public offering
price). Each Warrant Underwriter Warrant permits the Holder hereof to purchase
initially, at any time from the Purchase Date until three (3) years from the
Purchase Date, one (1) Underlying Warrant at the Exercise Price of $.18175 per
Underlying Warrant. Each Underlying Warrant permits the Holder thereof to
purchase, at any time from the Purchase Date until three (3) years from the
Purchase Date, one (1) share of the Company's Common Stock at the Exercise
Price of $9.00 per share.
21
<PAGE> 22
Any exercise of Common Stock Underwriter Warrants and/or Warrant
Underwriter Warrants shall be effected by 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 ________, 1996, between the Company and Barron Chase
Securities, Inc. (the "Underwriter's Warrant Agreement"). Payment of the
Exercise Price shall be made by certified check or official bank check in New
York Clearing House funds payable to the order of the Company in the event
there is no cashless exercise pursuant to Section 3.1(ii) of the Underwriter's
Warrant Agreement. The "Common Stock Underwriter Warrants" and the "Warrant
Underwriter Warrants" are collectively referred to as "Warrants". The
Underlying Warrants shall be exercised pursuant to the provisions of the
Underwriter's Warrant Agreement and pursuant to the Warrant Agreement entered
into by the Company relating to the Public Warrants, unless there is a cashless
exercise pursuant to Section 3.1(ii) of the Underwriter's Warrant Agreement.
No Warrant may be exercised after 5:30 p.m., Eastern 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 or 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 or 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
22
<PAGE> 23
transfer.
Upon the exercise of less than all of the Warrants evidenced by this
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 , 1996
--------------
CABLE-SAT SYSTEMS, INC.
By:
-------------------------
Wil F. Zarecor, President
(Seal)
Attest:
- -----------------------------
Benjamin T. Maltby, Secretary
23
<PAGE> 24
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Cable-Sat Systems, Inc.
2105 Hamilton Avenue, Suite 140
San Jose, California 95125
The undersigned, the Holder of Warrant Certificate number ___ (the
"Warrant"), representing _________ Common Stock Underwriter Warrants and/or
__________ Warrant Underwriter Warrants of Cable-Sat Systems, Inc. (the
"Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, ___________ Shares and/or
___________ Underlying Warrants of the Company, and herewith makes payment of
$__________________ therefor, and requests that the certificates for such
securities be issued in the name of, and delivered to, ________________________
_____________________, whose address is,_______________________________________
__________________________________________________________________________, all
in accordance with the Underwriter's Warrant Agreement and the Warrant
Certificate.
Dated:
-----------------------
--------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-------------------------------
-------------------------------
(Address)
24
<PAGE> 25
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Cable-Sat Systems, Inc.
2105 Hamilton Avenue, Suite 140
San Jose, California 95125
The undersigned, the Holder of Warrant Certificate number ____(the
"Warrant"), representing _________ Common Stock Underwriter Warrants and/or
__________ Underlying Warrants of Cable-Sat Systems, Inc. (the "Company"), which
Warrant is being delivered herewith, hereby irrevocably elects the cashless
exercise of the purchase right provided by the Underwriter's Warrant Agreement
and the Warrant Certificate for, and to purchase thereunder, Shares of the
Company in accordance with the formula provided at Section three (3) of the
Underwriter's Warrant Agreement. The undersigned requests that the certificates
for such Shares be issued in the name of, and delivered to, ____________________
_________________________________________________________________, whose address
is,____________________________________________________________________________,
all in accordance with the Warrant Certificate.
Dated:
-----------------------
--------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-------------------------------
-------------------------------
(Address)
25
<PAGE> 26
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________________________ hereby
sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
- ----------------------- --------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
--------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
26
<PAGE> 1
EXHIBIT 10.5(A)
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of February __, 1996 between
CABLE-SAT SYSTEMS, INC., a Florida corporation (the "Corporation"), and
OSTROVSKY CONSULTING, INC., ("OCI"), an executive corporation organized to
market the services of Abe Ostrovsky ("Ostrovsky").
