<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996
REGISTRATION NO. 333-11217
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
JAVELIN SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3571 52-1945748
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2882C WALNUT AVENUE, TUSTIN, CALIFORNIA 92780; (714) 734-1390
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL
PLACE OF BUSINESS)
RICHARD P. STACK, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2882C WALNUT AVENUE, TUSTIN, CALIFORNIA 92780; (714) 734-1390
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
Copies to:
<TABLE>
<S> <C>
JEREMY D. GLASER, ESQ. RUSSELL M. FRANDSEN, ESQ.
ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP RADCLIFF, FRANDSEN, TRICKER & DONGELL
18400 VON KARMAN AVENUE, 4TH FLOOR 777 SOUTH FIGUEROA, 40TH FLOOR
IRVINE, CALIFORNIA 92612 LOS ANGELES, CALIFORNIA 90017
(714) 553-1313 (213) 614-1990
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
JAVELIN SYSTEMS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM
SB-2 REGISTRATION STATEMENT.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEMS
AND HEADINGS LOCATION IN PROSPECTUS
------------------------------ -------------------------------------------
<C> <S> <C>
1. Front of Registration
Statement and Outside Front
Cover of Prospectus.......... Facing Page; Cover Page of Prospectus.
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front and Outside Back Cover Pages
of Prospectus; Additional Information.
3. Summary Information and Risk
Factors...................... Prospectus Summary; Risk Factors.
4. Use of Proceeds............... Use of Proceeds.
5. Determination of Offering
Price........................ Cover Page of Prospectus; Underwriting.
6. Dilution...................... Dilution.
7. Selling Security Holders...... Security Ownership of Certain Beneficial
Owners and Management; Selling
Stockholders.
8. Plan of Distribution.......... Cover Page of Prospectus; Underwriting.
9. Legal Proceedings............. Business--Legal Proceedings.
10. Directors, Executive Officers,
Promoters and Control
Persons...................... Management.
11. Security Ownership of Certain
Beneficial Owners and
Management................... Security Ownership of Certain Beneficial
Owners and Management.
12. Description of Securities..... Description of Capital Stock.
13. Interest of Named Experts and
Counsel...................... Not Applicable.
14. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Description of Capital Stock--Certain
Provisions of Delaware Law and Charter
Documents; Underwriting.
15. Organization Within Last Five
Years........................ Management--Certain Transactions.
16. Description of Business....... Prospectus Summary; Business.
17. Management's Discussion and
Analysis or Plan of
Operation.................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
18. Description of Property....... Business--Properties.
19. Certain Relationships and
Related Transactions......... Management--Certain Transactions.
20. Market for Common Equity and
Related Stockholder Matters.. Cover Page of Prospectus; Description of
Capital Stock; Shares Eligible For Future
Sale; Dividend Policy.
21. Executive Compensation........ Management--Executive Compensation.
22. Financial Statements.......... Selected Financial Data; Index to Financial
Statements.
23. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure................... Not Applicable.
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 3, 1996
850,000 SHARES
JAVELIN SYSTEMS, INC.
COMMON STOCK
All of the 850,000 shares of common stock, $.01 par value (the "Common
Stock"), offered hereby are being sold by Javelin Systems, Inc. (the
"Company"). Prior to this offering there has been no public market for the
Company's Common Stock. It is currently estimated that the initial public
offering price will be between $5.00 and $7.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price. The Company has made application to have the
Common Stock approved for quotation on the Nasdaq SmallCap Market under the
symbol "JVLN."
-----------
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 6 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- --------------------------------------------------------------------------------
Total(3).................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Excludes a non-accountable expense allowance payable to Meridian Capital
Group, Inc., the representative (the "Representative") of the several
Underwriters (the "Underwriters"), and the value of warrants to be issued
to the Representative or its designees to purchase up to 85,000 shares of
Common Stock (the "Representative's Warrants"). The Company (and the
Selling Stockholders (as defined below) with respect to the over-allotment
option) has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses, other than underwriting discounts and
commissions, payable by the Company, estimated to be approximately
$455,000, including the Representative's non-accountable expense allowance.
