<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Exchange
Act
For the transition period from ---- to ----
Commission file number 001-12127
INTEGRATED TECHNOLOGY USA, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-3136782
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
545 Cedar Lane, Teaneck, New Jersey 07666
(Address of Principal Executive Offices)
201-907-0200
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X] (has filed all reports but has not been
subject to such filing requirements for the
past 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 5,996,845 shares of common
stock outstanding as of November 5, 1996
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance sheet as of September 30, 1996
(unaudited) 3
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1996 and 1995
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 17
Signatures
2
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Integrated Technology USA, Inc.
Part I
Condensed Consolidated Balance Sheet Financial Information
September 30, 1996
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 152,540
Accounts receivable (net of allowance for
doubtful accounts of approximately
$4,180 and reserves for sales returns of
approximately $55,835) 138,166
Inventories 320,037
Deferred financing costs 577,452
Prepaid expenses and other current assets 37,606
----------------
Total current assets 1,225,801
Fixed assets, net 106,965
Security deposits 21,167
----------------
Total assets $ 1,353,933
----------------
----------------
Liabilities and Stockholders' Equity
Current liabilities
Bank overdraft and short-term loans $ 63,138
Accounts payable 528,892
Notes payable 968,929
Accrued expenses 464,606
----------------
Total current liabilities 2,025,565
Provision for severance payments 86,278
----------------
Total liabilities 2,111,843
----------------
Commitments and contingencies (Note 5)
Stockholders' equity
Preferred stock $.01 par value, 5,000,000
shares authorized; none issued and outstanding -
Common stock, $.01 par value; 40,000,000 shares
authorized; 2,930,178 shares issued and
outstanding at September 30, 1996 29,812
Additional paid-in capital 6,171,006
Treasury stock (165,000)
Accumulated deficit (6,989,346)
Cumulative translation adjustment 195,618
----------------
Total stockholders' equity (net
capital deficiency) $ (757,910)
----------------
Total liabilities and stockholders' equity $ 1,353,933
================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
Integrated Technology USA, Inc.
Condensed Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ....................... $ 195,417 $ 425,701 $ 547,508 $ 634,158
Cost of products sold ........... 128,506 334,849 324,910 448,556
----------- ----------- ----------- -----------
Gross profit ............ 66,911 90,852 222,598 185,602
----------- ----------- ----------- -----------
Operating expenses
Selling, general and
administrative ............ 321,567 505,526 1,134,581 1,321,318
Research and development, net 26,495 110,033 145,045 261,297
----------- ----------- ----------- -----------
Total costs and expenses 348,062 615,559 1,279,626 1,582,615
----------- ----------- ----------- -----------
Loss from operations .... (281,151) (524,707) (1,057,028) (1,397,013)
Interest income (expense), net (3,147) (314,874) 23,954 (391,725)
----------- ----------- ----------- -----------
Net loss ................ $ (284,298) $ (839,581) $(1,033,074) $(1,788,738)
=========== =========== =========== ===========
Net loss per share ........... $ (0.09) $ (0.27) $ (0.34) $ (0.57)
=========== =========== =========== ===========
Weighted average shares
outstanding ............... 3,134,198 3,134,198 3,084,927 3,134,198
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
Integrated Technology USA, Inc.
Condensed Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1996
(Unaudited)
<S> <C> <C>
Cash flows used for operating activities
Net loss ......................................... $(1,033,074) $(1,788,738)
Adjustments to reconcile net loss to net
cash used for operating activities
Depreciation and amortization ................. 30,923 30,942
Amortization of loan discount ................. -- 292,054
Non-cash compensation expense ................. 80,380 202,963
Changes in assets and liabilities
Accounts receivable ........................... (256,687) 21,045
Inventories ................................... (385,490) 180,336
Other assets .................................. (69,316) (18,299)
Deferred financing costs....................... -- (539,452)
Accounts payable .............................. (8,021) 321,542
Accrued expenses and other liabilities ........ 55,488 334,796
----------- -----------
Net cash used for operating
activities ........................... (1,585,797) (962,811)
----------- -----------
Cash flows used for investing activities
Capital expenditures ............................. (28,183) (13,404)
----------- -----------
Net cash used for investing activities .. (28,183) (13,404)
----------- -----------
Cash flows from financing activities
Increase (decrease) in bank overdraft ............ 22,655 41,895
Proceeds from bridge financing net of expenses ... -- 1,062,500
Proceeds from issuance of stock, net of expenses . 820,340 --
----------- -----------
Net cash provided by financing activities 842,995 1,104,395
----------- -----------
Effect of exchange rate changes on cash .............. (16,750) (9,113)
Net increase (decrease) in cash and cash equivalents . (787,735) 119,067
Cash and cash equivalents, beginning of period ....... 893,997 33,473
----------- -----------
Cash and cash equivalents, end of period ............. $ 106,262 $ 152,540
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Integrated Technology USA, Inc. (the "Company") was incorporated in
1990. The Company designs, develops and markets products for two
emerging computer-related markets: the transmission of voice
communications over the Internet and computer/telephone integration. To
date the Company has generated revenues from the sale of its products,
CompuPhone 2000 (and a predecessor product) and CompuNet 2000 (the
"Products"). The Company currently outsources substantially all of its
manufacturing and assembly requirements.
2. Summary of Significant Accounting Policies
Basis of presentation
The condensed consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, I.T.I. Innovative
Technology, Ltd. ("Innovative") and CompuPrint Ltd. ("CompuPrint"),
both of which are incorporated and conduct business in Israel. All
significant intercompany transactions and account balances have been
eliminated in consolidation.
Assets and liabilities of the Company's Israeli subsidiaries are
translated to United States dollars based on exchange rates at the end
of the reporting period. Income and expense items are translated at
average exchange rates prevailing during the reporting period.
Translation adjustments are accumulated in a separate component of
stockholder's equity. Transaction gains or losses are included in the
determination of income.
The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission with respect
to Form 10-QSB. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, such
financial statements reflect all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair statement of the
results for the interim periods presented and to make such financial
statements not misleading. It is suggested that these interim financial
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's Registration Statement on Form
SB-2 (Registration No. 333-9697). The results of operations for the
interim periods presented are not necessarily indicative of the results
expected for any future interim period or the year ending December 31,
1996.
<PAGE>
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Revenue recognition and warranties
Revenues are recognized on shipment of the products. For products
shipped on consignment, revenues are recognized when the products are
sold by the consignee. The Company provides for estimated returns on
all sales.
The Company provides purchasers of CompuPhone 2000 and CompuNet 2000
with certain warranties. The Company covers the potential costs
associated with such warranties by obtaining corresponding warranties
from the contract manufacturer that manufactures CompuPhone 2000 and
CompuNet 2000 for the Company.
Inventory
Inventory is valued at the lower of cost or market and is principally
comprised of CompuPhone 2000 and CompuNet 2000 units. Cost is
determined by the first-in, first-out method.
Net loss per share
Net loss per share is computed using the weighted average number of
common shares outstanding and dilutive common share equivalents. Common
shares issued, and options and warrants granted, by the Company during
the twelve months preceding the IPO (see Note 4) have been included in
the calculation of common and common equivalent shares outstanding as
if they were outstanding for all periods presented using the treasury
stock method and an estimated initial public offering price prior to
the IPO. Options and warrants granted prior to the aforementioned
twelve month period have been included in the calculation of common and
common equivalent shares outstanding when dilutive.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reported period. Actual
results could differ from these estimates.
Concentration of credit risk
Financial instruments which subject the Company to concentration of
credit risk consist principally of trade receivables. At September 30,
1996, trade receivables from retailers accounted for approximately 30%
of total trade receivables.
<PAGE>
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are summarized as
follows:
Accrued payroll and benefits $ 207,153
Accrued professional fees 74,732
Accrued settlement expenses 100,000
Other 82,721
-----------------
$ 464,606
=================
4. Common Stock
Initial public offering
On October 7, 1996, the Company completed an initial public offering of
3,000,000 shares of the Company's Common Stock and warrants to acquire
3,000,000 shares of its Common Stock (the "IPO"). The Company realized
net proceeds of approximately $15,300,000, a portion of which was used
to repay the Bridge Notes (see Bridge Financing below). In addition,
the Company has granted the underwriters of the IPO an option
exercisable within 45 days of October 1, 1996, to purchase up to
450,000 additional shares of the Company's Common Stock and/or 450,000
warrants. The warrants will be exercisable at $9.00 per share of Common
stock, subject to adjustment under certain circumstances, at any time
during the four-year period commencing October 1, 1997.
In connection with the IPO, the Company sold to an underwriter of the
IPO, for nominal consideration, warrants to purchase up to 300,000
shares of the Company's Common Stock and/or 300,000 warrants to acquire
300,000 shares of the Company's Common stock (the "Representative
Warrants"). The Representative Warrants are initially exercisable at a
price of $9.90 per share of Common Stock and approximately $0.17 per
warrant for a four- year period commencing on the first anniversary of
the issuance of such warrants. The warrants issuable upon the exercise
of the Representative Warrants are exercisable at a price of $14.85 per
share of Common Stock. The Representative Warrants provide for
adjustments in the number of shares of Common Stock and warrants
issuable upon the exercise of the Representative Warrants as a result
of certain events.
Recapitalization
In connection with the IPO, the Company amended its Certificate of
Incorporation to, among other matters, change the authorized share
capital of the Company from 10,000 shares of common stock, no par
value, to 40,000,000 shares of common stock, par value of $.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per
share. The Company also converted each outstanding share of its common
stock, no par value, into 760.6291 shares of common stock, par value
$0.01 per share.
All applicable share and per share data have been adjusted for the
above recapitalization.
<PAGE>
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Bridge financing
During the period from April 30, 1996, through July 30, 1996, the
Company completed a bridge financing (the "Bridge Financing"). The
gross proceeds from the Bridge Financing were $1,175,000 and the net
proceeds to the Company from such financing (after deduction of
commissions and the estimated expenses of such financing) were
approximately $1,063,000.
In connection with the Bridge Financing, the Company issued promissory
notes (the "Bridge Notes") in the aggregate principal amount of
$1,175,000. The Bridges Notes accrue interest at the rate of 10% per
annum and are due and payable, together with accrued interest, on the
earlier of (i) 10 days after completion of the IPO or (ii) December 15,
1996.
In connection with the Bridge Financing, the Company also issued
certain warrants (the "Bridge Warrants"). The Bridge Warrants include
warrants (the "Investor Bridge Warrants") issued to recipients of the
Bridge Notes to purchase an aggregate of 195,840 shares of the
Company's common stock. The Bridge Warrants also include warrants (the
"Other Bridge Warrants") issued to a party that assisted the Company in
connection with the Bridge Financing. The aggregate number of shares
issuable upon exercise of the Other Bridge Warrants is 3,334. The
Bridge Warrants provide for an exercise price per share of $0.60 and
contain certain demand and piggyback registration rights. In November
1996, a holder of 66,667 Bridge Warrants exercised such warrants.
The gross proceeds from the Bridge Financing were allocated to the
Bridge Notes and to the Investor Bridge Warrants based on their
relative estimated fair values at the dates of such Bridge Financing.
In connection with the Bridge Financing, the Company recorded (i) loan
discount of $458,000, representing the portion of the gross proceeds
from the Bridge Financing that was allocated to the Bridge Warrants,
and (ii) deferred financing costs of approximately $77,000,
representing the portion of the expenses of the Bridge Financing that
was allocated to the Bridge Notes. Such loan discount and deferred
financing costs are being amortized over the estimated terms of the
Bridge Notes. For the nine months ended September 30, 1996, the Company
recognized approximately $292,000 of non-cash interest expense. Upon
repayment of the Bridge Notes on October 9, 1997 from the net proceeds
of the IPO, the Company recognized an extraordinary loss of
approximately $240,000, representing the unamortized portion of the
loan discount and deferred financing costs.
1996 Stock Option Plan
In July 1996, the Board of Directors adopted the Company's 1996 Stock
Option Plan (the "Stock Option Plan") which provides for the granting
of options to purchase not more than an aggregate of 833,333 shares of
Common Stock. All officers, directors and employees of the Company and
other persons who perform services for the Company are eligible to
<PAGE>
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
participate in the Stock Option Plan. Some or all of the options may be
"incentive stock options" within the meaning of the Internal Revenue
Code of 1986, as amended. The Company granted options to purchase
approximately 543,944 shares under the Stock Option Plan immediately
prior to completion of the IPO, including an aggregate of approximately
390,001 options to executive officers and directors of the Company.
These options have an exercise price of $6.00 per share of the
Company's Common stock.
The Stock Option Plan provides that it is to be administered by the
Board of Directors, or by a committee appointed by the Board, which
will be responsible for determining, subject to the provisions of the
Stock Option Plan, to whom options are granted, the number of shares of
Common Stock subject to an option, whether an option shall be incentive
or nonqualified, the exercise price of each option (which, other than
in the case of incentive stock options, may be less than the fair
market value of the shares on the date of grant), the period during
which each option may be exercised and the other terms and conditions
of each option. No options may be granted under the Stock Option Plan
after July 29, 2006.
5. Commitments, Contingencies and Other Matters
Settlement of claims
On September 26, 1996, the Company entered into an agreement with a
stockholder pursuant to which the Company agreed to pay such
stockholder $50,000 (plus up to an additional $10,000 under certain
circumstances). In exchange, such stockholder released all claims and
rights against the Company, including certain preemptive rights with
respect to the Company's capital stock.
On September 30, 1996, the Company entered into an agreement pursuant
to which the Company agreed to pay $50,000 to the other party to a
Royalty Agreement. In exchange, such party has agreed to release all
claims and rights against the Company, including any right to receive
royalties based upon future sales of the Company's products.
The Company has accrued $50,000 with respect to each of the above
claims at September 30, 1996.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and related notes thereto of
Integrated Technology USA, Inc.(the "Company"), included elsewhere herein.
Introduction
The Company designs, develops and markets innovative products for two
rapidly emerging computer-related markets: the transmission of voice
communications over the Internet ("Internet Telephony") and computer/telephone
integration. The Company currently markets two products: (i) CompuPhone 2000,
which the Company developed for the computer/telephone integration market, and
(ii) CompuNet 2000, which the Company developed for the Internet Telephony
market. The Company commenced sales of CompuPhone 2000 in early 1995 and
commenced sales of CompuNet 2000 in September 1996.
The Company has also developed a relatively low-priced product that
enables wireless printing from a laptop computer. The Company plans to market
this product under the name WPS-1000. The Company is seeking to commence the
commercial introduction of this product in the first quarter of 1997, although
there can be no assurance that such introduction will not be delayed by various
circumstances, including, among others, manufacturing or shipping delays or
unforseen technical problems.
On October 7, 1996, the Company completed an underwritten initial
public offering (the "IPO"). For additional information concerning the IPO, see
"-Liquidity."
Since it was formed in 1990, the Company has been incurring
significant expenses intended to provide benefits in future periods, as the
Company executes its strategy of developing and bringing to market new
products. These expenses include (i) research and development ("R&D") expenses
incurred by the Company in connection with developing new products, (ii)
selling, general and administrative expenses ("SG&A") incurred by the Company
in connection with establishing a portion of the management, administrative,
sales and distribution capability that it believes will be required in future
periods in order to enable it to successfully commercialize the products that
it develops and (iii) SG&A expenses incurred in connection with attempting to
commercialize the three products that the Company has developed to date. During
the period from January 1, 1993 through September 30, 1996, the Company
incurred aggregate R&D expenses (net of contributions by the Government of
Israel Chief Scientist) and SG&A expenses of $6.21 million ($0.94 million of
R&D and $5.27 million of SG&A).