WHEREAS, the Corporation has been organized to engage in the
development, manufacturing, marketing and sale of high-end data compression
solutions; and
WHEREAS, OCI has been organized to market the executive services of
Ostrovsky; and
WHEREAS, the Corporation intends to undertake a private offering of
its common stock to raise $2,500,000 of working capital for its operations (the
"Offering"); and
WHEREAS, the Corporation desires to obtain Ostrovsky's services in
connection with its business and that of its subsidiaries and affiliates at the
completion of the minimum Offering (the "Closing");
THEREFORE, in consideration of the premises and covenants herein set
forth, it is agreed as follows:
1. Employment. Corporation hereby engages OCI to provide the
services of Ostrovsky to the Corporation on the terms and conditions set forth
herein.
1.1 Ostrovsky covenants to perform in good faith his
duties as outlined herein, devoting reasonable business time, energies and
abilities to the proper and efficient operation of the business of the
Corporation and its subsidiaries and affiliates and for their benefit.
1.2 Ostrovsky shall not, without the prior written
consent of the Corporation, directly or indirectly, during the term of this
Agreement, engage in any activity competitive with or adverse to the
Corporation's business or welfare, whether alone, as a partner or member, or
<PAGE> 2
as an officer, director, employee or 5% or greater shareholder of a
corporation. The Corporation hereby consents to the services of Ostrovsky as
a director of all corporations he now serves and the continuation of his
affiliation with Young Management Group.
2. Term. Subject to the provisions set forth herein, the term of
OCI's engagement hereunder shall continue for two (2) years.
3. Duties. Ostrovsky shall be appointed as Chairman, President
and Chief Executive Officer and perform such executive duties on behalf of the
Company and its subsidiaries and affiliates as requested by the Board of
Directors. Ostrovsky shall be appointed as director of the Corporation upon
completion of the Offering, shall be entitled to nominate two (2) additional
independent directors out of the Corporation's seven (7) person board and shall
be entitled to approve one of the other directors.
4. Compensation. For all services Ostrovsky may render to the
Corporation during the term of this Agreement, including services as officer,
director or member of any committee of the Board of Directors of the
Corporation and its subsidiaries, OCI shall receive the following compensation:
4.1 A base fee at the rate of $240,000 per year.
4.2 Additional compensation:
(a) An annual bonus as determined by the Board of
Directors.
4.3 Stock compensation.
(a) The Corporation will establish a stock option
plan in order to assist the Corporation in hiring and retaining qualified
employees and will reserve 930,000 shares of
2
<PAGE> 3
its common stock for issuance under the plan. All new and current employees of
the Corporation will be eligible for stock options.
(b) Ostrovsky shall be entitled to the following
stock compensation:
(i) 300,000 shares of the Corporation's
common stock shall be purchased at $.30 per share for a three year promissory
note with interest at 5% per annum with the shares securing such note.
(ii) Ostrovsky will be granted an
incentive stock option for 180,000 shares of common stock at the private
placement offering price (Incentive Stock Option).
(c) Up to 750,000 shares will be reserved under
the plan for high-level executive officers to be recruited, including 150,000
shares of restricted stock at $.30 per share with a two year vesting period.
4.4 OCI shall make all required FICA, FUTA and income tax
withholding payments due in connection with this Agreement.
5. Benefits. During the term of this Agreement, Ostrovsky shall
be entitled to the following executive benefits:
5.1 Ostrovsky shall be entitled to three (3) weeks
vacation time without reduction in salary. Unused vacation can be accrued but
will not be reimbursed.
5.2 During the period of his engagement, Ostrovsky shall
be reimbursed for reasonable traveling and other business expenses reasonably
incurred in connection with the performance of his duties hereunder, subject to
reasonable oversight and verification as required in order for the Corporation
to comply with applicable laws, regulations, accounting and
3
<PAGE> 4
management practices. Automobile lease and insurance expenses will be
reimbursed during the term hereof.
5.3 Ostrovsky shall be entitled to all other benefits
generally available to members of management of the Corporation and
participation in pension, stock option and other benefit plans established for
the Corporation's executives.
6. Termination.
6.1 This engagement may be terminated at any time by:
(i) Mutual agreement; or
(ii) Action of the Board of Directors, on thirty
days' prior written notice, in the event of illness or disability of Ostrovsky
resulting in failure to discharge his duties under this Agreement for ninety or
more consecutive days or for a total of one hundred eighty or more days in a
period of twelve consecutive months; or
(iii) Action of the Board of Directors for cause,
if it shall be established that OCI or Ostrovsky is in material default in the
performance of his obligations, services or duties hereunder (other than for
illness or incapacity), has breached any material provision of this Agreement
or has been otherwise unsatisfactory in providing his services hereunder.