(3) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted the Underwriters a 45-day option to purchase up
to 111,250 and 16,250 additional shares of Common Stock, respectively, on
the same terms and conditions as set forth above solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ and $ , respectively, and the Selling
Stockholders will receive proceeds of $ . See "Security Ownership of
Certain Beneficial Owners and Management" and "Underwriting."
-----------
The shares of Common Stock are being offered severally by the Underwriters
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to reject any order in whole or in part and to withdraw, cancel or
modify the offer without notice. It is expected that delivery of the shares
will be made at the offices of Meridian Capital Group, Inc., Newport Beach,
California, on or about , 1996.
-----------
MERIDIAN CAPITAL GROUP, INC.
SHARPE CAPITAL, INC.
The date of this Prospectus is , 1996.
<PAGE>
[COLOR PHOTOGRAPHS]
Established in 1995, Javelin Systems provides quick service restaurants, full
service restaurants, hospitality and retail establishments with a hardware
solution for transaction processing, in-store controls, and management
information.
Javelin Systems Inc.'s customer-base includes companies such as, Hospitality
Systems, Inc., Positran Inc., Custom Business Solutions, Inc., POSNET Computer
Inc. and Touch Menus, whose customers include:
[LOGO BURGER KING]
[LOGO CHART HOUSE]
[LOGO KOO-KOO-ROO]
[LOGO MIMIS CAFE]
[LOGO TACO BELL]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS CERTIFIED BY ITS INDEPENDENT AUDITORS
AND QUARTERLY REPORTS FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR
CONTAINING UNAUDITED FINANCIAL INFORMATION.
This Prospectus refers to certain trademarks of the Company and certain
companies other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus (i) assumes that there
has been no exercise of (a) the Underwriters' over-allotment option, (b)
outstanding options to purchase shares of Common Stock granted or to be granted
under the Company's 1996 Stock Incentive Award Plan and (c) outstanding
warrants to purchase shares of Common Stock issued in connection with the
Company's calendar year 1996 private placement and (ii) reflects a 4,300 for 1
stock split of the Common Stock effected in August 1996.
THE COMPANY
Javelin Systems, Inc. (the "Company") designs, develops, markets and sells
open system touch screen point-of-sale ("POS") computers primarily for the
foodservice industry. The Company's POS systems integrate substantially all of
the functionality of a standard desktop PC into a small footprint, network
ready package and run on industry standard operating systems, such as
Microsoft's DOS, Windows, Windows 95 and Windows NT. The Company's POS systems
provide quick service restaurants ("QSR"), full service restaurants and
hospitality and retail establishments with a hardware solution for transaction
processing, in-store controls and management information. The Company's systems
are sealed to protect against spillage and other foreign matter entering the
interior electronic chamber. The Company's systems are currently being marketed
by a number of original equipment manufacturers ("OEMs") and value added
resellers ("VARs"). The Company believes it has achieved a strategic advantage
by introducing higher performance POS systems that integrate many of the most
recent technological innovations.
While PC-based systems have become the standard platform in most industries,
the foodservice POS industry is a unique vertical market that has not kept pace
with the technological developments and productivity gains associated with most
other industries. Traditional POS systems have typically been proprietary and
inflexible and could not be easily integrated into the organization's
management information system. In response to these industry conditions, the
Company has elected to focus its efforts on the development and sale of open
system PC-based hardware that addresses the increasing industry demand for open
system restaurant management software written around Microsoft operating
systems and hardware that uses Intel or similar microprocessors.