At the same time, during the period January 1, 1993 through September
30, 1996, the Company had only limited revenues ($1.6 million in the aggregate,
substantially all of which was generated subsequent to 1994). The Company's
limited revenues to date reflect a number of factors,
4
<PAGE>
including: (i) the Company first commenced sales of CompuPhone 2000 in 1995,
(ii) a predecessor version of CompuPhone 2000 that lacked many features of the
current product and was more expensive was introduced in 1992 but did not gain
market acceptance, (iii) the Company first commenced sales of CompuNet 2000 in
September 1996, (iv) the Company has not yet commenced sales of WPS-1000 and
(v) the Company's sales and promotional efforts relating to CompuPhone 2000 and
its ability to bring its other two products to market were limited due to
financial constraints that existed prior to completion of the IPO.
Reflecting the disparity between the Company's expenses and revenues
described above, the Company has had net losses in each period since its
inception and, as of September 30, 1996, had an accumulated deficit of $6.99
million.
In order for the Company to achieve profitability, the Company must
significantly increase its revenues. The Company's near-term plan for
increasing revenues has two primary components. First, the Company commenced
sales of CompuNet 2000 in September 1996 and is seeking to commence sales of
WPS-1000 in the first quarter of 1997. Second, the Company intends to use a
portion of the net proceeds of the IPO to significantly increase its
advertising and marketing efforts relating to all its products. There can be no
assurance, however, that the Company will succeed in making any additional
sales of CompuPhone 2000 or CompuNet 2000 within the contemplated time frames
or at all; that the Company will succeed in commencing sales of WPS-1000 within
the contemplated time frame or at all; that any of the Company's products will
achieve market acceptance (or sufficient market acceptance to make the product
profitable); or that the allocation of significant additional resources to
advertising and marketing efforts will result in increased sales.
When used for conventional telephone calls, CompuNet 2000 has the same
functionality as CompuPhone 2000. As a result, the Company expects that the
introduction of CompuNet 2000 will reduce the market for CompuPhone 2000
somewhat. The Company cannot at present quantify the extent of this reduction.
However, the Company believes that a viable potential market for CompuPhone
2000 will remain because CompuPhone 2000 will be priced substantially lower
than CompuNet 2000. Specifically, the Company believes that CompuPhone 2000 may
remain attractive to users that (i) are engaged in functions that do not
require the Internet Telephony features of CompuNet 2000 (such as
telemarketing, order processing, customer service and support, market research,
and emergency dispatching) or (ii) are not willing to pay the additional cost
required to obtain such features. There can be no assurance, however, that the
introduction of CompuNet 2000 will not result in there being an insufficient
market for CompuPhone 2000 to make sales of this product profitable.
Results of Operations
Net Sales. Net sales in the third quarter of 1996 were $426,000,
representing an increase of approximately 118% over net sale of $195,000 in the
third quarter of 1995. Net sales in the first nine months of 1996 were
$634,000, representing an increase of approximately 15.8% over net sale of
$548,000 in the first nine months of 1995. The increase in net sales in each
such period was
5
<PAGE>
attributable to the introduction of the Company's new CompuNet 2000 product in
the third quarter of 1996. As described below, net sales attributable to
CompuNet 2000 offset a decrease in net sales attributable to CompuPhone 2000.
The Company commenced sales of CompuNet 2000 in September 1996 and
sold 3,660 units in the third quarter of 1996. All such sales were made
pursuant to the Company's distribution agreement with Gemini Industries, Inc.
(described under "-Certain Information Concerning Distribution Agreement with
Gemini"). Such sales of CompuNet 2000 accounted for approximately $313,000 of
net sales, representing approximately 73.5% of the Company's net sales for the
third quarter of 1996 and 49.3% of the Company's net sale for the first nine
months of 1996.
The number of ComuPhone 2000 units sold (before taking into account
the potential returns described in the following paragraph) decreased to (i)
1,611 units in the third quarter of 1996 compared with 2,214 units in the third
quarter of 1995 and (ii) 4,225 units in the first nine months of 1996 compared
with 7,499 units in the first nine months of 1995. Reflecting such decrease in
unit sales and the reserve described in the following paragraph, the amount of
net sales attributable to sales of CompuPhone 2000 decreased (a) to $107,000 in
the third quarter of 1996 compared with $192,000 in the third quarter of 1995
and (b) to $309,000 in the first nine months of 1996 compared with $544,000 in
the first nine months of 1995. International sales accounted for 55% of the
ComuPhone 2000 units sold in the third quarter of 1996 (compared with 40% in
the third quarter of 1995) and 31% of the ComuPhone 2000 units sold in the
first nine months of 1996 (compared with 19% in the first nine months of 1995).
The Company has established a specific reserve for returns of
CompuPhone 2000 in the amount of $35,000 (in addition to the general reserve
for returns that the Company normally establishes). Such specific reserve
reduced net sales by $35,000 for both the third quarter of 1996 and the first
nine months of 1996. The Company established such reserve in response to
indications that (i) a customer that had purchased over 600 CompuPhone 2000
units in periods prior to the third quarter of 1996 may wish to return a
substantial number of such units and (ii) that a customer that purchased
approximately 130 units in the third quarter of 1996 may wish to return a
substantial number of such units. Both of the aforementioned customers operate
major retail chains that carry, among other products, personal computers and
peripherals. The first of the aforementioned customers accounted for
approximately 12% of the Company's net sales in the first six months of 1996.
Gross Profit. Gross profit margin in the third quarter of 1996
decreased to 21.3% from 34.2% in the third quarter of 1995, and gross profit
margin in the first nine months of 1996 decreased to 29.3% from 40.7% in the
first nine months of 1995. These decreases in gross profit margin primarily
reflected the fact that the gross profit margin from CompuNet 2000 sales (which
first commenced in September 1996 as described above) has been lower than the
historical gross profit margin from CompuPhone 2000.
The first 5,000 CompuNet 2000 units that were produced (including all
units sold in third
6
<PAGE>
quarter of 1995) were produced by retrofitting CompuPhone 2000 units that the
Company had in inventory. Such retrofitting process increased the manufacturing
cost of such units in comparison to what such cost would have been had such
units been initially produced as CompuNet 2000 units. The Company expects that
additional CompuNet 2000 units will in general not be produced through
retrofitting.
SG&A. SG&A for the third quarter of 1996 and for the first nine months
of 1996 include an aggregate of $100,000 of payments made by the Company to
settle certain claims. (See Note 5 of Notes to Condensed Consolidated Financial
Statements included in Item 1 of this Report.) Excluding such payments, SG&A
was $84,000 higher in the third quarter of 1996 compared with the third quarter
of 1995 and $87,000 higher in the first nine months of 1996 compared with the
first nine months of 1995. Such increases reflected compensation increases to
certain employees and the hiring of additional marketing personnel.
R&D, Net. R&D expense in the third quarter of 1996 increased to
$110,000 from $26,000 in the third quarter of 1995, and R&D expense in the
first nine months of 1996 increased to $261,000 from $145,000 in the first nine
months of 1995. These increases primarily reflected increased research and
development activities relating to commencing production of CompuNet 2000 and
preparing to commence production of WPS-1000, as well as compensation increases
to certain employees involved in research and development.
Interest income (expense), net. The Company completed a bridge
financing in the second and third quarters of 1996. As part of such financing,
the Company issued certain promissory notes and warrants and, in connection
therewith, recorded loan discount and deferred financing costs of $458,000 and
$77,000, respectively. (For information concerning such bridge financing, see
Note 4 of Notes to Condensed Consolidated Financial Statements included in Item
1 of this Report.) The Company's interest expense, net, in the third quarter of
1996 and the first nine months of 1996 represents interest on such notes and
amortization of such loan discount and deferred financing costs.
Liquidity and Capital Resources
As described above, the Company has had only limited revenues to date
and had an accumulated deficit of $6.99 million as of September 30, 1996. As a
result, the Company has had negative cash flow from operations during each year
since it commenced operations and during the first nine months of 1996. The
amount of cash used by the Company for operating activities was $963,000 in the
first nine months of 1996. Prior to the IPO, the Company funded its cash
requirements primarily through the private placement of Common Stock. In
addition, the Company funded a portion of its cash requirements during 1996
through the bridge financing described in Note 4 of Notes to Condensed
Consolidated Financial Statements included in Item 1 of this Report.
On October 7, 1996, the Company completed an underwritten initial
public offering (the "IPO") in which it sold 3,000,000 shares of its common
stock and warrants to purchase 3,000,000 share of its common stock. The
estimated net proceeds to the Company from the IPO was
7
<PAGE>
approximately $15.3 million. The Company used approximately $1.2 million of
such proceeds to repay certain promissory notes issued in connection with the
bridge financing referred to above.
The Company expects that its principal cash requirements over the next
12 months will be to fund operating activities and working capital. The Company
expects that the cash required for such purposes will increase significantly
primarily as a result of the Company's plans to (i) ramp up production and
sales of CompuNet 2000 and WPS-1000, (ii) increase its sales and marketing
personnel and research and development personnel and (iii) increase
advertising. To the extent that the Company does not generate sufficient cash
flow from operations to fund the Company's cash requirements, the Company
expects to fund such requirements from the net proceeds of the IPO. The Company
does not have any bank or other lines of credit available to it at present.
The Company estimates that the remaining net proceeds from the IPO and
cash generated from operations will be sufficient to fund its cash requirements
for at least the next 12 months, although there can be no assurance that the
occurrence of unanticipated adverse events or developments will not cause the
foregoing estimate to be inaccurate. In addition, management may determine that
it is in the best interest of the Company to expand more rapidly than currently
intended, in which case additional financing may be required. If additional
financing is required, there can be no assurance that the Company will be able
to obtain such additional financing on terms acceptable to the Company and at
the times required by the Company, or at all.
Certain Information Concerning Distribution Agreement with Gemini
The Company has entered into a distribution agreement with Gemini
Industries, Inc. ('Gemini'). Gemini is a supplier of consumer electronics
accessories, including an extensive line of computer and telephone products,
that has been in business for over 30 years and had consolidated sales of over
$150 million in 1995. (The foregoing is based upon information provided by
Gemini to the Company.) The distribution agreement with Gemini provides Gemini
with the exclusive right to distribute CompuNet 2000 in the United States
through retail stores to end users during the term of the agreement. The
Company has retained the right to distribute the product through other
distribution channels in the United States and without any limitations outside
the United States. Under the terms of the distribution agreement, Gemini has
committed to purchase from the Company a minimum of 10,000 units of CompuNet
2000 in 1996 (subject to the condition that the Company is able to make the
product available in a timely manner and in the quantities requested by Gemini
for particular time periods, including traditional selling seasons).
Thereafter, Gemini must purchase at least 10,000 units per month in order to
maintain its exclusivity right (but it is not contractually obligated to do
so). As of October 31, 1996, Gemini had purchased 5,000 CompuNet 2000 units
from the Company. The term of this distribution agreement commences on June 1,
1996 and extends until the end of 1997 (subject to extension by mutual
agreement). Gemini has the right to terminate the agreement under certain
circumstances, including if (i) the Company fails to comply with its material
obligations under the agreement (subject to specified notice provisions and
cure rights) or (ii) if any competitive product is offered in the market place
and the Company fails to keep Gemini competitive in price and quality. The
Company expects that a significant portion of revenues relating
8
<PAGE>
to CompuNet 2000 will be attributable to sales made to Gemini. Consequently,
the Company's business and financial condition could be adversely affected in
the event that Gemini (i) for any reason fails to purchase the full 10,000 units
of CompuNet 2000 that the distribution agreement contemplates that it will
purchase in 1996, (ii) fails to effectively market CompuNet 2000, (iii)
terminates the distribution agreement for any reason or (iv) fails to extend the
term of the distribution agreement beyond 1997.
Certain Information Concerning International Sales
As described under "-Results of Operations," international sales has
accounted for a substantial portion of the Company's sales of CompuPhone 2000
in recent periods. International business operations may be negatively impacted
by a variety of factors, including political or economic instability in a
region, changes in diplomatic and trade relationships, tariffs and other
barriers and restrictions, restrictions on the transfer of funds, currency
fluctuations, potentially adverse tax consequences and the burdens of complying
with a variety of foreign laws. For example, the Company has been required to
make certain modifications to its CompuPhone 2000 product in order to bring it
into compliance with applicable foreign regulations (the required modifications
varying depending on the country). Although the Company has not to date
experienced any material adverse effect on its operations as a result of such
factors, there can be no assurance that such factors will not materially
adversely impact the Company's business and financial condition in the future
or require the Company to modify its current business practices.
Certain Risks Associated With Use of Foreign Currencies
A substantial portion of the Company's business is conducted in the
State of Israel through two Israeli subsidiaries (the "'Israeli
Subsidiaries"'). As a result, the Company incurs expenses in New Israeli
Shekels ("NIS"). Consequently, an increase in the value of the NIS in relation
to the dollar would increase the Company's expenses in dollar terms. In
addition, the Company's expenses in dollar terms could increase in the event
that inflation in Israel is not offset (or is offset on a lagging basis) by the
devaluation of the NIS in relation to the dollar. During the first nine months
of 1996, inflation in Israel was 8.2%, not annualized, while the NIS was
devalued by 2.7%. There can be no assurance that the Company will not be
materially adversely affected in the future if inflation in Israel continues to
exceed the devaluation of the NIS against the dollar or if the timing of such
devaluation lags behind increases in inflation in Israel.
The Israeli Subsidiaries maintain their accounts in NIS, while the
Company's consolidated financial statements are reported in dollars.
Accordingly, the Israeli Subsidiaries' assets and liabilities are translated to
dollars based on the exchange rate at the end of the reporting period and their
income and expense items are translated to dollars based on the average
exchange rates prevailing during the reporting period. Such currency
translations may result in gains or losses (which are recorded directly into a
separate component of stockholders' equity). Although to date the effects of
such currency translations have not been material, there can be no assurance
that in the future such currency translations will not have a material adverse
effect on the Company's financial condition.
9
<PAGE>
The Company currently denominates its international sales in dollars,
but may in the future denominate certain of such sales in foreign currencies.
In such event, fluctuations in the rates of exchange between the dollar and
other currencies may effect the Company's financial condition or results of
operations. For example, an increase in the value of a particular currency
relative to the dollar will increase the dollar reporting value for
transactions in such currency. Conversely, a decrease in the value of such
currency relative to the dollar will decrease the dollar reporting value for
transactions in such currency.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are furnished with this report:
3.1 Amended and Restated Certificate of Incorporation of the
Registrant*
3.2 Amended and Restated By-Laws of the Registrant*
10.1 Form of the Subscription Agreement entered into by the
Registrant with each person or entity that provided funds to the
Company in connection with the Bridge Financing (as defined in
Note 4 of Notes to Condensed Consolidated Financial Statements
included under Item 1 of this Report), having attached thereto
the form of Bridge Note and Bridge Warrant (as such terms are
defined in such Note 4)*
10.2 Form of Underwriting Agreement dated as of October 1, 1996,
between the Company and National Securities Corporation, as
Representative of the several Underwriters listed therein**
10.3 Employment Agreement dated as of July 1, 1996, between the
Registrant and Alan Haber*
10.4 Distribution Agreement entered into in 1996 between the
Registrant and Gemini Industries, Inc.*
10.5 Bundling and Sales License Fee Agreement dated July 3, 1996
between the Registrant and VocalTec Ltd.*
10.6 Registrant's 1996 Stock Option Plan*
10.7 Form of Representative's Warrant Agreement dated as of October
1, 1996, between the Registrant and National Securities
Corporation**
10.8 Form of Warrant Agreement dated as of October 1, 1996, between
the Registrant and American Stock Transfer & Trust Company**
10
<PAGE>
11.1 Statement re: computation of per share earnings**
27.1 Financial Data Schedule**
- --------------------------------------
* Incorporated by reference from the correspondingly numbered Exhibit in
the Company' s Registration statement on Form SB-2 (No. 333-9697)
** Filed herewith
(b) The Registrant did not file any reports on form 8-K during the
quarter ended September 30, 1996.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTEGRATED TECHNOLOGY USA, INC.