7. Indemnification.
The Corporation shall indemnify Ostrovsky to the fullest extent
permitted under Florida law against expenses (including attorneys' fees and
costs of investigation), costs, judgments, fines and amounts paid in
settlement incurred by Ostrovsky in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, derivative,
investigative or administrative by reason of the fact that he is or was a
director, officer, employee, or agent
4
<PAGE> 5
of the Corporation or an affiliate of the Corporation or a participant in
another corporation, partnership or other enterprise at the request of the
Corporation if he acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interest of the Corporation or such other
entity, and with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. The Corporation
shall pay the foregoing expenses as incurred and Ostrovsky shall repay any
such amounts upon the final determination that he was not entitled to
such indemnification, such determination to be by a court of competent
jurisdiction.
8. Insurance. Ostrovsky agrees that the Corporation may procure
insurance on his life, in such amounts as the Corporation may in its
discretion determine, and with the Company or any of its subsidiaries or
affiliates named as the beneficiary under such policy or policies. Ostrovsky
agrees that upon request from the Corporation he will submit to a physical
examination and will execute each such application or other documents as may
be required for the procurement of such insurance. Ostrovsky may purchase
insurance in the same amount purchased by the Corporation with the beneficiary
of his choice. Such insurance shall not exceed $1 million unless required by
Corporation's underwriter.
9. Trade Secrets. Ostrovsky agrees that he will not, during or
after the termination of his employment with the Corporation, furnish or make
accessible to any person, firm, corporation or any other entity any trade
secrets, technical data, customer list, sales representatives, or know-how
acquired by him during the term of his employment with the Corporation which
relates to the past and current business, practices, methods, processes,
programs, equipment or other confidential or secret aspects of the business of
the Company, or
5
<PAGE> 6
its subsidiaries, without the prior written consent of the Corporation, unless
such information shall have become public knowledge, other than being divulged
or made accessible by Ostrovsky.
10. Non-disclosure. During the term of this agreement and for two
(2) years after its termination, Ostrovsky will not, directly or indirectly,
disclose the names of the Corporation's customers, prospects or sales
representatives or those of its subsidiaries and affiliates or attempt to
influence such customers or representatives to cease doing business with the
Company or its subsidiaries or affiliates.
11. Conflict of Interest. Ostrovsky agrees that during the term
of his employment and any extensions thereof, he will comply with the policy
of the Corporation with respect to the Corporation entering into, directly or
indirectly, any transactions with any business organization or other entity in
which he or any member of his family has a direct or indirect ownership
interest.
12. Miscellaneous.
12.1 The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of any such provision,
nor prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. Any waivers shall be in a writing executed by the
parties. The rights granted both parties herein are cumulative and the
election of one shall not constitute a waiver of such party's right to assert
all other legal remedies available under the circumstances.
12.2 Any notice to be given to the Corporation under the
terms of this Agreement shall be addressed to the Corporation, at the address
of its principal place of
6
<PAGE> 7
business, and any notice to be given to Ostrovsky shall be addressed to him at
his home address last shown on the records of the Corporation, or such other
address as either party may hereafter designate in writing to the other. Any
notice shall be deemed duly given three (3) days after mailing by registered or
certified mail, postage prepaid, as provided herein.
12.3 The provisions of the Agreement are severable, and if
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby.
12.4 The rights and obligations of the Corporation under
this Agreement shall inure to the benefit of and be binding upon the
successors of the Corporation.
12.5 This Agreement supersedes all prior agreements and
understandings between the parties hereto, oral or written, and may not be
modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing, signed by the party against whom such
modification, termination or waiver is sought to be enforced.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CABLE-SAT SYSTEMS, INC.
By: /s/
------------------------------
President
OSTROVSKY CONSULTING, INC.
By: /s/ Abe Ostrovsky
------------------------------
Abe Ostrovsky
The above is confirmed:
/s/ Abe Ostrovsky
- -----------------------
Abe Ostrovsky
7
<PAGE> 1
EXHIBIT 10.5(B)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and effective as of
September 1, 1995 between CABLE-SAT SYSTEMS, INC., a Florida corporation (the
"Corporation") and WIL F. ZARECOR, (the "Employee").