The Company believes that it has established a competitive advantage because
of its engineering, product management and marketing experience refined in the
PC industry. The Company's growth strategies include enhancing its emerging
position as a leading OEM supplier by: incorporating the latest PC technology
in its POS systems in order to achieve a technological advantage; focusing on
rapidly launching new products in order to achieve product-to-market time
advantage; outsourcing manufacturing and maximizing in-house design expertise
in order to reduce production and overhead costs; using OEMs and VARs to
provide more comprehensive and accelerated market penetration; and expanding
the sale of its products into additional industries. These strategies have
resulted in the rapid deployment of the Company's products in numerous
establishments, such as some Taco Bell, Kenny Rogers Roasters and Blimpies
locations.
The Company's products are primarily distributed through strategic
relationships with OEMs and VARs, which allows the Company to take advantage of
the existing name recognition and market position of its strategic partners and
reach a broader market for its products while avoiding incurring significant
expenditures for sales, marketing, technical support and service. In addition,
the Company works closely with POS software providers in order to market the
Company's products to the software providers' VARs, thereby enabling the VARs
to offer a complete POS solution.
3
<PAGE>
The Company's products are manufactured by third party contract manufacturers
located in Hong Kong and California.
The Company was incorporated in Delaware on September 19, 1995, and its
principal office is located at 2882C Walnut Avenue, Tustin, California 92780.
Its telephone number is (714) 734-1390 and its address on the World Wide Web is
http://www.jvln.com.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 850,000 shares
Common Stock to be outstanding after the offering. 2,954,250 shares(1)
Risk factors...................................... This offering involves a
high degree of risk. See
"Risk Factors."
Use of proceeds by the Company.................... To fund increased inventory
and accounts receivable,
repay approximately
$725,000 of indebtedness,
increase marketing
expenditures, add marketing
and sales personnel,
increase capital
expenditures, including
purchasing test equipment
and tooling, increase
engineering and operations
personnel and for working
capital and other general
corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq SmallCap Market symbol............ JVLN
</TABLE>
- --------
(1) Excludes (i) 111,250 shares which may be purchased from the Company by the
Underwriters to cover over-allotments, if any, (ii) 85,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii)
300,000 shares of Common Stock issuable in the future upon exercise of
options granted or to be granted under the Company's 1996 Stock Incentive
Award Plan (the "Incentive Plan") and (iv) 137,500 shares of Common Stock
(assuming an initial public offering price of $6.00 per share) issuable
upon exercise of warrants (the "Private Placement Warrants") issued to
certain investors in connection with the Company's calendar year 1996
private placement (the "1996 Private Placement"). See "Underwriting;"
"Management--Stock Incentive Award Plan" and "Description of Capital
Stock."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
INCEPTION TO
JUNE 30, 1996(1)
----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................... $1,463,627
Cost of sales................................................ 1,104,171
----------
Gross profit................................................. 359,456
Operating expenses........................................... 375,002
----------
Operating loss............................................... (15,546)
Interest expense............................................. 38,796
----------
Net loss..................................................... $ (54,342)
==========
Net loss per share(2)........................................ $ (0.03)
==========
Shares used in computing net loss per share(2)............... 2,086,260
==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA(3):
Cash................................................. $ 6,404 $4,016,404
Working capital...................................... 232,246 4,292,246
Total assets......................................... 951,313 4,961,313
Long-term debt and notes payable to stockholders, net
of current portion.................................. 75,000 --
Total stockholders' equity........................... 195,019 4,330,019
</TABLE>
- --------
(1) The Company commenced business on September 19, 1995, accordingly, the
fiscal year ended June 30, 1996 contains less than twelve months.
(2) See Note 1 of Notes to Financial Statements for a description of the
calculation of net loss per share.
(3) The Balance Sheet Data does not include approximately $600,000 of
indebtedness incurred after June 30, 1996 that will also be repaid out of
the proceeds of this offering. See "Use of Proceeds."
(4) Adjusted to give effect to the sale by the Company of the 850,000 shares of
Common Stock offered hereby at an assumed public offering price of $6.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing any shares of Common Stock offered hereby. An
investment in the Common Stock offered hereby is speculative in nature and
involves a high degree of risk.