By: Simon Kahn
-----------------------------
Simon Kahn
Chief Financial Officer
(signing both on behalf of the registrant and in his capacity as Principal
Financial and Principal Accounting Officer)
Dated: November 11, 1996
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
the Registrant*
3.2 Amended and Restated By-Laws of the Registrant*
10.1 Form of the Subscription Agreement entered into by
the Registrant with each person or entity that
provided funds to the Company in connection with the
Bridge Financing (as defined in Note 4 of Notes to
Condensed Consolidated Financial Statements included
under Item 1 of this Report), having attached
thereto the form of Bridge Note and Bridge Warrant
(as such terms are defined in such Note 4)*
10.2 Form of Underwriting Agreement dated as of October
1, 1996, between the Company and National Securities
Corporation, as Representative of the several
Underwriters listed therein**
10.3 Employment Agreement dated as of July 1, 1996,
between the Registrant and Alan Haber*
10.4 Distribution Agreement entered into in 1996 between
the Registrant and Gemini Industries, Inc.*
10.5 Bundling and Sales License Fee Agreement dated July
3, 1996 between the Registrant and VocalTec Ltd.*
10.6 Registrant's 1996 Stock Option Plan*
10.7 Form of Representative's Warrant Agreement dated as
of October 1, 1996, between the Registrant and
National Securities Corporation**
10.8 Form of Warrant Agreement dated as of October 1,
1996, between the Registrant and American Stock
Transfer & Trust Company**
11.1 Statement re: computation of per share earnings**
27.1 Financial Data Schedule**
</TABLE>
- --------------------------------------
* Incorporated by reference from the correspondingly numbered Exhibit in the
Company's Registration statement on Form SB-2 (No. 333-9697)
** Filed herewith
<PAGE>
3,000,000 Shares of Common Stock
and 3,000,000 Redeemable Warrants
INTEGRATED TECHNOLOGY USA, INC.
UNDERWRITING AGREEMENT
Teaneck, New Jersey
October 1, 1996
National Securities Corporation
As Representative of the Several Underwriters
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
Integrated Technology USA, Inc., a Delaware corporation (the
"Company"), hereby agrees with National Securities Corporation ("National") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom National is acting as
representative (in such capacity, National shall hereinafter be referred to as
"you" or the "Representative") with respect to the sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective amount of shares (the "Shares") set forth in said Schedule A of the
Company's common stock, par value $.01 per share (the "Common Stock"), and
redeemable common stock purchase warrants (the "Redeemable Warrants"), each to
purchase one share of Common Stock, set forth in Schedule A hereto. The
aggregate 3,000,000 Shares and 3,000,000 Redeemable Warrants will be separately
tradeable upon issuance and are hereinafter referred to as the "Firm
Securities." Each Redeemable Warrant is exercisable commencing on October 1,
1997 until October 1, 2001, unless previously redeemed by the Company, at an
initial exercise price of $9.00 per share of Common Stock. The Redeemable
Warrants may be redeemed by the Company at a redemption price of $.01 per
Redeemable Warrant at any time after April 1, 1998 on thirty (30) days' prior
written notice, provided that the average closing sale price of the Common
Stock equals or exceeds $15.00 per share (subject to adjustment under certain
circumstances), for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the notice of
redemption, all in accordance with the terms and conditions of the Warrant
Agreement (herein defined).
<PAGE>
Upon your request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriters, acting
severally and not jointly, up to an additional 450,000 shares of Common Stock
and/or 450,000 Redeemable Warrants for the purpose of covering over-allotments,
if any. Such 450,000 shares of Common Stock and 450,000 Redeemable Warrants are
hereinafter collectively referred to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 300,000
shares of Common Stock and/or 300,000 warrants. The shares of Common Stock and
warrants issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Securities." The Firm
Securities, the Option Securities, the Representative's Warrants and the
Representative's Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date and the Option Closing Date, if any, as
follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement,
and an amendment or amendments thereto, on Form SB-2 (No. 333-9697), including
any related preliminary prospectus (the "Preliminary Prospectus"), for the
registration of the Firm Securities, the Option Securities and the
Representative's Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
Regulations (as defined below) of the Commission under the Act. The Company will
not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration
Statement," and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or the Prospectus and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement have been instituted, or, to the Company's knowledge, are threatened.
-2-
<PAGE>
Each of the Preliminary Prospectus, the Registration Statement and the
Prospectus at the time of filing thereof conformed in all material respects with
the requirements of the Act and Regulations, and none of the Preliminary
Prospectus, the Registration Statement or the Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein and necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, provided, however, that this representation and warranty does not
apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company in writing by or on
behalf of any Underwriter expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date (as defined in
Section 2(c) hereof) and each Option Closing Date (as defined in Section 2(b)
hereof), if any, and during such longer period as the Prospectus may be required
to be delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will 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 circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries have been
duly organized and are validly existing as corporations in good standing under
the laws of the respective jurisdictions of their incorporation. The Company
does not own or control, directly or indirectly, any corporation, partnership,
trust, joint venture or other business entity other than the subsidiaries listed
in Exhibit 21.1 of the Registration Statement (except that one subsidiary listed
on such Exhibit has a wholly owned subsidiary company in the United Kingdom
which company has been inactive except for lodging a request for approval to
distribute one of the Company's products in the United Kingdom). Each of the
Company and its subsidiaries is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such qualification
or licensing, except where the failure to be so qualified or licensed would not
have a material and adverse effect on the condition, financial or otherwise, or
the business affairs, operations, properties, or results of operations of the
Company and its subsidiaries, taken as a whole (the "Business"). Each of the
Company and its subsidiaries has all requisite power and authority (corporate
and other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises
-3-
<PAGE>
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus (except where the failure to have any such power or
authority or to have obtained any of the aforementioned items would not have a
material and adverse effect on the Business); the Company and each of its
subsidiaries have been doing business in compliance in all material respects
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws, rules and
regulations (except where the failure to be so doing business in compliance
would not have a materials and adverse effect on the Business); and neither the
Company nor any of its subsidiaries have received any notice of proceedings
relating to the revocation or modification of any such authorization, approval,
order, license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the Business. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(e) The Company's authorized, issued and outstanding
capital stock are as set forth in the Prospectus under the headings
"Capitalization" and "Description of Securities." As of the Closing Date
(assuming that none of the Option Securities are purchased on such date), the
Company's authorized, issued and outstanding capital stock will be as set forth
in the Prospectus under the heading "Capitalization." The Company is not a party
to or bound by any instrument, agreement or other arrangement providing for it
to issue any capital stock, rights, warrants, options or other securities,
except for this Agreement and as described in the Prospectus. The Securities and
all other securities issued or issuable by the Company conform or, when issued
and paid for, will conform, in all material respects to all statements with
respect thereto contained in the Registration Statement and the Prospectus. All
issued and outstanding shares of capital stock of each subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and the related notes thereto included in
the Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements and
the options or other rights granted and exercised thereunder as set forth in the
Prospectus conforms in all material respects with the requirements of the Act.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable, and the holders thereof
have no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company.
-4-
<PAGE>
(f) The Securities are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and will conform in
all material respects to the description thereof contained in the Prospectus;
the holders thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization, issue and sale
of the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriters or the Representative, as the case may be,
will acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect, or other
restriction or equity of any kind whatsoever. No stockholder of the Company has
any right which has not been waived in writing to require the Company to
register the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement. No further approval or authority
of the stockholders or the Board of Directors of the Company will be required
for the issuance and sale of the Shares, the Option Shares and the
Representative's Warrants to be sold by the Company as contemplated herein.
(g) The financial statements of the Company, together
with the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Regulations,
consistently applied throughout the periods involved. There has been no material
adverse change or development involving a material prospective change in the
Business, whether or not arising in the ordinary course of business since the
date of the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and intangible,
and the business of the Company and its subsidiaries taken as a whole conform in
all material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Prospectus Summary - Selected Consolidated Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) The Company (i) has paid all federal, state, local,
franchise, and foreign taxes for which it is liable (except for certain foreign
taxes for which the Company has established adequate accruals that are reflected
in the financial statements included in the Prospectus and the late payment of
which would not have a material adverse effect on the Business), including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information
-5-
<PAGE>
returns it is required to furnish pursuant to the Code, (ii) has established
adequate reserves for such taxes which are not due and payable, and (iii) does
not have any tax deficiency or claims outstanding, proposed or assessed against
it.
(i) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Firm Securities and the Option Securities from the Company and the purchase by
the Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(j) There is no action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or, to the best knowledge of the
Company, threatened against (or circumstances that may give rise to the same),
or involving the properties or businesses of, the Company which (i) questions
the validity of the capital stock of the Company, this Agreement or the
Representative's Warrant Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement or the Representative's
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) might materially and adversely affect the condition, financial or
otherwise, or the business, affairs, position, stockholders' equity, operation,
properties, or results of operations of the Company and its subsidiaries taken
as a whole.
(k) The Company has the corporate power and authority
to authorize, issue, deliver, and sell the Securities and to enter into this
Agreement, the warrant agreement between the Company and the American Stock
Transfer and Trust Company (the "Warrant Agreement"), and the Representative's
Warrant Agreement, and to consummate the transactions provided for in such
agreements; and this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement have each been duly and properly authorized by the Company;
and this Agreement has been duly and properly executed and delivered by the
Company and the Warrant Agreement and the Representative's Agreement will be
properly executed and delivered by the Company on or prior to the Closing Date.
This Agreement constitutes, and each of the Warrant Agreement and the
Representative's Agreement will when executed and delivered by the Company
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms (except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of the issue and
sale of the Securities, execution, delivery
-6-
<PAGE>
or performance by the Company of this Agreement, the Warrant Agreement, and the
Representative's Warrant Agreement, the consummation by the Company of the
transactions contemplated herein and therein, or the conduct of the Company's
businesses as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the articles of incorporation or by-laws of the Company, as
amended and restated, (ii) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which it is or may be bound or to which its properties or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company of any of their activities or properties.
(l) No consent, approval, authorization or order of,
and no filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement, the Warrant Agreement, the Representative's Warrant Agreement, and
the transactions contemplated hereby and thereby, including without limitation,
any waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be made or obtained under the Act or may be required under
state securities or Blue Sky laws or laws of foreign countries in connection
with the Underwriters' purchase and distribution of the Firm Securities, the
Option Securities, and the acquisition by the Representative of the
Representative's Warrants to be sold by the Company hereunder and the
acquisition of the Representative's Securities pursuant thereto (it being
understood that the Company makes no representation or warranty with respect to
the consents, approvals, authorizations, orders or filings required in order to
enable to resale or distribution of the Representative's Warrants or the
Representative's Securities).
(m) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement to which the Company is a party or by
which it may be bound or to which its assets, properties or businesses may be
subject have been duly and validly authorized, executed and delivered by the
Company and constitute the legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribu-
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<PAGE>
tion may be limited by applicable law). The descriptions in the Registration
Statement of such agreements, contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are, in all material
respects, complete and correct copies of the documents of which they purport to
be copies.
(n) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as described
in or specifically contemplated by the Prospectus (i) the Company has not
incurred any material liabilities or obligations, indirect, direct or
contingent, or entered into any material verbal or written agreement or other
transaction which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company; (ii) the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock, and the
Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Firm Securities, the Option Securities
and the Representative's Warrants hereunder and upon the exercise of options and
warrants described in the Registration Statement) of, or indebtedness material
to, the Company (other than in the ordinary course of business); (v) the Company
has not issued any securities or incurred any liability or obligation, primary
or contingent, for borrowed money; and (vi) there has not been any material
adverse change in the condition (financial or otherwise), business, properties,
results of operations, or prospects of the Company and its subsidiaries taken as
a whole.
(o) Except as disclosed in or specifically contemplated
by the Prospectus, and subject to the risks and uncertainties described in the
Prospectus in the headings entitled "Risk Factors - Importance of Protection of
Proprietary Technology" and "Risk Factors Possibility of Third Party
Infringement Claims," (i) the Company has sufficient trademarks, trade names,
patent rights, copyrights, licenses, approvals and governmental authorizations
to conduct its business as now conducted (except where the failure to have any
of the foregoing would not have a material adverse effect on the Business); (ii)
the Company has no knowledge of any infringement by it or its subsidiaries of
trademark, trade name rights, patent rights, copyrights, licenses, trade secret
or other similar rights of others; and (iii) there is no claim being made
against the Company regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement which could have a material adverse effect on
the condition (financial or otherwise), of the Business. The Company hereby
represents and warrants that the Prospectus does not omit any information
required to be stated therein with respect to the potential adverse impact on
the Business of the expiration of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations of the Company.
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<PAGE>
(p) No default exists in the due performance and
observance of any term, covenant or condition of any material license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement, or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company is a
party or by which the Company may be bound or to which the property or assets
(tangible or intangible) of the Company is subject or affected, except for such
defaults, if any, which individually and in the aggregate would not have a
material adverse effect on the Business.
(q) To the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of federal, state,
local, or foreign laws and regulations relating to labor law. There is no unfair
labor practice charge or complaint against the Company pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to its knowledge threatened against or involving
the Company. No representation question exists respecting the employees of the
Company. No collective bargaining agreement, or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists or to its knowledge is imminent.
(r) Except as described in the Prospectus, the Company
does not maintain, sponsor or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(s) None of the Company, nor any of its employees,
directors, stockholders, or affiliates (within the meaning of the Regulations)
of any of the foregoing has taken or will take directly or indirectly, any
action designed to or which has constituted or which might be expected to cause
or result in unlawful stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities.
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<PAGE>
(t) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and tangible
personal property stated in the Prospectus to be owned or leased by it
(excluding any property that the Prospectus indicates is leased on a
month-to-month basis, for which there are no written agreements), free and clear
of all liens, charges, claims, encumbrances, pledges, security interests, or
other restrictions or equities of any kind whatsoever, other than those referred
to in the Prospectus and liens for taxes not yet due and payable.
(u) Price Waterhouse LLP ("Price Waterhouse"), whose
report is filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the
Regulations.