WHEREAS, Corporation has been organized to engage in the research,
development, manufacture and marketing of data compression solutions; and
WHEREAS, Employee has substantial experience in data compression
technology; and
WHEREAS, the Corporation desires to engage Employee's services in
connection with its business;
THEREFORE, in consideration of the premises and covenants herein set
forth, it is agreed as follows:
1. Employment. Corporation hereby employs Employee and Employee
accepts such employment on the terms and conditions set forth herein.
1.1 Employee covenants to perform in good faith his
employment duties as outlined herein, devoting his full productive time,
energies and abilities to the proper and efficient management of the business
of the Corporation and its subsidiaries and affiliates and for their exclusive
benefit.
1.2 Employee shall not, without the prior written consent
of the Corporation, directly or indirectly, during the term of this Agreement:
(i) render services of business, professional or commercial nature to
any other person or entity, whether for compensation or otherwise, similar or
relating to the business of the Corporation or its subsidiaries and affiliates,
or (ii) engage in any activity competitive with or adverse to the Corporation's
business or
<PAGE> 2
welfare, whether alone, as a partner or member, or as an officer, director,
employee or 5% or greater shareholder of a corporation.
2. Term of Employment. Subject to the provisions set forth
herein, the term of Employee's employment hereunder shall continue for five
(5) years and automatically extend for additional periods of two (2) years
unless terminated at the end of the current term by notice given by either
party to the other at least ninety (90) days prior to the end of the then
current term or as otherwise provided herein.
3. Duties. Employee shall be employed as President in charge of
Corporation's research, development, business operations, sales and marketing
functions and other such other activities within his field of expertise on
behalf of the Company and its subsidiaries and affiliates as requested.
4. Compensation. For all services he may render to the
Corporation during the term of this Agreement, including services as officer,
director or member of any committee of the Board of Directors of the
Corporation and its subsidiaries, Employee shall receive the following
compensation:
4.1 Employee shall receive a base salary of $12,000 per
month during the term of this Agreement, plus increases as may be determined
by the Board of Directors.
4.2 The Corporation has established an Engineering
Override Program whereby a percentage of its revenues from sale of data
compression products and services will be distributed to its professional
employees in the aggregate of 3% of such revenues. Employee will be entitled
to 25% of such award, which shall be distributed semi-annually and shall
continue for the life of the corporation or ten (10) years from the date
hereof, whichever is less.
5. Benefits. During the term of this Agreement, Employee shall
be entitled to the following executive benefits:
2
<PAGE> 3
5.1 Employee shall be entitled to reasonable vacation
time without reduction in salary.
5.2 During the period of his employment, Employee shall
be reimbursed for reasonable traveling and other business expenses reasonably
incurred in connection with the performance of his duties hereunder, subject to
reasonable verification as required in order for the Corporation to comply with
applicable laws and regulations and accounting practices.
5.3 Employee shall be entitled to all other benefits of
employment generally available to members of management of the Corporation,
including health insurance.
6. Termination. The employment of Employee may be terminated at
any time by:
(i) Mutual agreement; or
(ii) Action of the Board of Directors, on thirty days' prior
written notice, in the event of illness or disability of Employee resulting in
failure to discharge his duties under this Agreement for ninety (90) or more
consecutive days or for a total of one hundred eighty (180) or more days in a
period of twelve (12) consecutive months; or
(iii) Action of the Board of Directors, if it shall be
established that Employee is in material default in the performance of his
obligations, services or duties hereunder (other than for illness or
incapacity) or has materially breached any provision of this Agreement and
such default or breach has continued for twenty (20) days after written notice
of such non-performance or breach.
8. Insurance. Employee agrees that the Corporation may
procure insurance on his life, in such amounts as the Corporation may in its
discretion determine, and with the Company or any of its subsidiaries or
affiliates named as the beneficiary under such policy or policies. Employee
agrees that upon request from the Corporation he will submit to a physical
3
<PAGE> 4
examination and will execute each such application or other documents as may be
required for the procurement of such insurance.
9. Trade Secrets. Employee agrees to execute the Corporation's
Employee Agreement-Trade Secrets and Patents annexed hereto, which agreement
is hereby incorporated herein and made a part hereof.
10. Non-disclosure. During the term of his employment and for two
(2) years after its termination, Employee will not, directly or indirectly,
disclose the names of the Corporation's customers, prospects or sales
representatives or those of its subsidiaries and affiliates or attempt to
influence such customers or representatives to cease doing business with the
Company or its subsidiaries or affiliates.