START-UP COMPANY; LACK OF OPERATING HISTORY
The Company was incorporated in September 1995 and commenced shipment of its
initial products in December 1995. Consequently, the Company has an unproven
track record and extremely limited operating history upon which an evaluation
of the Company and its prospects can be based. Because of the Company's
extremely limited operating history, the Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development. To address these
risks, the Company must, among other things, respond to competitive
developments, continue to attract, retain and motivate qualified personnel,
continue to develop and improve its technologies and products and continue to
expand its customer base and distribution network. There can be no assurance
that the Company will be successful in addressing such risks. Moreover,
because of the relatively short period of time during which the Company has
been in operation, there can be no assurance that the Company will be able to
successfully market its products over an extended period of time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HISTORY OF OPERATING LOSSES; CONTINUED PROFITABILITY UNCERTAIN; EXPECTED NON-
RECURRING INTEREST EXPENSE
From September 1995 through the present, the Company has expended
significant resources in developing its technologies and products and
establishing distribution channels for its products, which has resulted in the
Company incurring net losses of approximately $54,300 from inception through
June 30, 1996. During the quarter ended June 30, 1996, however, the Company
was profitable with net income of approximately $86,000. There can be no
assurance that the Company will be able to realize sufficient revenues in the
future to sustain profitable operations.
In connection with the Company's 1996 Private Placement, the Company issued
promissory notes and the Private Placement Warrants. The Private Placement
Warrants, in general, provide that the holders thereof are entitled to
purchase the number of shares of Common Stock that results from dividing the
principal amount of the promissory notes issued to the investors by the actual
per share initial public offering price of the Company's Common Stock (or, in
some instances, 50% of the per share initial public offering price). Based on
the foregoing formula, an aggregate of 137,500 shares of Common Stock will be
issuable upon exercise of the Private Placement Warrants assuming an initial
public offering price of $6.00 per share. The aggregate exercise price for the
issuance of the Common Stock upon exercise of all of the Private Placement
Warrants is $23.00. Consequently, upon consummation of the offering
contemplated hereby, the Company will incur a non-recurring, non-cash interest
charge in the amount of approximately $635,000 in connection with the issuance
of the Private Placement Warrants, most of which will be expensed in the
quarter in which the offering contemplated hereby is consummated. This
interest expense is attributable to the imputation of interest based upon the
fair market value of the Private Placement Warrants and does not represent a
cash expense of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
EVOLVING TECHNOLOGY AND MARKET; DEPENDENCE UPON SINGLE PRODUCT
The point-of-sale ("POS") system industry is characterized by evolving
technology and industry standards. The Company's POS systems presently consist
of the NexDisplay-4 POS computer, which is sold in various configurations to
meet the needs of the Company's customers. The Company is in the process of
developing additional POS systems and intends to introduce several new POS
products during the current fiscal year,
6
<PAGE>
although no assurance can be given that the Company will be successful in
developing any new products. The Company's success will depend, in part, on
its ability to maintain and enhance its existing products and broaden its
product offerings by developing and introducing new products that keep pace
with technological developments in a cost effective manner, respond to
evolving customer preferences and requirements and achieve market acceptance.
Lack of market acceptance for the Company's existing or new products, the
Company's failure to introduce new products in a timely or cost-effective
manner, or the Company's failure to achieve a technological advantage over its
competition while also remaining price competitive, would materially adversely
affect the Company's results of operations and financial condition. There can
be no assurance that the Company will be successful in its product development
efforts. In addition, there can be no assurance that the Company's products,
even if successfully developed, will achieve timely market acceptance.
Moreover, the introduction of products embodying new technology and the
emergence of new industry standards could render the Company's existing
products obsolete and unmarketable. The Company's future success will depend
on its ability to continue to develop and manufacture new competitive products
and to enhance its existing products, both of which will require continued
investment in engineering and product development. The success of product
enhancements and new products depends on a variety of factors, including
product selection and specification, timely and efficient completion of
product design, cost effective implementation of manufacturing and assembly
processes and effective sales and marketing efforts. There can be no assurance
that the Company will be able to successfully manage all of the diverse
aspects of successful new product development in order to develop and maintain
competitive products.