(v) The Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which each Two-Percent Holder (as
hereinafter defined) has agreed that until the first anniversary of the
effective date of the Registration Statement (the "Effective Date"), such holder
will not, without the prior written consent of the Representative, directly or
indirectly offer to sell, grant an option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose (all of the foregoing being
collectively referred to as "Transfer") any securities issued by the Company,
including, common stock or securities convertible into or exchangeable or
exercisable for or evidencing any right to purchase or subscribe for any shares
of common stock (the "Covered Securities") (either pursuant to Rule 144 of the
Regulations or otherwise), whether or not beneficially owned by such holder, or
dispose of any beneficial interest therein, provided, however; that (i) the
foregoing shall not prohibit any Transfer in a private placement provided that
the transferee agrees to be bound by the terms of the foregoing agreement; and
(ii) from and after the 270th day after the Effective Date, the foregoing shall
not prohibit any Transfer of Common Stock of the Company (in one or more
transactions), provided that the aggregate shares of Common Stock of the Company
that may be Transferred by a Two-Percent Holder pursuant to this clause (ii) may
not exceed 10% of the number of shares of Common Stock of the Company owned by
such Two-Percent Holder immediately preceding the 270th day after the Effective
Date. For purposes of clause (ii) of the preceding sentence, the ownership or
sale of any Covered Securities convertible into or exchangeable or exercisable
for or evidencing any right to purchase or subscribe for any shares of common
stock shall be deemed the ownership or sale, as the case may be, of the number
of shares of Common Stock that may be acquired pursuant to such Covered
Securities. As used herein, a "Two-Percent Holder" means any person or entity
that immediately prior to the Effective Date owns a number of shares of Common
Stock (calculated on a pro forma basis giving effect to the exercise of all
outstanding options and options that the Prospectus contemplates will be granted
prior to completion of the Offering) that constitutes 2% or more of the
outstanding Common Stock immediately prior to the Effective Date (calculated on
a pro forma basis as aforesaid). Except as disclosed in the Prospectus or in a
Schedule thereto, the Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each holder of Common Stock and/or
options (excluding any options that are not exercisable until after
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<PAGE>
the 270th day following the Effective Date), that is not a Two-Percent Holder
has agreed that, until the 270th day following the Effective Date such Holder
will not, without the prior written consent of the Representative, directly or
indirectly Transfer any Covered Securities, whether or not beneficially owned by
such holders, or dispose of any beneficial interest therein; provided, however,
that the foregoing shall not include any Transfer in a private placement
provided that the transferee agrees to be bound by the terms of the foregoing
agreement. The agreements described in this paragraph are referred to as the
"Lockup Agreements." The Company will cause the Transfer Agent (as defined
herein) to place "stop transfer" orders on the Company's stock ledgers in order
to effect the Lock-up Agreements.
(w) To the best knowledge of the Company, there are no
claims, payments, arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or any other arrangements, agreements,
understandings, payments or issuance with respect to the Company or any of its
officers, directors, stockholders, employees or affiliates (excluding any of the
foregoing to which the Representative or any Underwriter is a party or which is
disclosed in the Registration Statement) that may affect the Underwriters'
compensation as determined by the Commission and the National Association of
Securities Dealers, Inc. (the "NASD").
(x) The Securities have been approved for listing on
the American Stock Exchange.
(y) Neither the Company nor any of its officers,
employees, agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business or as disclosed in the Prospectus) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with any
actual or proposed transaction) which might subject the Company or any other
such person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign). The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which
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<PAGE>
it may be bound or affected. Except as set forth in the Prospectus, there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, stockholders identified in the Prospectus
under the caption "Principal Stockholders," or any affiliate or associate of any
of the foregoing persons or entities which are required to be disclosed in the
Prospectus.
(aa) The Company is not, and does not intend to conduct
its business in a manner in which it would become an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(bb) Any certificate signed by any officer of the
Company and delivered to the Underwriters or to the Underwriters' Counsel (as
defined in Section 4(d) herein) shall be deemed a representation and warranty by
the Company to the Underwriters as to the matters covered thereby.
(cc) The minute books of the Company have been made
available to the Underwriters and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(dd) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Shares in this offering other than the Prospectus,
the Registration Statement and the other materials permitted by the Act. No
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right (i) to
include any securities issued by the Company as part of the Registration
Statement or (ii) except as described in the Prospectus or contemplated by the
Representative's Warrant Agreement or the Bridge Warrants (as defined in the
Prospectus), to require the Company to file a registration statement under the
Act. No person or entity holds any anti-dilution rights with respect to any
securities of the Company.
(ee) Each of the Company and its subsidiaries maintains
insurance by insurers of recognized financial responsibility of the types and in
the amounts as the Company believes are prudent and adequate for the business in
which it is engaged, including, but not limited to, insurance covering real and
personal property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect. The Company
has delivered to the Underwriter's Counsel satisfactory summaries of these
insurance policies. The Company has no reason to believe that it will not be
able to renew existing insurance coverage with respect to the Company as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business, in either case, at a cost that
would not have
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<PAGE>
a material adverse effect on the Business. The Company has not failed to file
any material claims, has no material disputes with its insurance company
regarding any claims submitted under its insurance policies, and has complied in
material respects with all material provisions contained in its insurance
policies.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly agrees to purchase from the Company,
at a price equal to $5.52 per Share and $.092 per Redeemable Warrant, that
number of Firm Securities set forth in Schedule A opposite the name of such
Underwriter, subject to such adjustment as the Representative in its discretion
shall make to eliminate any sales or purchases of fractional shares, plus any
additional numbers of Shares which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 450,000 shares of Common Stock at a price of $5.52 per share of
Common Stock and/or an additional 450,000 Redeemable Warrants at a price of
$.092 per Redeemable Warrant. The option granted hereby will expire 45 days
after (i) the date the Registration Statement becomes effective, if the Company
has elected not to rely on Rule 430A under the Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the
Regulations, and may be exercised in whole or in part from time to time (but not
on more than two (2) occasions) only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the Firm
Securities upon notice by the Representative to the Company setting forth the
number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for any such
Option Securities. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representative, but shall not be earlier then two
business days or later than three full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter defined,
unless otherwise agreed upon by the Representative and the Company. Nothing
herein contained shall obligate the Underwriters to exercise the over-allotment
option described above. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of National,
at 1001 Fourth Avenue, Suite 2200, Seattle, Washington, or at such other place
as shall be agreed upon by the Representative and the
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<PAGE>
Company. Such delivery and payment shall be made at 9:00 a.m. (New York time) on
October 7, 1996, or at such other time and date as shall be agreed upon by the
Representative and the Company, but no more than four (4) business days after
the date hereof (such time and date of payment and delivery being herein called
the "Closing Date"). In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above mentioned office of National or at such other place as shall be agreed
upon by the Representative and the Company on each Option Closing Date as
specified in the notice from the Representative to the Company. Delivery of the
certificates for the Firm Securities and the Option Securities, if any, shall be
made to the Underwriters against payment by the Underwriters, of the purchase
price for the Firm Securities and the Option Securities, if any, to the order of
the Company by New York Clearing House Funds. In the event such option is
exercised, each of the Underwriters, acting severally and not jointly, shall
purchase that proportion of the total number of Option Securities then being
purchased which the number of Firm Securities set forth in Schedule A hereto
opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the Representative in
its discretion shall make to eliminate any sales or purchases of fractional
shares. Certificates for the Firm Securities and the Option Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least three (3) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to Closing Date or the relevant
Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and
sell to the Representative Representative's Warrants at a purchase price of
$.001 per warrant, which warrants shall entitle the holders thereof to purchase
an aggregate of 300,000 shares of Common Stock and/or 300,000 warrants (which
warrants shall be the same as the Redeemable Warrants, with the exception of
providing for an exercise price equal to 165% of the exercise price provided for
by the Redeemable Warrants). The Representative's Warrants shall expire five (5)
years after the effective date of the Registration Statement and shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at a price equaling one hundred
sixty-five percent (165%) of the initial public offering price of the Shares.
The Representative's Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit 4.2 to the Registration Statement
(modified to the extent required by the NASD). Payment for the Representative's
Warrants shall be made on the Closing Date.
3. Public Offering of the Shares and the Redeemable Warrants.
As soon after the Registration Statement becomes effective as the
Representative deems advisable, the Underwriters shall make a public offering
of the Shares and the Redeemable Warrants (other than to residents of or in any
jurisdiction in which qualification of the Shares and the Redeemable Warrants
is required and has not become effective) at the price and upon the other terms
set forth in the
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<PAGE>
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Shares and the Redeemable
Warrants has been completed to such extent as the Representative, in its sole
discretion, deems advisable. The Underwriters may enter into one or more
agreements as the Underwriters, in each of their sole discretion, deem advisable
with one or more broker-dealers who shall act as dealers in connection with such
public offering. The Shares and Redeemable Warrants that this Agreement
contemplates will be publicly offered as set forth above are referred to
collectively as the "Offered Securities."
4. Covenants of the Company. The Company covenants
and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Regulations.
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Representative and confirm the
notice in writing, (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A and when any post-effective amendment to the Registration Statement becomes
effective, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding, suspending the effectiveness
of the Registration Statement or any order preventing or suspending the use of
the Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will use its best efforts to obtain promptly the lifting of such
order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) in accordance with the
requirements of the Act.
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<PAGE>
(d) The Company will give the Representative notice of
its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Offered Securities
which differs from the corresponding prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement to which the
Representative or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Offered Securities for offering and
sale under the securities laws of such jurisdictions as the Representative may
reasonably designate to permit the continuance of sales and dealings therein for
as long as may be necessary to complete the distribution, and shall make such
applications, file such documents and furnish such information as may be
required for such purpose; provided, however, the Company shall not be required
to qualify as a foreign corporation or become subject to service of process in
any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Offered Securities in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend or supplement the Prospectus to comply with
the Act, the Company will notify the Representative promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act, each such amendment or supplement to be satisfactory
to Underwriters' Counsel, and the Company will furnish to the Underwriters
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriters may request.
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<PAGE>
(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders, annual reports (including
financial statements audited by independent public accountants) as required by
the Exchange Act, and will deliver to the Representative:
(i) as soon as they are available, copies of
all reports (financial or other) mailed to
stockholders;
(ii) as soon as they are available, copies of
all reports and financial statements furnished to or
filed with the Commission, the American Stock Exchange
or any securities exchange;
(iii) every press release and every material
news item or article of interest to the financial
community in respect of the Company or its affairs
which was released or prepared by or on behalf of the
Company; and
(iv) any additional information of a public
nature concerning the Company (and any future
subsidiaries) or its businesses which the
Representative may reasonably request.
(i) The Company will maintain a transfer agent (the
"Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a registrar (which may be the same entity as the transfer agent)
for the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Representative or
on the Represen- tative's order, without charge, at such place as the
Representative may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Representative may reasonably request.
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<PAGE>
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true copies of duly
executed Lock-up Agreements. On or before the Closing Date, the Company shall
deliver instructions to the Transfer Agent authorizing it to place appropriate
stop transfer orders on the Company's ledgers.
(l) The Company shall use its best efforts to cause its
officers, directors, stockholders or affiliates (within the meaning of the
Regulations) not to take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in, unlawful
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the
sale of the Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus.
(n) The Company shall timely file all such reports,
forms or other documents as may be required (including, but not limited to, a
Form SR as may be required pursuant to Rule 463 under the Act) from time to
time, under the Act, the Exchange Act, and the Regulations, and all such
reports, forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Regulations.
(o) The Company shall cause the Common Stock and
Redeemable Warrants to be listed on the American Stock Exchange, and for a
period of two (2) years from the date hereof shall use its best efforts to
maintain the listing of the Common Stock and Redeemable Warrants to the extent
outstanding.
(p) For a period of two (2) years from the Closing
Date, the Company shall furnish to the Representative, at the Company's sole
expense, monthly consolidated transfer sheets relating to the, Common Stock and
Redeemable Warrants.
(q) For a period of five (5) years after the effective
date of the Registration Statement the Company shall, at the Company's sole
expense, take all necessary and appropriate actions and use reasonable efforts
to further qualify the Common Stock and Redeemable Warrants in all jurisdictions
of the United States in order to permit secondary sales of such securities
pursuant to the Blue Sky laws of those jurisdictions which do not require the
Company to qualify as a foreign corporation or to file a general consent to
service of process.
(r) The Company (i) prior to the effective date of the
Registration Statement, has filed a Form 8-A with the Commission providing for
the registration of the Common Stock and Redeemable Warrants under the Exchange
Act and (ii) as soon as practicable, will use its reasonable best efforts to
take all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and to continue such inclusion for a period of not less
than five (5) years.
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<PAGE>
(s) The Company agrees that for a period of twelve
(12) months following the effective date of the Registration Statement it will
not, without the prior written consent of National, directly or indirectly,
issue, offer to sell, sell, grant an option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any Covered Securities,
except that the Company may (i) issue shares upon exercise of the Bridge
Warrants (as defined in the Prospectus), (ii) grant options pursuant to its 1996
Stock Option plan (described in the Prospectus under "Management -- Stock Option
Plan"), provided that the optionee is subject to (or upon receipt of the option
agrees to be subject to) a Lock-up Agreement, and (iii) issue shares upon the
exercise of stock options that are currently outstanding, or that this
Prospectus contemplates will be granted prior to completion of the Offering or
that are hereafter granted in accordance with the preceding clause or otherwise
dispose of any Common Stock, or securities convertible into Common Stock, except
for the issuance of the Option Securities, the Representative's Warrants, and
shares of Common Stock issued upon the exercise of currently outstanding
warrants or options, or options and warrants granted in the ordinary course of
business consistent with prior practice.
(t) Until the completion of the distribution of the
Offered Securities, the Company shall not without the prior written consent of
National or Underwriters' Counsel, issue, directly or indirectly any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5)
years from the date hereof, and (ii) the sale to the public of the
Representative's Securities, the Company will not take any action or actions
which may prevent or disqualify the Company's use of an appropriate form for the
registration under the Act of the Representative's Securities.
(v) The Company agrees that it shall use its best
efforts, which shall include, but shall not be limited to, the solicitation of
proxies, to cause one (1) designee of National to be elected to the Company's
Board of Directors for a period of three (3) years following the date hereof,
provided that such designee is reasonably acceptable to the Company and that
such director may be excluded from consideration of certain confidential matters
which, in the good faith judgment of a majority of the other directors, such
director's presence would not be appropriate. In the event that National elects
not to designate a person to serve on the Board of Directors of the Company,
National shall have the right to designate one person to attend the meetings of
the Board of Directors of the Company. Such person shall be entitled to attend
all such meetings and to receive all notices and other correspondence and
communication sent by the Company to its Board of Directors. The Company agrees
to reimburse the designee of National for all such designee's reasonable
out-of-pocket expenses incurred in connection with such meetings.
-19-
(w) The Company agrees that within forty-five (45)
days after the Closing it shall retain a public relations firm which is
reasonably acceptable to National (it being agreed that the firm currently being
used by the Company is acceptable). The Company shall keep such public relations
firm, or any replacement, for a period of two (2) years from the Closing. Any
replacement public relations firm shall be retained only with the consent of
National, which shall not be unreasonably withheld.
(x) The Company agrees that any and all future
transactions between the Company and its officers, directors, principal
stockholders and the affiliates of the foregoing persons will be on terms no
less favorable to the Company than could reasonably be obtained in arm's length
transactions with independent third parties, and that any such transactions also
be approved by a majority of the Company's outside independent directors
disinterested in the transaction.
(y) The Company shall prepare and deliver, at the
Company's sole expense, to National within the one hundred and twenty (120) day
period after the later of the effective date of the Registration Statement or
the latest Option Closing Date, as the case may be, one bound volume containing
all correspondence with regulatory officials, agreements, documents and all
other materials in connection with the offering as requested by the
Underwriters' Counsel.
5. Payment of Expenses.
(a) The Company hereby agrees to pay all expenses and
fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement, the Warrant Agreement, and the Representative's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, filing, delivery and mailing (including
the payment of postage with respect thereto) of the Registration Statement and
the Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Warrant Agreement, the Agreement Among Underwriters, the
Selected Dealers Agreements, the Powers of Attorney, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments thereof or supplements thereto supplied to
the Underwriters and such dealers as the Underwriters may request, in quantities
as hereinabove stated, (iii) the printing, engraving, issuance and delivery of
the certificates representing the Securities, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws, and
determination of the status of such securities under legal investment laws, of
such states or jurisdictions as the Underwriters may reasonably designate,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to
reasonable expenses for travel and lodging
-20-
<PAGE>
incurred by the Representative and any such expenses incurred by the Company in
connection with the "road show," information meetings and presentations, bound
volumes and prospectus memorabilia and reasonable "tombstone" advertisement
expenses, (vi) experts retained by the Company, (vii) fees and expenses of the
transfer agent and registrar, (viii) the fees payable to the Commission and the
NASD, (ix) issue and transfer taxes, if any and (x) the fees and expenses
incurred in connection with the listing of the Common Stock on the American
Stock Exchange and any other market or exchange. Any payment to the Underwriters
or Underwriters' counsel that is required to be made pursuant to the preceding
sentence shall be made on the Closing Date and each Option Closing Date (to the
extent not previously paid), provided that the Company shall have received an
invoice for such payment prior to the Closing Date or Option Closing Date, as
the case may be.