11. Conflict of Interest. Employee agrees that during the term of
his employment and any extensions thereof, he will comply with the policy of
the Corporation with respect to the Corporation entering into, directly or
indirectly, any transactions with any business organization or other entity in
which he or any member of his family has a direct or indirect interest.
12. Miscellaneous.
12.1 The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of any such provision,
nor prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. The rights granted both parties herein are
cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
12.2 Any notice to be given to the Corporation under the
terms of this Agreement shall be addressed to the Corporation, at the address
of its principal place of business, and any notice to be given to Employee
shall be addressed to him at his home address last shown on the records of the
Corporation, or such other address as either party may hereafter
4
<PAGE> 5
designate in writing to the other. Any notice shall be deemed duly given when
mailed by registered or certified mail, postage prepaid, as provided herein.
12.3 The provisions of the Agreement are severable, and if
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby.
12.4 The rights and obligations of the Corporation under
this Agreement shall inure to the benefit of and be binding upon the
successors and assignees of the Corporation. This Agreement shall be governed
under the laws of the State of Florida.
12.5 This Agreement supersedes all prior agreements and
understandings between the parties hereto, oral or written, and may not be
modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing, signed by the party against whom
such modification, termination or waiver is sought to be enforced.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CABLE-SAT SYSTEMS, INC.
/s/ Wil F. Zarecor 11 Aug 95 By: /s/ E.T.Kalinoski
- -------------------------------------- -------------------------------
/s/ 11 Aug 95
- ---------------------------------------
Witness
/s/ 11 Aug 95
- ---------------------------------------
Witness
5
<PAGE> 1
EXHIBIT 10.5(C)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and effective as of
June 1, 1995 between CABLE-SAT COMPRESSION, INC., a Florida corporation (the
"Corporation") and JOHN DOUGLAS (the "Employee").
WHEREAS, Corporation has been organized to engage in the research,
development, manufacture and marketing of data compression solutions; and
WHEREAS, Employee has substantial experience in data compression
technology; and
WHEREAS, the Corporation desires to engage Employee's services in
connection with its business;
THEREFORE, in consideration of the premises and covenants herein set
forth, it is agreed as follows:
1. Employment. Corporation hereby employs Employee and Employee
accepts such employment on the terms and conditions set forth herein.
1.1 Employee covenants to perform in good faith his
employment duties as outlined herein, devoting his full productive time,
energies and abilities to the proper and efficient management of the business
of the Corporation and its subsidiaries and affiliates and for their exclusive
benefit.
1.2 Employee shall not, without the prior written consent
of the Corporation, directly or indirectly, during the term of this Agreement:
(i) render services of business, professional or commercial nature to any
other person or entity, whether for compensation or otherwise, similar or
relating to the business of the Corporation or its subsidiaries and affiliates,
or (ii) engage
<PAGE> 2
in any activity competitive with or adverse to the Corporation's business or
welfare, whether alone, as a partner or member, or as an officer, director,
employee or 5% or greater shareholder of a corporation.
2. Term of Employment. Subject to the provisions set forth
herein, the term of Employee's employment hereunder shall continue for two (2)
years and automatically extend for additional periods of two (2) years unless
terminated at the end of the current term by notice given by either party to
the other at least ninety (90) days prior to the end of the then current term
or as otherwise provided herein.
3. Duties. Employee shall be employed in research, development
and experimentation activities on behalf of the Corporation and such other
activities within his field of expertise on behalf of the Company and its
subsidiaries and affiliates as requested.
4. Compensation. For all services he may render to the
Corporation during the term of this Agreement, including services as officer,
director or member of any committee of the Board of Directors of the
Corporation and its subsidiaries, Employee shall receive the following
compensation:
4.1 Employee shall receive a base salary at the rate of
$6,000 per month during the term of employment, plus such increases as may be
determined by the Board of Directors.
4.2 The Corporation has established an Engineering
Override Program whereby a percentge of its revenues from sale of
<PAGE> 3
data compression products and services will be distributed to its professional
employees in the aggregate of 3% of such revenues. Employee will be entitled
to 10% of such award, which shall be distributed semi-annually and shall
continue for the life of the corporation or ten (10) years from the date hereof,
whichever is less.
5. Benefits. During the term of this Agreement, Employee shall
be entitled to the following executive benefits:
5.1 Employee shall be entitled to reasonable vacation
time without reduction in salary.