COMPETITION
The market for POS products is highly competitive, and the Company expects
this competition to increase as open systems architecture in POS products
becomes more common. The principal elements of the competition in the
Company's markets include product features and performance, price, quality and
reliability, brand awareness, compatibility with open systems, accuracy of
touch-screen input, quality of display, and level of customer service. The
Company's products compete with a number of products designed to provide user
friendly touch screen workstations. Most of the Company's competitors, as well
as certain potential competitors, are more established, benefit from greater
name recognition, have significantly greater financial, technological,
production and marketing resources, and have more extensive distribution
networks than the Company.
The Company believes its use of open systems architecture in POS systems is
an important competitive element. Several of the Company's competitors
currently also offer open system POS systems and the Company believes that the
number of competitors offering open systems solutions will grow over the next
several years. The Company anticipates that a significant source of such
future competition may be from existing competitors in the POS market that the
Company believes are currently attempting to develop POS systems utilizing
open systems architecture. Due to the greater sales, marketing, product
development and financial resources of the Company's competitors, the Company
anticipates that competition from these competitors will intensify in the
future. In order to effectively compete against these competitors, the Company
will need to grow and attain sufficient size to have the resources to timely
develop new products in response to evolving technology and customer demands
and to sell products through a broad distribution channel in competition with
these other existing and potential competitors. No assurance can be given that
the Company will be able to grow sufficiently to enable it to compete
effectively in this marketplace.
The Company's competitors include a substantial number of large well-
established companies including International Business Machines (IBM), Micros
Systems, Inc., PAR Technology Corporation, ATT/GIS, Panasonic and Olivetti,
each of which also offers open systems architecture POS systems. Although the
Company believes that it currently has a competitive advantage with respect to
these competitors from a technological and cost standpoint, including
compatibility with open systems, there can be no assurance that the Company
will be able to maintain its competitive advantage or that these existing
substantial competitors, or new competitors, will not develop competitive
products utilizing open systems architecture and with favorable pricing.
Moreover, the Company has little or no proprietary barriers to entry that
could keep its competitors from developing similar
7
<PAGE>
products and technology or selling competing products in the Company's
markets. The Company anticipates that as the existing and potential
competitors increasingly perceive the market opportunity for open systems
architecture POS systems, these competitors will try to "clone" market leading
products and sell such cloned products at significantly reduced prices. There
can be no assurance that such competitors will not develop products that are
competitive with or superior to the Company's products or achieve greater
market acceptance.
Increased competition from manufacturers or distributors of products similar
to or competitive with the Company's products could result in price
reductions, reduced margins and loss of market share or could render the
Company's technology obsolete, all of which could have a material adverse
effect on the Company's results of operations and financial condition. There
can be no assurance that the Company will be able to successfully compete in
this marketplace or develop sufficient new products to remain competitive, and
any failure to do so could have a material adverse effect on its results of
operations and financial condition. See "Business--Competition."
MANAGEMENT OF COMPANY GROWTH
The rapid execution necessary for the Company to fully exploit the market
for its products requires an effective planning and management process. The
Company's future operating results will depend on its ability to expand its
sales and marketing organization, successfully develop and market enhanced and
new products and implement and manage new and evolving distribution channels.
The Company is a relatively new company and has been experiencing significant
revenue and personnel growth. This growth will continue to make significant
demands on the Company's management, resources and operations. To manage its
growth effectively, the Company intends to continue to improve its
operational, financial, sales and marketing systems and to hire and train new
employees and better manage its current employees. The Company does not
currently have a full-time Chief Financial Officer, but intends to commence a
search for a Chief Financial Officer following consummation of this offering.