(b) If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 6, Section 10(a) or
Section 12, the Company shall reimburse and indemnify the Representative for all
of its actual out-of-pocket expenses on an accountable basis, including the fees
and disbursements of Underwriters' Counsel, less any amounts already paid
pursuant to Section 5(c) hereof up to $100,000.
(c) The Company further agrees that, in addition to
the expenses payable pursuant to subsection (a) of this Section 5, it will pay
to the Representative on the Closing Date by certified or bank cashier's check
or, at the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to 2.5%
of the gross proceeds received by the Company from the sale of the Firm
Securities, $25,000 of which has been paid to date. In the event the
Representative elects to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representative on the
Option Closing Date (by certified or bank cashier's check or, at the
Representative's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to 2.5% of the gross proceeds received
by the Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date or each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date or Option
Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; and the performance by the Company on and as
of the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder to be performed on or prior to such date and to the
following further conditions:
(a) The Registration Statement shall have become
effective not later than the date of this Agreement or such later date and time
as shall be consented to in writing by the
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<PAGE>
Representative, and, at Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Representative of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Regulations.
(b) The Representative shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's reasonable opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Representative's
reasonable opinion, is material, or omits to state a fact which, in the
Representative's reasonable opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriters
shall have received from Underwriters' Counsel such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Representative may request and Underwriters' Counsel shall have received from
the Company such papers and information as they reasonably request to enable
them to pass upon such matters.
(d) On the Closing Date, the Underwriters shall have
received (i) the favorable opinion of Silber, Schottenfels, Gerber & Lewis,
foreign counsel to the Company with respect to (a) certain matters relating to
the subsidiary companies of the Company and (b) certain matters contained in the
Preliminary Prospectus, Registration Statement and Prospectus in a form and
substance satisfactory to Underwriter's Counsel, and (ii) the favorable opinion
of Ehrenreich & Krause ("Ehrenreich & Krause"), counsel to the Company, dated
the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and
is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation,
(B) is duly qualified and licensed and in good
standing as a
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<PAGE>
foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character
of its operations requires such qualification or
licensing, and (C) to the best of such counsel's
knowledge, has all requisite corporate power and
authority and has obtained any and all necessary
authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental or regulatory officials and bodies
(including, without limitation, those having
jurisdiction over environmental or similar matters), to
own or lease its properties and conduct its business as
described in the Prospectus.
(ii) except as described in the Prospectus, and
to the best of such counsel's knowledge after
reasonable investigation, the Company does not own an
interest in any corporation, limited liability
company, partnership, joint venture, trust or other
business entity;
(iii) the Company has a duly authorized, issued
and outstanding capitalization as set forth in the
Prospectus, and any amendment or supplement thereto,
under "Capitalization" and "Description of
Securities," and to the knowledge of such counsel, the
Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or
other securities, except for this Agreement, the
Warrant Agreement, the Representative's Warrant
Agreement, and as described in the Prospectus. The
Securities and all other securities issued or issuable
by the Company conform in all material respects to the
statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued
and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid
and nonassessable; the holders thereof are not subject
to personal liability by reason of being such holders;
and none of such securities were issued in violation
of the preemptive rights of any holders of any
security of the Company. The Securities to be sold by
the Company hereunder, under the Warrant Agreement,
and under the Representative's Warrant Agreement are
not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in
accordance with their terms, will be validly issued,
fully paid and nonassessable and will conform in all
material respects to the description thereof contained
in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all
corporate action required to be taken for the
authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates
representing the Securities are in due and proper
form. The Representative's Warrants and the Redeemable
Warrants constitute valid and binding obligations of
the Company to issue and sell,
-23-
<PAGE>
upon exercise thereof and payment therefor, the number
and type of securities of the Company called for
thereby (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application
relating to or affecting enforcement of creditors'
rights and the application of equitable principles in
any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable
law). Upon the issuance and delivery pursuant to this
Agreement of the Securities to be sold by the Company,
the Company will convey, against payment therefor as
provided herein, to the Underwriters and the
Representative, respectively, good and marketable title
to the Securities free and clear of all liens and other
encumbrances;
(iv) the Registration Statement is effective
under the Act, and, if applicable, filing of all
pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of
any thereof or suspending the effectiveness of the
Registration Statement has been issued and no
proceedings for that purpose have been instituted or
are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
(v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any
amendments or supplements thereto (other than the
financial statements and other financial and
statistical data included therein as to which no
opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and
the Regulations. Such counsel shall state that such
counsel has participated in conferences with officers
and other representatives of the Company and the
Representative and representatives of the independent
public accountants for the Company, at which
conferences the contents of the Preliminary Prospectus,
the Registration Statement, the Prospectus, and any
amendments or supplements thereto were discussed, and,
although such counsel is not passing upon and does not
assume any responsibility for the accuracy,
completeness or fairness of the statements contained in
the Preliminary Prospectus, the Registration Statement
and Prospectus, and any amendments or supplements
thereto, on the basis of the foregoing, no facts have
come to the attention of such counsel which lead them
to believe that either the Registration Statement or
any amendment thereto, at the time such Registration
Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or
supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or
omitted to state a material fact required to be
-24-
<PAGE>
stated therein or necessary to make the statements
therein not misleading (it being understood that such
counsel need express no opinion with respect to the
financial statements and schedules and other financial
and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus,
and any amendments or supplements thereto);
(vi) to the best of such counsel's knowledge
after reasonable investigation, (A) there are no
agreements, contracts or other documents required by
the Act to be described in the Registration Statement
and the Prospectus and filed as exhibits to the
Registration Statement other than those described in
the Registration Statement and the Prospectus and filed
as exhibits thereto; (B) the descriptions in the
Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other
documents to which the Company is a party or by which
it is bound are accurate in all material respects and
fairly represent the information required to be shown
by Form SB-2; (C) there is not pending or threatened
against the Company any action, arbitration, suit,
proceeding, litigation, governmental or other
proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against the
Company which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration
Statement are accurately summarized in all material
respects), (y) questions the validity of the capital
stock of the Company or this Agreement, the Warrant
Agreement, or the Representative's Warrant Agreement,
or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing;
and (D) there is no action, suit or proceeding pending
or threatened against the Company before any court or
arbitrator or governmental body, agency or official in
which there is a reasonable possibility of an adverse
decision which may result in a material adverse change
in the financial condition, business, affairs,
stockholders' equity, operations, properties, business
or results of operations of the Company, which could
adversely affect the present or prospective ability of
the Company to perform its obligations under this
Agreement, the Warrant Agreement, or the
Representative's Warrant Agreement, or which in any
manner draws into question the validity or
enforceability of this Agreement, the Warrant Agreement
or the Representative's Warrant Agreement;
(vii) the Company has the corporate power and
authority to enter into each of this Agreement, the
Warrant Agreement, and the Representative's Warrant
Agreement and to consummate the transactions provided
for therein; and each of this Agreement, the Warrant
Agreement, and the
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<PAGE>
Representative's Warrant Agreement has been duly
authorized, executed and delivered by the Company. Each
of this Agreement, the Warrant Agreement, and the
Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding
obligation of the Company enforceable against the
Company in accordance with its terms (except as the
enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or
affecting enforcement of creditors' rights and the
application of equitable principles in any action,
legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and
none of the Company's execution, delivery or
performance of this Agreement, the Warrant Agreement,
and the Representative's Warrant Agreement, the
consummation by the Company of the transactions
contemplated herein or therein, or the conduct of the
Company's business as described in the Registration
Statement, the Prospectus, and any amendments or
supplements thereto conflicts with or results in any
breach or violation of any of the terms or provisions
of, or constitutes a default under, or result in the
creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the articles of
incorporation or by-laws of the Company, as amended,
(B) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement,
note, loan or credit agreement or any other agreement
or instrument known to such counsel to which the
Company is a party or by which it is bound, or (C) any
federal, state or local statute, rule or regulation
applicable to the Company or any judgment, decree or
order known to such counsel of any arbitrator, court,
regulatory body or administrative agency or other
governmental agency or body (including, without
limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its
activities or properties;
(viii) no consent, approval, authorization or
order, and no filing with, any court, regulatory body,
government agency or other body (other than such as
may be required under Blue Sky laws, as to which no
opinion need be rendered or under federal securities
laws, as to which no opinion need be rendered pursuant
to this subsection (viii) is required in connection
with the issuance of the Securities pursuant to the
Prospectus, and the Registration Statement, the
performance of this Agreement, the Warrant Agreement,
and the Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby;
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<PAGE>
(ix) to the best of such counsel's knowledge
after reasonable investigation, the properties and
business of the Company conform in all material
respects to the description thereof contained in the
Registration Statement and the Prospectus;
(x) to the best knowledge of such counsel, and
except as disclosed in Registration Statement and the
Prospectus, the Company is not in breach of, or in
default under, any term or provision of any license,
contract, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is
a party or by which the Company is bound or to which
the property or assets (tangible or intangible) of the
Company is subject; and the Company is not in
violation of any term or provision of its articles of
incorporation or by-laws, as amended, and to the best
of such counsel's knowledge after reasonable
investigation, not in violation of any franchise,
license, permit, judgment, decree, order, statute,
rule or regulation;
(xi) the statements in the Prospectus under
"Dividend Policy," "Description of Securities," and
"Shares Eligible for Future Sale" have been reviewed
by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct
in all material respects;
(xii) the Common Stock has been accepted for
listing on the American Stock Exchange;
(xiii) to the best of such counsel's knowledge
and based upon a review of the outstanding securities
and the contracts furnished to such counsel by the
Company, no person, corporation, trust, partnership,
association or other entity has the right to include
and/or register any securities of the Company in the
Registration Statement, require the Company to file any
registration statement or, if filed, to include any
security in such registration statement;
(xiv) assuming due execution by the parties
thereto other than the Company, each Lock-up Agreement
is a legal, valid and binding obligation of the party
thereto, enforceable against the party and any
subsequent holder of the securities subject thereto in
accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting
enforcement of creditors' rights and the application of
equitable
-27-
<PAGE>
principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be
limited by applicable law);
In rendering its opinion, Ehrenreich & Krause may rely (A) as
to matters involving the application of laws other than the laws, rules and
regulations of the United States and the laws, rules and regulations of the
State of New York, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel if requested. The opinion of Ehrenreich &
Krause shall state that the opinion of any such other counsel is in form
satisfactory to such counsel.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Ehrenreich & Krause and of Silber,
Schottenfels, Gerber & Lewin each dated the Option Closing Date, addressed to
the Underwriters and in form and substance satisfactory to Underwriters'
Counsel confirming as of such Option Closing Date the statements made by
Ehrenreich & Krause and Silber, Schottenfels Gerber & Lewis in their respective
opinions delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the
Option Closing Date, if any, Underwriters' Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company herein contained.
(f) Prior to each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in default under any provision of any instrument relating
to any outstanding indebtedness which default has not been waived; (iv) except
as contemplated by the Prospectus, subsequent to the date of the Prospectus the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its
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<PAGE>
capital stock of any class and there shall not have been any change in the
capital stock, or any material increase in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) except for
(i) the issuance of shares of Common Stock upon the exercise of currently
outstanding warrants or options, or options and warrants granted in the ordinary
course of business consistent with prior practice or changes in the Company's
current assets or liabilities in the ordinary course of its business as
contemplated by the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened against the Company, or
affecting any of its respective properties or businesses before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially adversely
affect the Business, except as set forth in the Registration Statement and
Prospectus; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(g) At each of the Closing Date and each Option
Closing Date, if any, the Underwriters shall have received a certificate of the
Company signed on behalf of the Company by the principal executive officer of
the Company, dated the Closing Date or Option Closing Date, as the case may be,
to the effect that such executive has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if
made on and as of the Closing Date or the Option
Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and
satisfied all conditions contained in this Agreement
on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the
case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statement or any part thereof has
been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of such
person's knowledge after due inquiry, are contemplated
or threatened under the Act;
(iii) The Registration Statement and the
Prospectus and, if any, each amendment and each
supplement thereto, contain all statements and
information required by the Act to be included therein,
and none of the Registration Statement, the Prospectus
nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state
any material fact required to
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<PAGE>
be stated therein or necessary to make the statements
therein not misleading and neither the Preliminary
Prospectus or any supplement, as of their respective
dates, thereto included any untrue statement of a
material fact or omitted to state any material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration
Statement and the Prospectus, (a) the Company has not
incurred up to and including the Closing Date or the
Option Closing Date, as the case may be, other than in
the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b)
the Company has not paid or declared any dividends or
other distributions on its capital stock; (c) the
Company has not entered into any material transactions
not in the ordinary course of business; (d) except as
contemplated by the Prospectus, there has not been any
change in the capital stock as described in the
Registration Statement and Prospectus or material
increase in long-term debt or any increase in the
short-term borrowings (other than any increase in the
short-term borrowings in the ordinary course of
business) of the Company, (e) the Company has not
sustained any material loss or damage to its property
or assets, whether or not insured, (f) there is no
litigation which is pending or threatened (or
circumstances giving rise to same) against the Company
or any affiliated party of any of the foregoing which
is required to be set forth in an amended or
supplemented Prospectus which has not been set forth,
and (g) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which
has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters.
(i) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such
date, addressed to the Underwriters in form and
substance satisfactory in all respects to the
Underwriters and Underwriters' Counsel from Price
Waterhouse:
(i) confirming that they are independent
accountants with respect to the Company within the
meaning of the Act and the applicable published Rules
and Regulations (the "Regulations") thereunder;
(ii) stating that the consolidated financial
statements of the Company included in the Registration
Statement comply as to form in all material respects
with the applicable accounting requirements of the Act
and the Regulations thereunder;
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<PAGE>
(iii) stating that, on the basis of procedures
(but not an audit in accordance with generally
accepted auditing standards) which included a: (1)
reading of the latest available unaudited interim
financial data of the Company (with an indication of
the date of the latest available unaudited interim
financial data), (2) a reading of the latest available
minutes of the stockholders and board of directors and
the various committees of the board of directors of
the Company, (3) performing the procedures specified
by the American Institute of Certified Public
Accountants for a review of interim financial
information as described in SAS 71, Interim Financial
Information, on the unaudited interim consolidated
financial statements of the Company included in the
Registration Statement, (4) inquiries of certain
officers and other employees of the Company
responsible for financial and accounting matters
regarding the specific items for which representations
are requested below, nothing has come to their
attention which would lead them to believe that (A)
the unaudited interim consolidated financial
statements of the Company included in the Registration
Statement, if any, do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the Regulations and any
material modifications should be made to the unaudited
condensed interim financial statements, included in
the Registration Statement, for them to be in
conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements of the
Company included in the Registration Statement, or (B)
at a specified date not more than five (5) days prior
to the effective date of the Registration Statement,
there has been any change in the capital stock or
material increase in long-term debt of the Company, or
any material decrease in the stockholders' equity or
net current assets or net assets of the Company as
compared with amounts shown in the June 30, 1996
balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or
decrease.
(iv) stating that they have compared specific
dollar amounts, numbers of shares, percentages of
revenues and earnings, statements and other financial
information pertaining to the Company set forth in the
Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and
information may be derived from the Company's general
accounting records subject to its system of internal
accounting controls and to schedules prepared by the
Company therefrom, 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
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<PAGE>
in accordance with generally accepted auditing
standards) set forth in the letter and found them to be
in agreement; and
(v) statements as to such other material
matters incident to the transaction contemplated
hereby as the Representative may reasonably request.