5.2 During the period of his employment, Employee shall
be reimbursed for reasonable traveling and other business expenses reasonably
incurred in connection with the performance of his duties hereunder, subject to
reasonable verification as required in order for the Corporation to comply with
applicable laws and regulations and accounting practices.
5.3 Employee shall be entitled to all other benefits of
employment generally available to members of management of the Corporation,
including health insurance.
6. Termination. The employment of Employee may be terminated at
any time by:
(i) Mutual agreement; or
(ii) Action of the Board of Directors, on thirty days' prior
written notice, in the event of illness or disability of Employee resulting
in failure to discharge his duties under this Agreement for ninety (90) or more
consecutive days or for a total
3
<PAGE> 4
of one hundred eighty (180) or more days in a period of twelve (12) consecutive
months; or
(iii) Action of the Board of Directors, if it shall be
established that Employee is in material default in the performance of his
obligations, services or duties hereunder (other than for illness or
incapacity) or has materially breached any provision of this Agreement and
such default or breach has continued for twenty (20) days after written notice
of such non-performance or breach.
8. Insurance. Employee agrees that the Corporation may
procure insurance on his life, in such amounts as the Corporation may in its
discretion determine, and with the Company or any of its subsidiaries or
affiliates named as the beneficiary under such policy or policies. Employee
agrees that upon request from the Corporation he will submit to a physical
examination and will execute each such application or other documents as may be
required for the procurement of such insurance.
9. Trade Secrets. Employee agrees to execute the Corporation's
Employee Agreement-Trade Secrets and Patents annexed hereto, which agreement
is hereby incorporated herein and made a part hereof.
10. Non-disclosure. During the term of his employment and for two
(2) years after its termination, Employee will not, directly or indirectly,
disclose the names of the Corporation's customers, prospects or sales
representatives or those of its subsidiaries and affiliates or attempt to
influence such customers
4
<PAGE> 5
or representatives to cease doing business with the Company or its subsidiaries
or affiliates. Employee shall communicate and make known to the Corporation
all knowledge possessed by him which he may legally impart relating to any
methods, developments, designs, processes, programs, services, and ideas which
concern in any way the business or prospects of the Corporation and its
subsidiaries and affiliates from the time of entering his employment until the
termination thereof.
11. Conflict of Interest. Employee agrees that during the term of
his employment and any extensions thereof, he will comply with the policy of
the Corporation with respect to the Corporation entering into, directly or
indirectly, any transactions with any business organization or other entity in
which he or any member of his family has a direct or indirect interest.
12. Miscellaneous.
12.1 The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of any such provision,
nor prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. The rights granted both parties herein are
cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
12.2 Any notice to be given to the Corporation under the
terms of this Agreement shall be addressed to the Corporation, at the address
of its principal place of business, and any notice to
5
<PAGE> 6
be given to Employee shall be addressed to him at his home address last shown
on the records of the Corporation, or such other address as either party may
hereafter designate in writing to the other. Any notice shall be deemed duly
given when mailed by registered or certified mail, postage prepaid, as
provided herein.
12.3 The provisions of the Agreement are severable, and if
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby.
12.4 The rights and obligations of the Corporation under
this Agreement shall inure to the benefit of and be binding upon the
successors and assignees of the Corporation. This Agreement shall be governed
under the laws of the State of Florida.
12.5 This Agreement supersedes all prior agreements and
understandings between the parties hereto, oral or written, and may not be
modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing, signed by the
6
<PAGE> 7
party against whom such modification, termination or waiver is sought to be
enforced.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CABLE-SAT COMPRESSION, INC.
/s/ John L. Douglas By: /s/ E.T.KALINOSKI
- ------------------------- ----------------------------
/s/ GLENN CREPPS
----------------------------
7
<PAGE> 1
EXHIBIT 10.5(D)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and effective as of
June 1995 between CABLE-SAT COMPRESSION, INC., a Florida corporation (the
"Corporation") and GLENN CREPPS, (the "Employee").
WHEREAS, Corporation has been organized to engage in the research,
development, manufacture and marketing of data compression solutions; and
WHEREAS, Employee has substantial experience in data compression
technology; and
WHEREAS, the Corporation desires to engage Employee's services in
connection with its business;
THEREFORE, in consideration of the premises and covenants herein set
forth, it is agreed as follows:
1. Employment. Corporation hereby employs Employee and Employee
accepts such employment on the terms and conditions set forth herein.