See "Management." There can be no assurance that the Company will be able to
identify, hire, train and retain qualified individuals or otherwise manage its
growth effectively, and such failure could have a material adverse effect on
the Company's results of operations and financial condition. Although the
Company believes that it has made adequate allowances for the costs and risks
associated with its planned expansion, there can be no assurance that the
Company's operations and financial systems, procedures or controls will be
adequate to support the Company's operations or that Company management will
be able to achieve the rapid execution necessary to fully exploit the market
for the Company's products. See "Risk Factors--Dependence on Key Personnel;
Limited Experience."
In addition, the Company plans to increase its operating expenses following
consummation of the offering contemplated hereby in order to expand its
product line, increase its sales and marketing operations, develop new
distribution channels and broaden its customer support capabilities. See "Use
of Proceeds." There can be no assurance that such internal expansion will be
successfully implemented, that the cost of such expansion will not exceed the
revenues generated, or that the Company's sales and marketing organization
will be able to successfully compete against the significantly more extensive
and well-funded sales and marketing operations of many of the Company's
current or potential competitors. If the Company is unable to effectively
manage its internal expansion, the Company's results of operations and
financial condition could be materially adversely affected. Moreover, the
foregoing expenses will, by necessity, be incurred prior to any potential
positive impact on revenues. If such expenses are not subsequently followed by
sufficient increased revenues, the Company's operating results and financial
condition would be materially adversely affected.
EVOLVING DISTRIBUTION CHANNELS
The Company's distribution strategy is to develop multiple distribution
channels. The Company has historically sold its products through original
equipment manufacturers ("OEMs") and value added resellers ("VARs" and
collectively with OEMs, "Resellers") and intends to continue to utilize these
distribution channels in the future. The Company's net sales have been
significantly dependent on sales by Resellers, with such sales representing
approximately 99% of the Company's net sales since inception. Any factors,
such as
8
<PAGE>
general adverse economic conditions, high inventory levels, intellectual
property issues, financial condition, marketing considerations or government
regulations and restrictions, that affect the ability of the Company's
Resellers to sell the Company's products will adversely affect the Company's
sales and could have a material adverse impact on the Company's results of
operations and financial condition. The use by the Company of these secondary
distribution channels to sell its products may limit the Company's knowledge
of the requirements and concerns of the end users of the Company's products
and thereby reduce the ability of the Company to anticipate or react quickly
to changes in the market for POS products. There is no assurance that
circumstances affecting the Company's Resellers will not have an adverse
effect on the Company.
Moreover, there can be no assurance that the Company will be able to attract
Resellers that will be able to market the Company's products effectively and
will be qualified to provide timely and cost-effective customer support and
service or that the Company will be able to manage conflicts among its
Resellers. In addition, the Company's agreements with Resellers typically do
not restrict Resellers from distributing competing products, and in most cases
may be terminated by either party without cause. The inability to recruit,
manage or retain important Resellers, or their inability to penetrate their
respective market segments, could materially adversely affect the Company's
results of operations and financial condition. See "Business--Product
Distribution."
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
During its fiscal year ended June 30, 1996, the Company derived
approximately 30% and 24%, respectively, of its total net sales from Touch
Menus and Positran, Inc., respectively. No other customers accounted for more
than 10% of the Company's net sales during the fiscal year ended June 30,
1996. Any significant decrease in sales to the Company's principal customers,
including Touch Menus or Positran, Inc., or any termination of existing
relationships with any of the Company's principal Resellers which are not
offset by increases in sales to other existing or new Resellers, could have a
material adverse effect upon the Company's results of operations and financial
condition. See "Business--Product Distribution."
DEPENDENCE UPON INDEPENDENT SOFTWARE PROVIDERS
The Company's business strategy is to produce PC-based open system hardware
for the POS industry. The Company does not develop or sell software.
Consequently, the Company is dependent upon third party software providers to
develop new and improved software that runs on the Company's hardware
platform. As in other sectors of the computer industry, hardware sales are
often driven by advances in software technology. Accordingly, if software
providers do not continue to provide state-of-the art software that runs on
the Company's hardware, the Company's results of operations and financial
condition could be materially adversely affected. See "Business--Products."