(j) At the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received from Price Waterhouse a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be, to
the effect that they reaffirm that statements made in the letter furnished
pursuant to Subsection (i) of this Section 6, except that the specified date
referred to shall be a date not more than five (5) days prior to Closing Date or
the Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (iv) of Subsection (i) of
this Section 6 with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (iv).
(k) On each of Closing Date and Option Closing Date,
if any, there shall have been duly tendered to the Representative for the
several Underwriters' accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in
any jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(m) On or before the Closing Date, the Company shall
have executed and delivered to the Representative, (i) the Representative's
Warrant Agreement, substantially in the form filed as Exhibit 4.2, to the
Registration Statement, in final form and substance satisfactory to the
Representative, and (ii) the Representative's Warrants in such denominations and
to such designees as shall have been provided to the Company.
(n) On or before Closing Date, the Common Stock shall
have been duly approved for listing on American Stock Exchange.
(o) On or before Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements in final form and
substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant Option
Closing Date, as the case may be, is not so
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<PAGE>
fulfilled, the Representative may terminate this Agreement or, if the
Representative so elect, they may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each of the Underwriters (for purposes of this Section 7 "Underwriters" shall
include the officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the American Stock Exchange or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company contained in this Agreement. The indemnity agreement in this
subsection (a) shall be in addition to any liability which the Company may have
at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company, within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written
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<PAGE>
information furnished to the Company with respect to any Underwriter by such
Underwriter or the Representative expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters or the Representative for inclusion in the
Prospectus.
(c) Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this Section 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise or which it may
have under this Section 7, except to the extent that it has been prejudiced in
any material respect by such failure). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
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<PAGE>
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
a contributing party and the Underwriters are the indemnified party, the
relative benefits received by the Company on the one hand, and the Underwriters,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses other
than underwriting discounts and commissions) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the Cover Page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
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<PAGE>
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 7 hereof shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter, the Company, any controlling person of
either the Underwriter or the Company, and shall survive the issuance and
delivery of the Securities to the Underwriters and the Representative, as the
case may be. In addition, the representations contained in Section 1 hereof and
the agreements contained in Sections 5, 7 and 10(b) hereof shall survive the
termination of this Agreement.
9. Effective Date.
(a) This Agreement shall become effective at 5:00
p.m., New York City time, on the date hereof. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, if between the
date of this Agreement and the Closing Date or the Option Closing Date, as the
case may be, (i) any domestic or international event or act or occurrence has
materially disrupted, or in the Representative's reasonable opinion will in the
immediate future materially disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq Stock
Market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on any such exchange or stock market or by order of the Commission or
any other government authority having jurisdiction; or (iv) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (v) if a banking
moratorium has been declared by a state or federal authority; or (vi) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood,
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<PAGE>
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representative's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have been such a material adverse
change in the prospects or conditions of the Company, or such material adverse
change in the general market, political or economic conditions, in the United
States or elsewhere as in the Representative's judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities.
(b) If this Agreement is terminated by the
Representative in accordance with any of the provisions of Section 6, Section
10(a) or Section 12, the Company shall promptly reimburse and indemnify the
Underwriters pursuant to Section 5(b) hereof. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11
and 12 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth. If, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities to be purchased on such date, this
Agreement shall terminate without liability on the part of any nondefaulting
Underwriters.
No action taken pursuant to this Section shall relieve
any defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result
in a termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not
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<PAGE>
exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section shall
relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, c/o National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, with a copy,
which shall not constitute notice, to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attention: Alan I. Annex, Esq.
Notices to the Company shall be directed to the Company at Integrated
Technology USA, Inc., 545 Cedar Lane, Teaneck, New Jersey 07666, with a copy,
which shall not constitute notice, to Ehrenreich & Krause, 1140 Avenue of the
Americas, New York, New York 10036, Attn: Joseph Ehrenreich.
14. Parties. This Agreement shall inure solely to the benefit
of and shall be binding upon the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
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<PAGE>
15. Construction. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of New
York without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, and
all of which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the
Warrant Agreement, and the Representative's Warrant Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Representative and the Company.
If the foregoing correctly sets forth the
understanding between the Underwriters and the Company, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
INTEGRATED TECHNOLOGY USA, INC.
By:______________________________________
Name:
Title:
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<PAGE>
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:____________________________________
Name: Steven A. Rothstein
Title: Chairman
For itself and as Representative of the Underwriters named in Schedule A
hereto.
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SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares Number of
of Common Stock Redeemable Warrants
Name of Underwriters to be Purchased to be Purchased
-------------------- ---------------- --------------------
<S> <C> <C>
National Securities Corporation 1,600,000 1,600,000
First London Securities Corporation 200,000 200,000
Frederick & Company, Inc. 200,000 200,000
Kashner Davidson Securities Corporation 200,000 200,000
Murphey, Marseilles, Smith & Nammack, Inc. 200,000 200,000
Oscar Gruss & Son, Incorporated 200,000 200,000
Smith, Moore & Co. 200,000 200,000
LaJolla Securities Corporation 100,000 100,000
Suppes Securities, Inc. 100,000 100,000
--------- ---------
TOTAL 3,000,000 3,000,000
========= =========
</TABLE>
SCH. A-1
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of October 1, 1996
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of October 1,
1996, between INTEGRATED TECHNOLOGY USA, INC., a Delaware corporation (the
"Company"), and NATIONAL SECURITIES CORPORATION and its assignees or designees
(each hereinafter referred to variously as a "Holder" or "Representative").
W I T N E S S E T H :
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof and entered into between the Company and the Representative, to act as
the representative of the several underwriters listed therein (the
"Underwriters") in connection with the Company's proposed public offering of
3,000,000 shares of Common Stock (as hereinafter defined) at a public offering
price of $6.00 per share and 3,000,000 redeemable warrants (the "Redeemable
Warrants") to purchase one (1) share of Common Stock at an exercise price of
$9.00, per share (the "Public Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company
proposes to issue warrants (the "Representative's Warrants") to the
Representative to purchase up to an aggregate of 300,000 shares of Common Stock
of the Company and/or 300,000 warrants at an exercise price equal to 165% of
the initial public offering price (the "Warrants").
WHEREAS, the Representative's 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 Representative in
consideration for, and as part of the Underwriters' compensation in connection
with, the Representative acting as the representative pursuant to the
Underwriting Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate of three hundred dollars
($300), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Grant. The Representative is hereby collectively granted
the right to purchase, at any time from October 1, 1997 until 5:30 p.m., New
York time, on October 1, 2001, at which time the Representative's Warrants
expire, up to an aggregate of 300,000 shares of Common Stock, $0.01 par value
per share (the "Common Stock"), and/or 300,000 Warrants at the Exercise Price
(as defined in Section 8 hereof). One Warrant is exercisable to purchase one
additional share of Common Stock at an initial exercise price of $14.85 per
share from October 1, 1997 until 5:30 p.m. New York time on October 1, 2001, at
which time the Redeemable Warrants shall expire. Except otherwise as set forth
herein, the shares of Common Stock and the Warrants issuable upon exercise of
the Representative's Warrants are in all respects identical to the shares of
Common Stock and the Redeemable Warrants being purchased by the Underwriters
for resale to the public pursuant to the terms and provisions of the
Underwriting Agreement. The shares of Common Stock and the Warrants issuable
upon exercise of the Representative's Warrants are sometimes hereinafter
referred to collectively as the "Securities."
2. Representative's Warrant Certificates. The
Representative's warrant certificates (the "Warrant Certificates") delivered and
to be delivered pursuant to this Agreement shall be in the form set forth in
Exhibit A, attached hereto and made a part hereof, with such
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appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Registration of Warrant. The Representative's Warrants
shall be numbered and shall be registered on the books of the Company when
issued.
4. Exercise of Representative's Warrant. The
Representative's Warrants initially are exercisable at an aggregate Exercise
Price (subject to adjustment as provided in Section 11 hereof) per share of
Common Stock and Warrant as set forth in Section 8 hereof payable by certified
or official bank check in New York Clearing House funds. Upon surrender of a
Representative's Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price for the
Securities purchased at the Company's principal offices in the United States
(presently located at 545 Cedar Lane, Teaneck, New Jersey 07666), the registered
holder of a Representative's Warrant Certificate ("Holder" or "Holders") shall
be entitled to receive a certificate or certificates for the shares of Common
Stock and/or Warrants so purchased. The purchase rights represented by each
Representative's Warrant Certificate are exercisable at the option of the Holder
thereof, in whole or in part (but not as to fractional shares of Common Stock
and/or Warrants underlying the Representative's Warrants). Representative's
Warrants may be exercised to purchase all or part of the shares of Common Stock
together with an equal or unequal number of the Warrants represented thereby. If
the Company redeems all of the Warrants sold in the Public Offering, then
thereafter the Representative's Warrants may not be exercised to
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purchase any Warrants unless such exercise is accompanied by the simultaneous
exercise of all such Warrants being purchased. In the case of the purchase of
less than all of the shares of Common Stock and/or Warrants purchasable under
any Representative's Warrant Certificate, the Company shall cancel said
Representative's Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Representative's Warrant Certificate of like tenor for
the balance of the shares of Common Stock and/or Warrants purchasable
thereunder.
5. Issuance of Certificates. Upon the exercise of the
Representative's Warrant, the issuance of certificates for shares of Common
Stock and/or Warrants or other securities, properties or rights underlying such
Representative's Warrant shall be made forthwith (and in any event within five
(5) business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 7
and 9 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 Representative's Warrant Certificates and the certificates
representing the shares of Common Stock and/or Warrants or other securities,
property or rights issued upon
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exercise of the Representative's Warrant shall be executed on behalf of the
Company by the manual or facsimile signature of the then present President or
any 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 any Assistant Secretary of the Company. Representative's Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Transfer of Representative's Warrant. The Representative's
Warrant shall be transferable only on the books of the Company maintained at
its principal office, where its principal office may then be located, upon
delivery thereof accompanied by a Form of Assignment (the form of which is
included in Exhibit A hereto) duly endorsed by the Holder or by its duly
authorized attorney or representative accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall execute and deliver the new Representative's
Warrant to the person entitled thereto.
7. Restriction On Transfer of Representative's Warrant. The
Holder of a Representative's Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Representative's Warrant is being acquired as an
investment and not with a view to the distribution thereof, and that the
Representative's Warrant may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for one year from the date
hereof, except to officers or partners of the Underwriters or members of the
selling group, or by operation of law.
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8. Exercise Price.
8.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 11 hereof, the initial exercise price of each
Representative's Warrant shall be $9.90 per share of Common Stock and $.165 per
Warrant. The adjusted exercise price shall be the price which shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 11 hereof. Any transfer of a
Representative's Warrant shall constitute an automatic transfer and assignment
of the registration rights set forth in Section 9 hereof with respect to the
Securities or other securities, properties or rights underlying the
Representative's Warrants.
8.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context or unless otherwise specified.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Representative's Warrant Certificate and each certificate representing shares of
Common Stock and/or Warrants and any of the other securities issuable upon
exercise of the Representative's Warrant (collectively, the "Warrant Shares")
shall bear the following legend unless (i) such Representative's Warrant or
Warrant Shares are distributed to the public or sold to the underwriters for
distribution to the public pursuant to Section 9 hereof or otherwise pursuant to
a registration statement filed under the Securities Act of 1933, as amended (the
"Act"), or (ii) the
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Company has received an opinion of counsel, in form and substance reasonably
satisfactory to counsel for the Company, that such legend is unnecessary for any
such certificate:
THE REPRESENTATIVE'S WARRANT 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 REPRESENTATIVE'S
WARRANT REPRESENTED BY THE CERTIFICATE IS RESTRICTED
IN ACCORDANCE WITH THE REPRESENTATIVE'S WARRANT AGREEMENT
REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing
after the effective date of the Registration Statement relating to the Public
Offering and expiring five (5) years thereafter, the Company proposes to
register any of its securities under the Act (other than in connection with a
merger, or the offering of debt, or pursuant to Form S-4 or Form S-8, or
pursuant to any form that does not permit the registration of the Warrants
and/or the Warrant Shares) it will give written notice by registered mail, at
least twenty (20) days prior to the filing
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of each such registration statement, to the Holders of the Representative's
Warrants and/or the Warrant Shares of its intention to do so (except that the
foregoing shall not apply with respect to the registration statement relating
solely to the resale of shares underlying Bridge Warrants that the Company
proposes to file as described in the Registration Statement relating to the
Public Offering). If any of the Holders of the Representative's Warrants and/or
Warrant Shares notify the Company within ten (10) days after mailing of any
such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford such Holders of the
Representative's Warrants and/or Warrant Shares the opportunity to have any
such Representative's Warrants and/or Warrant Shares registered under such
registration statement. In the event that the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include
in such registration (a) first, the securities the Company proposes to sell,
(b) second, the securities held by the entities, if any, that made the demand
for registration, (c) third, the Representative's Warrants and/or Warrant
Shares requested to be included in such registration which in the opinion of
such underwriter can be sold, pro rata among all proposed selling shareholders.
Notwithstanding the provisions of this Section 9.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 9.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not
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to file any such proposed registration statement or to withdraw the same
after the filing but prior to the effective date thereof.
9.3 Demand Registration.
(a) At any time commencing one (1) year after the
effective date of the Registration Statement relating to the Public Offering
(the "Registration Statement") and expiring five (5) years from the effective
date of the Registration Statement, the Holders of the Representative's Warrants
and/or Warrant Shares representing a "Majority" (as hereinafter defined) of the
Representative's Warrants and/or Warrant Shares shall have the right (which
right is in addition to the registration rights under Section 9.2 hereof),
exercisable by written notice to the Company, to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale by such Holders and any other Holders
of the Representative's Warrant and/or Warrant Shares who notify the Company
within fifteen (15) days after the Company mails notice of such request pursuant
to Section 9.3(b) hereof (collectively, the "Requesting Holders") of their
respective Warrant Shares for the earlier of (i) nine (9) consecutive months
(subject to the following three sentences), or (ii) until the sale of all of the
Warrant Shares requested to be registered by the Requesting Holders. If the
Company determines that any such registration statement that the Company has
filed pursuant to the preceding sentence may no
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longer be used under applicable law unless it is supplemented or amended, the
Company shall notify the Holders that have securities covered by such
registration statement and shall use its reasonable best efforts to effect the
required amendment or supplement reasonably expeditiously and thereafter shall
promptly notify such Holders that such action has been taken. Any Holder that
receives such a notice shall cease making any sales pursuant to such
registration statement until the Company notifies such Holder that the required
supplement or amendment has been duly effected. The nine-month period provided
for in the second preceding sentence shall be extended by the number of days, if
any, that sales under the registration statement may not be made pursuant to the
preceding sentence.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 9.3 by any Holder or
Holders representing a Majority of the Representative's Warrants and/or Warrant
Shares to all other registered Holders of the Representative's Warrants and the
Warrant Shares within ten (10) days from the date of the receipt of any such
registration request.
(c) Intentionally omitted.
(d) Notwithstanding anything to the contrary contained
herein, if the Company shall not have filed a registration statement for the
Warrant Shares within the time period specified in Section 9.4(a) hereof
pursuant to the written notice specified in Section 9.3(a) of the Holders of a
Majority of the Representative's Warrants and/or Warrant Shares, the
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Company, at its option, may repurchase (i) any and all Warrant Shares at the
higher of the Market Price (as defined in Section 9.3(e)) per share of Common
Stock or per Warrant, as the case may be, on (x) the date of the notice sent
pursuant to Section 9.3(a) or (y) the expiration of the period specified in
Section 9.4(a) and (ii) any and all Representative's Warrants at the Market
Price of the Common Stock and Warrants purchasable upon exercise thereof less
the aggregate exercise price payable upon such exercise. Such repurchase shall
be in immediately available funds and shall close within two (2) days after the
expiration of the period specified in Section 9.4(a).