1.1 Employee covenants to perform in good faith his
employment duties as outlined herein, devoting his full productive time,
energies and abilities to the proper and efficient management of the business
of the Corporation and its subsidiaries and affiliates and for their exclusive
benefit.
1.2 Employee shall not, without the prior written consent
of the Corporation, directly or indirectly, during the term of this Agreement:
(i) render services of business, professional or commercial nature to any
other person or entity, whether for compensation or otherwise, similar or
relating to the business of the Corporation or its subsidiaries and affiliates,
or (ii) engage
<PAGE> 2
in any activity competitive with or adverse to the Corporation's business or
welfare, whether alone, as a partner or member, or as an officer, director,
employee or 5% or greater shareholder of a corporation.
2. Term of Employment. Subject to the provisions set forth
herein, the term of Employee's employment hereunder shall continue for two
(2) years and automatically extend for additional periods of two (2) years
unless terminated at the end of the current term by notice given by either
party to the other at least ninety (90) days prior to the end of the then
current term or as otherwise provided herein.
3. Duties. Employee shall be employed in research, development
and experimentation activities on behalf of the Corporation and such other
activities within his field of expertise on behalf of the Company and its
subsidiaries and affiliates as requested.
4. Compensation. For all services he may render to the
Corporation during the term of this Agreement, including services as officer,
director or member of any committee of the Board of Directors of the
Corporation and its subsidiaries, Employee shall receive the following
compensation:
4.1 Employee shall receive a base salary at the rate of
$2,000 per month during the first month of the term of employment and $6,000
per month for the balance of the term of employment, plus such increases as
may be determined by the Board of Directors.
<PAGE> 3
4.2 The Corporation has established an Engineering
Override Program whereby a percentge of its revenues from sale of data
compression products and services will be distributed to its professional
employees in the aggregate of 3% of such revenues. Employee will be entitled
to 10% of such award, which shall be distributed semi-annually and shall
continue for the life of the corporation or ten (10) years from the date
hereof, whichever is less.
5. Benefits. During the term of this Agreement, Employee shall be
entitled to the following executive benefits:
5.1 Employee shall be entitled to reasonable vacation
time without reduction in salary.
5.2 During the period of his employment, Employee shall
be reimbursed for reasonable traveling and other business expenses reasonably
incurred in connection with the performance of his duties hereunder, subject to
reasonable verification as required in order for the Corporation to comply with
applicable laws and regulations and accounting practices.
5.3 Employee shall be entitled to all other benefits of
employment generally available to members of management of the Corporation,
including health insurance.
6. Termination. The employment of Employee may be terminated at
any time by:
(i) Mutual agreement; or
(ii) Action of the Board of Directors, on thirty days' prior
written notice, in the event of illness or disability of
3
<PAGE> 4
Employee resulting in failure to discharge his duties under this Agreement for
ninety or more consecutive days or for a total of one hundred eighty or more
days in a period of twelve consecutive months; or (iii) Action of the Board
of Directors, if it shall be established that Employee is in material
default in the performance of his obligations, services or duties hereunder
(other than for illness or incapacity) or has materially breached any
provision of this Agreement and such default or breach has continued for
twenty (20) days after written notice of such non-performance or breach.
8. Insurance. Employee agrees that the Corporation may procure
insurance on his life, in such amounts as the Corporation may in its
discretion determine, and with the Company or any of its subsidiaries or
affiliates named as the beneficiary under such policy or policies. Employee
agrees that upon request from the Corporation he will submit to a physical
examination and will execute each such application or other documents as may be
required for the procurement of such insurance.
9. Trade Secrets. Employee agrees to execute the Corporation's
Employee Agreement-Trade Secrets and Patents annexed hereto, which agreement
is hereby incorporated herein and made a part hereof.
10. Non-disclosure. During the term of his employment and for
two (2) years after its termination, Employee will not, directly or indirectly,
disclose the names of the Corporation's customers, prospects or sales
representatives or those of its
4
<PAGE> 5
subsidiaries and affiliates or attempt to influence such customers or
representatives to cease doing business with the Company or its subsidiaries
or affiliates.
Employee shall communicate and make known to the Corporation all
knowledge possessed by him which he may legally impart relating to any methods,
developments, designs, processes, programs, services, and ideas which concern
in any way the business or prospects of the Corporation and its subsidiaries
and affiliates from the time of entering his employment until the termination
thereof.