VARIABILITY IN OPERATING RESULTS
As a result of the Company's extremely limited operating history, the
Company does not have historical financial data on which to base planned
operating expenses. Accordingly, the Company's expense levels are based in
part on its expectations as to future revenues and to a large extent are
fixed. Moreover, the Company typically operates with no backlog. As a result,
quarterly sales and operating results generally depend on the volume and
timing of and ability to fulfill orders received within the quarter, which are
difficult to forecast. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected changes in revenues.
Accordingly, any significant shortfall of demand for the Company's products in
relation to the Company's expectations would have an immediate adverse impact
on the Company's results of operations and financial condition.
The Company may experience significant fluctuations in future operating
results due to a number of factors including, among other things, demand for
the Company's products, the size and timing of customer orders, new or
increased competition, delays in product enhancements and new product
introductions, quality control difficulties, changes in market demand, market
acceptance of new products, product returns, seasonality in product purchases
by Resellers and end users, the mix of domestic and international revenues,
fluctuations in
9
<PAGE>
costs of components, pricing trends in the POS systems industry in general and
in the specific markets in which the Company is active and general economic
conditions. Any of these factors could cause operating results to vary
significantly from prior periods. Significant variability in orders during any
period may have a material adverse impact on the Company's cash flow, and any
significant decrease in orders could have a material adverse impact on the
Company's results of operations and financial condition. As a result, the
Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance and that one or more periods of favorable
results should not be relied upon as an indication of future favorable
results. Fluctuations in the Company's operating results could cause the price
of the Company's Common Stock to fluctuate substantially. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
FUTURE CAPITAL REQUIREMENTS
The Company expects that the estimated net proceeds from the offering
contemplated hereby, together with other available funds, will enable the
Company to maintain its current and planned operations for the next 18 to 24
months. There can be no assurance that the net proceeds from this offering
will be sufficient to enable the Company to increase its revenues in an amount
sufficient to sustain profitable operations. To the extent that the proceeds
from this offering and cash flow from operations, if any, are insufficient to
fund the Company's activities, the Company will be required to raise
additional funds through equity or debt financings. No assurance can be given
that such financings will be available on terms acceptable to the Company, if
at all, and, if available, such financings may result in further dilution to
the Company's stockholders and/or in additional interest expense. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LACK OF PATENTS
The Company holds no patents and believes that its competitive position is
not materially dependent upon patent protection. The Company believes that
most of the technology used in the design and manufacture of most of the
Company's products is generally known and available to others. Consequently,
there can be no assurances that others will not develop, market and sell
products substantially equivalent to the Company's products or utilizing
technologies similar to those used by the Company. Although the Company
believes that its products do not infringe on any third party's patents, there
can be no assurance that the Company will not become involved in litigation
involving patents or proprietary rights. Patent and proprietary rights
litigation entails substantial legal and other costs, and there can be no
assurance that the Company will have the necessary financial resources to
defend or prosecute its rights in connection with any such litigation.
Responding to, defending or bringing claims related to the Company's rights to
its intellectual property may require the Company's management to redirect its
resources to address such claims, which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Intellectual Property."
CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of this offering, the Company's directors and officers
will collectively beneficially own approximately 62.4% of the Company's Common
Stock (or approximately 60.1% if the Underwriters' over-allotment option is
exercised in full). Consequently, these persons will have the ability to
control the election of all the Company's directors, to determine the outcome
of most corporate actions submitted to the vote of the Company's stockholders
and to generally control the affairs and management of the Company. See
"Security Ownership of Certain Beneficial Owners and Management." In addition,
such concentration of ownership and control may have the effect of delaying,
deferring or preventing a change of control in the Company. See "Description
of Capital Stock."