(e) Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
shares of Common Stock and/or Warrants is listed or admitted to trading, or, if
the shares of Common Stock and/or Warrants is not listed or admitted to trading
on any national securities exchange, the average closing sale price as furnished
by the NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar
organization if Nasdaq is no longer reporting such information, or if the shares
of Common Stock and/or Warrants or Common Stock is not quoted on Nasdaq, as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
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9.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Sections 9.2 or 9.3 hereof, the
Company covenants and agrees as follows:
(a) In connection with any registration under Section
9.3 hereof, the Company shall use its reasonable best efforts to file a
registration statement within one hundred and twenty (120) days of receipt of
any demand therefor, and to have any registration statements declared effective
at the earliest possible time, and shall furnish each Holder desiring to sell
Warrant Shares such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of any Holder's counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses and blue sky fees and expenses.
(c) The Company will use its commercially reasonable
efforts to take all necessary action which may be required in qualifying or
registering the Warrant Shares included in a registration statement for offering
and sale under the securities or blue sky laws of such states as reasonably are
requested by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
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(d) The Company shall indemnify the Holder(s) of the
Warrant Shares 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 and subject to
the same procedures as are provided by the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
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Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Representative's Warrant
prior to the initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, without the prior written
consent of National Securities Corporation or as otherwise required by the terms
of any existing registration rights granted prior to the date of this Agreement
by the Company to the holders of any of the Company's 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
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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.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) In connection with any registration under Section
9.3 hereof, the Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Shares requested to be included in such underwriting,
which may be the Representative. Such agreement shall be satisfactory in form
and substance to the Company, each Holder and such managing underwriters, and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Shares and may, at
their option, require that any or all the representations, warranties and
covenants of the Company to or for the benefit of such underwriters shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or
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warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority"
in reference to the Representative's Warrants or Warrant Shares, shall mean in
excess of fifty percent (50%) of the then outstanding Warrant Shares (calculated
as provided in the following sentence) that (i) are not held by the Company, an
affiliate, officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act. For purposes of
the preceding sentence, the Holder of a Representative's Warrant shall be deemed
the holder of the aggregate number of Warrant Shares that are acquirable upon
exercise thereof.
10. Obligations of Holders. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Section 9 hereof that each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Shares held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Shares.
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(b) Notify the Company, at any time when a
prospectus relating to the Warrant Shares covered by a registration statement is
required to be delivered under the Act, of the happening of any event with
respect to such selling Holder as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities.
The Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise of the Representative's Warrant shall be subject to
adjustment from time to time only upon the happening of the following events:
11.1 Stock Dividend, Subdivision and Combination. In
case the Company shall (i) declare a dividend or make a distribution on its
outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
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after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
11.2 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 11,
the number of Warrant Shares issuable upon the exercise at the adjusted Exercise
Price of each Representative's Warrant shall be adjusted to the nearest number
of whole shares of Common Stock by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of the Representative's Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
11.3 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the Company as
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
11.4 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the
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corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Representative's Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Representative's Warrant) to
receive, upon exercise of such Representative's 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 for
which such Representative's Warrant might have been exercised immediately prior
to such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 11. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
11.5 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 two cents ($.02) 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 two cents ($.02) per Representative's Warrant.
12. Exchange and Replacement of Representative's Warrant
Certificates. Each Representative's 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 Representative's Warrant Certificate
of like tenor and date representing in the aggregate the right
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to purchase the same number of Warrant Shares 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
Representative's 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 Representative's Warrant, if mutilated,
the Company will make and deliver a new Warrant Certificate of like tenor, in
lieu thereof.
13. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Representative's Warrant, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights.
14. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the
Representative's Warrant and the Warrants issuable upon exercise thereof, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. Every transfer agent ("Transfer
Agent") for the
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Common Stock and other securities of the Company issuable upon
the exercise of the Representative's Warrant will be irrevocably authorized and
directed at all times to reserve such number of authorized shares of Common
Stock and other securities as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with every Transfer Agent for the
Common Stock and other securities of the Company issuable upon the exercise of
the Representative's Warrant. The Company will supply every such Transfer Agent
with duly executed stock and other certificates, as appropriate, for such
purpose. The Company covenants and agrees that, upon exercise of the
Representative's Warrant 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 Representative's Warrant shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Representative's Warrant to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted on Nasdaq SmallCap Market.
15. Notices to Representative's Warrant Holders. Nothing
contained in this Agreement shall be construed as conferring upon the Holders
the right to vote or to consent or to receive notice as a stockholder in
respect of any meetings of stockholders for the election of directors or any
other matter, or as having any rights whatsoever as a stockholder of the
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Company. If, however, at any time prior to the
expiration of the Representative's Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable 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
(c) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as an entirety
shall be proposed;
then in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution,
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liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
16. Warrants.
The form of the certificate representing the Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of
the Warrants and the form of assignment printed on the reverse thereof) shall
be substantially as set forth in Exhibit "A" to the Warrant Agreement dated as
of the date hereof by and among the Company, the Representative and American
Stock Transfer & Trust Company, as warrant agent (the "Warrant Agreement") with
such changes as are appropriate to reflect the fact that the Warrants have a
different exercise price than the Redeemable Warrants. The exercise price of
the Warrants and the number of shares of Common Stock issuable upon the
exercise of the Warrants are subject to adjustment, whether or not the
Representative's Warrants have been exercised and the Warrants have been
issued, in the manner and upon the occurrence of the events set forth in
Section 8 of the Warrant Agreement, which is hereby incorporated by reference
and made a part hereof as if set forth in its entirety herein. The Company
covenants to, and agrees with, the Holder(s) that without the prior written
consent of the Holder(s), which will not be unreasonably withheld, the Warrant
Agreement will not be modified, amended, canceled, altered or superseded, and
that the Company will send to
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<PAGE>
each Holder, irrespective of whether or not the Representative's Warrants have
been exercised, any and all notices required by the Warrant Agreement to be sent
to holders of the Warrants.
17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) if to the registered Holder of the
Representative's Warrant, to the address of such Holder as shown on the books
of the Company; or
(b) if to the Company, to the address set
forth in Section 4 hereof or to such other address as the Company may
designate by notice to the Holders.
18. Supplements; Amendments; Entire Agreement. This
Agreement (including the Underwriting Agreement to the extent portions thereof
are referred to herein) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
holders of Representative's Warrant Certificates (other than the Representative)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Representative may deem necessary or
-24-
<PAGE>
desirable and which the Company and the Representative deem shall not adversely
affect the interests of the Holders of Representative's Warrant Certificates.
19. Successors. All of 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.
20. Survival of Representations and Warranties.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement herein shall survive.
21. Governing Law. This Agreement and each
Representative's Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Delaware 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.
22. 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.
23. 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.
-25-
<PAGE>
24. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the
Representative's Warrant Certificates or Warrant Shares 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 Representative and any other
Holder(s) of the Representative's Warrant Certificates or Warrant Shares.
25. 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.
-26-
<PAGE>
IN WITNESS OF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
ATTEST: INTEGRATED TECHNOLOGY USA, INC.
_______________________________
By:_____________________________
Secretary Name:
Title:
NATIONAL SECURITIES CORPORATION
By:_____________________________
Name: Steven A. Rothstein
Title: Chairman
-27-
<PAGE>
EXHIBIT A
[FORM OF REPRESENTATIVE'S WARRANT CERTIFICATE]
THE REPRESENTATIVE'S WARRANT 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 REPRESENTATIVE'S WARRANT
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, OCTOBER 1, 2001
Representative's Warrant No. ______
____ Shares of Common Stock and/or ____ Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________________,
or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from October 1, 1997 until 5:30 p.m., New York time on
October 1, 2001 ("Expiration Date"), up to ____ shares of Common Stock and/or
____ Warrants at the initial exercise price, subject to adjustment in certain
events, of $9.90 per share of Common Stock and $.165 per Redeemable Warrant (the
"Exercise Price") upon surrender of this Representative's 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 Representative's Warrant
Agreement dated as of October 1, 1996 between the Company and National
Securities Corporation (the "Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company.
EXH. A-1
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time,
on the Expiration Date, at which time all Representative's Warrant evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Representative's Warrant evidenced by this Warrant
Certificate are part of a duly authorized issue of Representative's Warrants
issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Representative's Warrant.
The 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
Representative's Warrant; 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 Warrant
Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Representative's Warrant shall be issued to the
transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided herein and in the Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with such
transfer.
Upon the exercise of less than all of the Representative's
Warrant evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new Warrant Certificate representing such numbered unexercised
Representative's Warrant.
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 Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
EXH. A-2
<PAGE>
This Warrant Certificate does not entitle any holder thereof
to any of the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of October 1, 1996.
ATTEST: INTEGRATED TECHNOLOGY USA, INC.
___________________________
By: _____________________________
Secretary Name:
Title:
EXH. A-3
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____ shares of
Common Stock and/or ____ Warrants and herewith tenders in payment for such
securities a certified or official bank check payable in New York Clearing
House Funds to the order of Integrated Technology USA, Inc. (the "Company") in
the amount of $_____, all in accordance with the terms of Section 4 of the
Representative's Warrant Agreement dated as of October 1, 1996 between the
Company and National Securities Corporation. The undersigned requests that a
certificate for such securities be registered in the name of
______________________________, whose address is
_______________________________________________________________________________
and that such certificate be delivered to ___________________, whose address is
_____________________, and if said number of shares shall not be all the shares
purchasable hereunder, that a new Warrant Certificate for the balance of the
shares purchasable under the within Warrant Certificate be registered in the
name of the undesigned warrantholder or his assignee as below indicated and
delivered to the address stated below.
Dated: ________________
Signature: _____________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
Address: ________________________________________
________________________________________
_________________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed: _________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH. A-4
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers
unto [NAME 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, with full power of substitution.
Dated: _________________
Signature: ___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant Certificate.)
Address: _____________________________________
_____________________________________
_____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature Guaranteed: _________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH. A-5
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
-----------------------
WARRANT AGREEMENT
Dated as of October 1, 1996
<PAGE>
AGREEMENT, dated this 1st day of October, 1996, by and
between INTEGRATED TECHNOLOGY USA, INC., a Delaware corporation (the
"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York
corporation, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the Company's offering to the
public of 3,000,000 shares of Common Stock (as defined in Section 1), and
3,000,000 redeemable common stock purchase warrants (the "Public Warrants"),
each warrant entitling the holder thereof to purchase one additional share of
Common Stock; (ii) the over-allotment option granted to the underwriters to
purchase up to an additional 450,000 shares of Common Stock and 450,000
Warrants (the "Over-allotment Option"); and (iii) the sale to National
Securities Corporation ("National") of warrants (the "Representative's
Warrants") to purchase up to 300,000 shares of Common Stock and/or 300,000
warrants (the "Private Warrants" and together with the Public Warrants, the
"Warrants"), the Company will issue up to 3,750,000 Warrants; and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in
connection with the issuance, registration, transfer, exchange and redemption
of the Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
National, the holders of certificates representing the Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933,
as amended.
(b) "AMEX" shall mean the American Stock
Exchange.
1
<PAGE>
(c) "Common Stock" shall mean the authorized
stock of the Company of any class, whether now or hereafter authorized, which
has the right to participate in the voting and in the distribution of earnings
and assets of the Company without limit as to amount or percentage which at the
date hereof consists of 40,000,000 shares of Common Stock, par value $.01 per
share.
(d) "Commission" shall mean the Securities and
Exchange Commission.
(e) "Corporate Office" shall mean the office of
the Warrant Agent (or its successor) at which at any particular time its
business in New York, New York, shall be administered, which office is located
on the date hereof c/o American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York 10005.
(f) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(g) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Exercise Price (as hereinafter
defined) in good funds.
(h) "Exercise Price" shall mean, subject to
modification and adjustment as provided in Section 8, with respect to each
Public Warrant $9.00 per share and with respect to each Private Warrant $14.85
per share, each further subject to the Company's right, in its sole discretion,
to decrease the Exercise Price for a period of not less than 30 days on not less
than 30 days' prior written notice to the Registered Holders and National.
(i) "Initial Warrant Exercise Date" shall mean
October 1, 1997.
(j) "Initial Warrant Redemption Date" shall mean
April 1, 1998.
(k) "Redemption Date" shall mean the date (which
may not occur before the Initial Warrant Redemption Date) fixed for the
redemption of the Warrants in accordance with the terms hereof.
(l) "Redemption Price" shall mean the price at
which the Company
2
<PAGE>
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.01 per Warrant, subject to adjustment from time to
time pursuant to the provisions of Section 9 hereof.
(m) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(n) "Representative's Warrant Agreement" shall
mean the agreement dated as of October 1, 1996 between the Company and National
relating to and governing the terms and provisions of the Representative's
Warrants.
(o) "Transfer Agent" shall mean American Stock
Transfer & Trust Company, or its authorized successor.
(p) "Underwriting Agreement" shall mean the
underwriting agreement dated October 1, 1996 between the Company and the several
underwriters listed therein relating to the purchase for resale to the public of
3,000,000 shares of Common Stock and 3,000,000 Warrants.
(q) "Warrant Certificate" shall mean a
certificate representing each of the Warrants substantially in the form annexed
hereto as Exhibit A.
(r) "Warrant Expiration Date" shall mean, unless
the Warrants are redeemed as provided in Section 9 hereof prior to such date,
5:00 p.m. (New York time), on October 1, 2001, or the Redemption Date as defined
herein, whichever date is earlier; provided that if such date shall in the State
of New York be a holiday or a day on which banks are authorized to close, then
5:00 p.m. (New York time) on the next following day which, in the State of New
York, is not a holiday or a day on which banks are authorized to close. Upon
five business days' prior written notice to the Registered Holders, the Company
shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Exercise Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock upon the exercise
thereof in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing
3
<PAGE>
the number of Warrants that may be sold pursuant to the Underwriting Agreement
including pursuant to the Over allotment Option (subject to modification and
adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(c) Upon exercise of the Representative's
Warrants as provided therein, Warrant Certificates representing all or a portion
of 300,000 Private Warrants to purchase up to an aggregate of 300,000 shares of
Common Stock (subject to modification and adjustment as provided in Section 8
hereof and in the Representative's Warrant Agreement), shall be countersigned,
issued and delivered by the Warrant Agent upon written order of the Company
signed by its Chairman of the Board, Chief Executive Officer, President or a
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary.
(d) From time to time, up to the Warrant
Expiration Date or the Redemption Date, whichever date is earlier, the Warrant
Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. Except as provided herein, no Warrant Certificates shall be issued
except (i) Warrant Certificates initially issued hereunder and those issued on
or after the Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants held by the exercising Registered Holder, (ii) Warrant Certificates
issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7, (iv) Warrant Certificates issued pursuant to
the Representative's Warrant Agreement, and (v) at the option of the Company,
Warrant Certificates in such form as may be approved by its Board of Directors,
to reflect any adjustment or change in the Exercise Price, the number of shares
of Common Stock purchasable upon exercise of the Warrants or the Redemption
Price therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be
substantially in the form annexed hereto as Exhibit A (the provisions of which
are hereby incorporated herein) and may have such letters, numbers or other
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter "W" on the Warrants.