11. Conflict of Interest. Employee agrees that during the term of
his employment and any extensions thereof, he will comply with the policy of
the Corporation with respect to the Corporation entering into, directly or
indirectly, any transactions with any business organization or other entity in
which he or any member of his family has a direct or indirect interest.
12. Miscellaneous.
12.1 The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of any such provision,
nor prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. The rights granted both parties herein are
cumulative and the election of one shall not constitute a waiver of such
party's right to assert all other legal remedies available under the
circumstances.
12.2 Any notice to be given to the Corporation under the
terms of this Agreement shall be addressed to the Corporation, at
5
<PAGE> 6
the address of its principal place of business, and any notice to be given to
Employee shall be addressed to him at his home address last shown on the
records of the Corporation, or such other address as either party may
hereafter designate in writing to the other. Any notice shall be deemed duly
given when mailed by registered or certified mail, postage prepaid, as
provided herein.
12.3 The provisions of the Agreement are severable, and
if any provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts thereof, shall not be affected thereby.
12.4 The rights and obligations of the Corporation under
this Agreement shall inure to the benefit of and be binding upon the
successors and assignees of the Corporation. This Agreement shall be governed
under the laws of the State of Florida.
12.5 This Agreement supersedes all prior agreements and
understandings between the parties hereto, oral or written, and may not be
modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing, signed by the
6
<PAGE> 7
party against whom such modification, termination or waiver is sought to be
enforced.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CABLE-SAT COMPRESSION, INC.
By: /s/ E.T.KALINOSKI
----------------------------
/s/ GLENN CREPPS
----------------------------
7
<PAGE> 1
Cable-Sat Systems, Inc. Exhibit 11
a Development Stage Company
Computation for Income Statement
<TABLE>
<CAPTION>
YEAR FROM INCEPTION
SIX MONTHS ENDED AUGUST 26, 1994
ENDED SEPTEMBER 30, THROUGH
MARCH 31, 1996 1995 MARCH 31, 1996
PRIMARY EARNINGS PER SHARE (AUDITED) (AUDITED) (AUDITED)
- -------------------------- --------------------------------------------------
<S> <C> <C> <C>
Net loss (581,367) (254,765) (836,132)
COMPUTATION OF WEIGHTED AVERAGE COMMON SHARES
- ---------------------------------------------
SHARES MONTHS
------ ------
October 1, 1994 - September 30,1995 12 2,200,000
October 1, 1994 - September 30,1995 12 26,400,000 26,400,000
October 1995 1 2,200,000 2,200,000
November 1995 1 2,200,000 2,200,000
December 1995 1 2,200,000 2,200,000
January 1996 1 2,620,000 2,620,000
February 1996 1 2,620,000 2,620,000
March 1996 1 3,000,000 3,000,000
-- ---------------------------------------------
Total 18 41,240,000 2,200,000 41,240,000
== =============================================
Weighted average common shares outstanding 2,291,111 2,200,000 2,291,111
=============================================
PRIMARY EARNINGS PER COMMON SHARE ($0.254) ($0.116) ($0.365)
=============================================
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Net loss (581,367) (254,765) (836,132)
Weighted average common shares outstanding
per computation above 2,291,111 2,200,000 2,291,111
Adjustments for full dilution
- -----------------------------
Stock options granted 538,000
Purchase warrants outstanding 28,200
Common stock issued upon redemption
of preferred 150,000
-------
Total 716,200
=======
Divided by 18
-------
Net adjustment for full dilution 39,789 39,789 39,789 39,789
======= ---------------------------------------------
Weighted average common shares outstanding
as adjusted for full dilution 2,330,900 2,239,789 2,330,900
=============================================
FULLY DILUTED EARNINGS PER COMMON SHARE ($0.249) ($0.114) ($0.359)
=============================================
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
As Independent Public Accountants, we consent to the use of our report dated
May 31, 1996 to all references to our firm included in or made a part of the
Form S-1 of Cable-Sat Systems, Inc., formerly Cable-Sat Compression, Inc.
/s/ GRANT-SCHWARTZ ASSOCIATES, CPA's
------------------------------------
GRANT-SCHWARTZ ASSOCIATES, CPA's
Boca Raton, Florida
July 24, 1996