4
<PAGE>
(b) Warrant Certificates shall be executed on
behalf of the Company by its Chairman of the Board, Chief Executive Officer,
President or any Vice President and by its Treasurer or an Assistant Treasurer
or its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
any case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to
the Registered Holder promptly and without further action by the Company, except
as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole
number multiples thereof may be exercised by the Registered Holder thereof
commencing at any time on or after the Initial Warrant Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the conditions
set forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder, upon exercise
thereof, as of the close of business on the Exercise Date. If Warrants in
denominations other than whole number multiples thereof shall be exercised at
one time by the same Registered Holder, the number of full shares of Common
Stock which shall be issuable upon exercise thereof shall be computed on the
basis of the aggregate number of full shares of Common Stock issuable upon such
exercise. As soon as practicable on or after the Exercise Date and in any event
within five business days after such date, if one or more Warrants have been
exercised, the Warrant Agent on behalf of the Company shall cause to be issued
to the person or persons entitled to receive the same a Common Stock certificate
or certificates for the shares of Common Stock deliverable upon such exercise,
and the Warrant Agent shall deliver the same to the person or persons entitled
thereto. Upon the exercise of any one or more Warrants, the Warrant Agent shall
promptly notify the Company in writing of such fact and of the number of
securities delivered upon such exercise and, subject to subsection (b) below,
shall cause all payments of an amount in cash or by check made payable to the
order of the Company, equal to the Exercise Price, to be deposited promptly in
the Company's bank account.
(b) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised
in such multiples as are required to permit the issuance by the Company of one
or more whole shares. If one or more Warrants
5
<PAGE>
shall be presented for exercise in full at the same time by the same Registered
Holder, the number of whole shares which shall be issuable upon such exercise
thereof shall be computed on the basis of the aggregate number of shares
purchasable on exercise of the Warrants presented. If any fraction of a share
would, except for the provisions provided herein, be issuable on the exercise
of any Warrant (or specified portion thereof), the Company shall pay an amount
in cash equal to such fraction multiplied by the then current market value of a
share of Common Stock, determined as follows:
(1) If the Common Stock is listed or admitted to
unlisted trading privileges on one or more national securities exchanges and/or
is quoted through the Nasdaq Stock Market, the current market value of a share
of Common Stock shall be the closing sale price of the Common Stock at the end
of the regular trading session on the last business day prior to the date of
exercise of the Warrants on whichever of such exchanges or stock market had the
highest daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or
admitted to unlisted trading privileges on any national securities exchange and
is not quoted through the Nasdaq Stock Market, but is traded in the
over-the-counter market, the current market value of a share of Common Stock
shall be the average of the last reported bid and asked prices of the Common
Stock reported by the National Quotation Bureau, Inc. (or any successor) on the
last business day prior to the date of exercise of the Warrants; or
(3) If neither clause (1) nor clause (2)
immediately above is applicable, the current market value of a share of Common
Stock shall be an amount, not less than the book value thereof as of the end of
the most recently completed fiscal quarter of the Company ending prior to the
date of exercise, determined by the Board of Directors of the Company exercising
good faith and using customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all
times reserve and keep available out of its authorized Common Stock, solely for
the purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issue thereof,
and that upon issuance such shares shall be listed on each securities exchange,
if any, on which the other shares of outstanding Common Stock of the Company are
then listed.
6
<PAGE>
(b) The Company covenants that if any securities
to be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will file a registration statement under the
federal securities laws or a post-effective amendment, use its reasonable best
efforts to cause the same to become effective and to keep such registration
statement current while any of the Warrants are outstanding and deliver a
prospectus which complies with Section 10(a)(3) of the Act, to the Registered
Holder exercising the Warrant (except, if in the opinion of counsel to the
Company, such registration or delivery is not required under the federal
securities law or if the Company receives a letter from the staff of the
Commission stating that it would not take any enforcement action if such
registration is not effected). The Company will use its reasonable best efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp
or similar taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for
other Warrant Certificates representing an equal aggregate number of Warrants of
the same class or may be transferred in whole or in part. Warrant Certificates
to be exchanged shall be surrendered to the Warrant Agent at its Corporate
Office, and, upon satisfaction of the terms and provisions hereof, the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office,
books in which, subject
7
<PAGE>
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with customary practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants of the same
class.
(c) With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the
Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for
exercise or for exchange shall be promptly canceled by the Warrant Agent and
thereafter retained by the Warrant Agent until termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership of and
the loss, theft, destruction or mutilation of any Warrant Certificate and (in
the case of loss, theft or destruction) of indemnity satisfactory to them, and
(in case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to the
Company and/or the Warrant Agent that a new Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the Registered
Holder in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Exercise Price and Number of Shares
of Common
8
<PAGE>
Stock Deliverable.
(a) Except as hereinafter provided, in the event
the Company shall, at any time or from time to time after the date hereof and
during the term of the Warrants, issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any such
issuance, subdivision or combination being herein called a "Change of Shares"),
then, and thereafter upon each further Change of Shares, the Exercise Price for
the Warrants (whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (i) the total number of shares of Common Stock outstanding immediately
prior to such Change of Shares, multiplied by the Exercise Price in effect
immediately prior to such Change of Shares by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in
accordance with this Section 8(a), shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or distribution.
(b) Upon each adjustment of the Exercise Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Exercise Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Exercise Price.
(c) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of subdivision or
combination)) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the
9
<PAGE>
Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its Chief Executive
Officer, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Sections
8(a) and (b). The above provisions of this Section 8(c) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes
in the Exercise Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Exercise
Price per share and the number of shares purchasable thereunder as the Exercise
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Exercise Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Exercise Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Registered Holder at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated herein.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on 30 days' prior written notice, redeem all the Warrants
at one cent ($0.01) per Warrant,
10
<PAGE>
provided, however, that before any such call for redemption of Warrants can take
place, the average closing bid price for the Common Stock as reported by the
AMEX, if the Common Stock is then traded on the AMEX (or the average closing
sale price, if the Common Stock is then traded on the Nasdaq National Market)
shall have equalled or exceeded $15.00 per share (the "Minimum Price") for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the date on which the notice
contemplated by (b) and (c) below is given. In the event that at any time, or
from time to time, the Exercise Price is adjusted pursuant to Section 8, then
the Minimum Price shall be adjusted by a correspondence percentage (e.g., if the
Exercise Price is increased by 50% the Minimum Price shall be increased by 50%,
and if the Exercise Price is decreased by 50% the Minimum Price shall be
decreased by 50%).
(b) In case the Company shall exercise its right
to redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provide herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the Warrants
of the notice of redemption, the Company shall deliver or cause to be delivered
to National a similar notice telephonically and confirmed in writing.
(c) The notice of redemption shall specify (i)
the redemption price, (ii) the Redemption Date, which shall in no event be less
than thirty (30) days after the date of mailing of such notice, (iii) the place
where the Warrant Certificate shall be delivered and the redemption price shall
be paid, and (iv) that the right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the date fixed
for redemption. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall
terminate at 5:00 p.m. (New York time) on the business day immediately preceding
the Redemption Date. The redemption price payable to the Registered Holders
shall be mailed to such persons at their addresses of record.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent
and in a ministerial capacity for the Company and National, and its duties shall
be determined solely by the provisions
11
<PAGE>
hereof. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be
under any duty or responsibility to any holder of Warrant Certificates to make
or cause to be made any adjustment of the Exercise Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence, bad faith or
willful misconduct.
(c) The Warrant Agent may at any time consult
with counsel satisfactory to it (who may be counsel for the Company or for
National) and shall incur no liability or responsibility for any action taken,
suffered or omitted by it in good faith in accordance with the opinion or advice
of such counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, Chief Financial Officer, President or any Vice President (unless other
evidence in respect thereof is herein specifically prescribed). The Warrant
Agent shall not be liable for any action taken, suffered or omitted by it in
accordance with such notice, statement, instruction, request, direction, order
or demand reasonably believed by it to be genuine.
(e) The Warrant Agent may resign its duties and
be discharged from all further duties and liabilities hereunder (except
liabilities relating to any period prior to such resignation or resulting as a
result of the Warrant Agent's own negligence, bad faith or willful misconduct),
after giving 30 days' prior written notice to the Company. At least 15 days
prior to the date such resignation is to become effective, the Warrant Agent
shall cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of 15 days after it has been notified
in writing of such
12
<PAGE>
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(f) Any corporation into which the Warrant Agent
or any new warrant agent may be converted or merged, any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant agent shall
be a party, or any corporation succeeding to the corporate trust or stock
transfer business of the Warrant Agent or any new warrant agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holders of each Warrant
Certificate.
(g) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as though
it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall retain for a period
of two years from the date of exercise any Warrant Certificate received by it
upon such exercise.
(i) The Company agrees to reimburse the Warrant
Agent for all expenses, taxes and governmental charges and other charges of any
kind and nature incurred by the Warrant Agent in the execution of this Agreement
and to indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in the execution of this Agreement
except as a result of the Warrant Agent's negligence, bad faith or willful
misconduct.
13
<PAGE>
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Warrant Certificates; provided, however, that
this Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or to increase the Exercise Price therefor or
to accelerate of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing
such Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of
National, other than to cure any ambiguity or to correct any provision which is
inconsistent with any other provision of this Agreement or to make any such
change that is necessary or desirable and which shall not adversely affect the
interests of National and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at Integrated Technology USA, Inc., 545 Cedar Lane,
Teaneck, New Jersey 07666, Attention: President, or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at 40 Wall Street, New York, New York 10005, or to such
other address as may have been furnished to the Company in writing by the
Warrant Agent. Copies of any notice delivered pursuant to this Agreement shall
also be delivered to National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154-1100, Attention: General Counsel, or at such
other address as may have been furnished to the Company and the Warrant Agent
in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the state of New York without giving effect to
conflicts of laws.
14
<PAGE>
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company and the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer
upon any other person any right, remedy or claim, in equity or at law, or to
impose upon any other person any duty, liability or obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on
the Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
15
<PAGE>
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the first date first above written.
INTEGRATED TECHNOLOGY
USA, INC.
By:
--------------------------
Name:
Title:
AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant
Agent
By:
--------------------------
16
<PAGE>
EXHIBIT A
No. W _______ VOID AFTER OCTOBER 1, 2001
____________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
INTEGRATED TECHNOLOGY USA, INC.
CUSIP # 45813T 116
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or its registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value
$.01 per share, of Integrated Technology USA, Inc. (the "Company"), at any time
between October 1, 1997, and the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $_____ per share [Public
Warrant = $9.00 and Private Warrant = $14.85], subject to adjustment (the
"Exercise Price"), in lawful money of the United States of America in cash or
by check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
October 1, 1996, by and between the Company, and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered
1
<PAGE>
Holder, but no fractional interests will be issued. In the case of the exercise
of less than all the Warrants represented hereby, the Company shall cancel this
Warrant Certificate upon the surrender hereof and shall execute and deliver a
new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant
Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York
time) on the date which is four (4) years after the Initial Warrant Exercise
Date. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company
has covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its reasonable best efforts to cause the same to
become effective, use its reasonable best efforts to keep such registration
statement current, if required under the Act, while any of the Warrants are
outstanding, and deliver a prospectus which complies with Section 10(a)(3) of
the Act to the Registered Holder exercising this Warrant. This Warrant shall
not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment for
registration of transfer of this Warrant Certificate at such office and payment
of any tax or other charge imposed in connection therewith or incident thereto,
a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$0.01 per Warrant, at any time commencing after April 1, 1998, provided that
the average closing bid price for the Common Stock as reported by the AMEX, if
the Common Stock is then traded on the AMEX (or the average closing sale price,
if the Common Stock is then traded on the Nasdaq National Market),
2
<PAGE>
shall have equalled or exceeded $15.00 per share for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the Notice of Redemption, as defined below (subject to
adjustment in the event of any stock splits or other similar events as provided
in the Warrant Agreement). Notice of redemption (the "Notice of Redemption")
shall be given not later than the thirtieth day before the date fixed for
redemption as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants except to receive the $0.01 per Warrant upon surrender of this Warrant
Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated:
[SEAL] INTEGRATED TECHNOLOGY USA, INC.
By:
----------------------------
Name:
Title:
By:
----------------------------
, Secretary
COUNTERSIGNED:
- -----------------------------,
as Warrant Agent
By:
-------------------------
Authorized Officer
4
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects
to exercise ________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
(please print or type name and address)
and be delivered to
------------------------------------------
------------------------------------------
------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
5
<PAGE>
Dated: ______________________
__________________________________
----------------------------------
----------------------------------
Address
---------------------------------
Social Security or Taxpayer Identification
Number
---------------------------------
Signature Guaranteed
---------------------------------
6
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
______________________________________ of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
__________________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: _____________________
----------------------------------
Signatured Guaranteed
----------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN
7
<PAGE>
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
8
<PAGE>
Integrated Technology USA, Inc. Exhibit 11.1
Earnings per share
<TABLE>
<CAPTION>
Days Shares Weighted Weighted Avg. Net Net Loss
Period Outstanding Outstanding Outstanding Shares Shares Loss Per Share
------------------ ----------- ----------- ------ ------ ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Three months ended
September 30,1995
Balance at 7/1/95 7/1/95 - 9/30/95 92 2,729,668 251,129,456 2,729,668
Cheap stock issued 7/1/95 - 9/30/95 (A) 92 83,532 7,684,944 83,532
Cheap stock issued 7/1/95 - 9/30/95 (A) 92 116,978 10,761,976 116,978
1995/1996 cheap warrants/options 7/1/95 - 9/30/95 (A) 92 204,020 18,769,840 204,020
---------- ----------
3,134,198 3,134,198 (284,298) (0.09)
---------- ----------
Nine months ended
September 30,1995
Balance at 1/1/95 1/1/95- 9/30/95 273 2,430,755 663,596,094 2,430,755
Shares issued 2/15/95-9/30/95 228 298,913 68,152,115 249,642
Cheap stock issued 1/1/95-9/30/95 (A) 273 83,532 22,804,315 83,532
Cheap stock issued 1/1/95-9/30/95 (A) 273 116,978 31,934,904 116,978
1995/96 cheap warrants/options 1/1/95-9/30/95 (A) 273 204,020 55,697,460 204,020
---------- ----------
3,134,198 3,084,927 (1,033,074) (0.34)
---------- ----------
Three months ended
September 30, 1996
Balance at 1/1/96 7/1/96 - 9/30/96 92 2,930,178 269,576,376 2,930,178
1995/1996 cheap warrants/options 7/1/96 - 9/30/96 (A) 92 204,020 18,769,840 204,020
---------- ----------
3,134,198 3,134,198 (839,581) (0.27)
---------- ----------
Nine months ended
September 30, 1996
Balance at 1/1/96 1/1/96 - 9/30/96 274 2,930,178 802,868,772 2,930,178
1/1/96 - 9/30/96(A) 274 204,020 55,901,480 204,020
---------- ----------
3,134,198 3,134,198 (1,788,738) (0.57)
---------- ----------
</TABLE>
(A) Computed using the treasury stock method and an estimated offering price
prior to the IPO.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 152,540
<SECURITIES> 0
<RECEIVABLES> 198,181
<ALLOWANCES> 60,015
<INVENTORY> 320,037
<CURRENT-ASSETS> 1,225,801
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,353,933
<CURRENT-LIABILITIES> 2,025,565
<BONDS> 0
0
0
<COMMON> 29,812
<OTHER-SE> 6,171,006
<TOTAL-LIABILITY-AND-EQUITY> 1,353,933
<SALES> 634,158
<TOTAL-REVENUES> 634,158
<CGS> 448,556
<TOTAL-COSTS> 448,556
<OTHER-EXPENSES> 261,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391,725
<INCOME-PRETAX> (1,788,738)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,788,738)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