DEPENDENCE ON KEY PERSONNEL; LIMITED EXPERIENCE
The Company's success is dependent, in part, upon the continued services of
certain key executive officers, including Richard P. Stack, the Company's
President and Chief Executive Officer, C. Norman Campbell, the
10
<PAGE>
Company's Vice President Engineering, and Alexander J. Nelson, the Company's
Vice President, Sales and Marketing. Mr. Stack is 31 years old and he has had
approximately four years of experience as chief executive officer of a
privately held company engaged in the business of manufacturing and
distributing personal computers and components in South Africa which he
founded and grew to approximately $6 million in annual revenues prior to its
sale. None of the Company's executive officers has previously been involved in
the manufacturing or sale of POS systems nor have had previous executive
experience with a publicly-traded company. Consequently, it is possible that
the Company's future business or results of operation may be negatively
impacted by the limited experience of the Company's executive officers.
Moreover, the loss of any one of the Company's key executive officers could
have a material adverse effect on the Company's results of operations. The
Company intends to purchase key man life insurance on Mr. Campbell in the
amount of $2 million. The continued success of the Company will also be
dependent upon its ability to attract and retain highly qualified technical,
marketing, sales and other personnel necessary in order to manage the
Company's anticipated growth. There can be no assurance that the Company will
be able to recruit and retain such personnel. See "Management."
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of $4.53 per share in net tangible book value of the
Common Stock from an assumed initial public offering price of $6.00 per share.
The exercise of existing and/or future warrants and options may also have an
additional dilutive effect on the interests of the investors in this offering.
See "Dilution."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
A substantial portion of the net proceeds of this offering has been
allocated for working capital and will be used for such specific purposes as
management may determine. Accordingly, management will have broad discretion
with respect to the expenditure of substantial portions of the net proceeds of
this offering. See "Use of Proceeds."
POSSIBLE ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND
CERTAIN CHARTER PROVISIONS
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The Preferred Stock
may be issued in one or more series, the terms of which may be determined at
the time of issuance by the Board of Directors, without further action by the
Company's stockholders, and may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking fund
provisions as determined by the Board of Directors. Although the Company has
no present plans to issue any shares of Preferred Stock following consummation
of this offering, the issuance of any additional shares of Preferred Stock in
the future could affect the rights of the holders of Common Stock and thereby
reduce the value of the Common Stock. In particular, specific rights granted
to future holders of Preferred Stock could be used to restrict the Company's
ability to merge with or sell its assets to a third party, thereby preserving
control of the Company by its present owners. In addition, the Company's
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws contain provisions creating a classified board. These provisions,
together with certain provisions of Delaware law, may also have the effect of
delaying or preventing changes in control or management of the Company which
could adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
after completion of this offering or, if developed, that it will be sustained.
There can be no assurance that the market price of the Common Stock will not
decline below the initial offering price. The market for securities of early
stage companies has been highly volatile, often as a result
11
<PAGE>
of factors unrelated or disproportionate to the operating performance of such
companies. The Common Stock will be traded on the Nasdaq SmallCap Market,
which market has experienced and is likely to experience in the future
significant price and volume fluctuations, which could adversely affect the
price of the Common Stock without regard to the operating performance of the
Company. The Company believes factors such as quarterly fluctuations in
financial results, increased competition from existing and new competitors and
developments in the POS industry could contribute to the volatility of the
price of its Common Stock, causing it to fluctuate significantly. These
factors as well as general economic conditions such as recessions or high
interest rates, may adversely affect the market price of the Common Stock.
NO DIVIDENDS
The Company has never paid any cash dividends on shares of its Common Stock
and does not anticipate that it will pay dividends in the foreseeable future.
The Company intends to apply any earnings to fund the development of its
business. See "Dividend Policy."
LIMITED EXPERIENCE OF THE REPRESENTATIVE
The Representative does not have substantial experience in acting as lead
underwriter in public offerings. The Representative has previously
participated in two public offerings as lead underwriter. There can be no
assurance that the Representative's lack of experience will not adversely
affect the offering contemplated hereby or the ability to maintain a market
for the Company's Common Stock following the completion of the offering. The
Representative does not currently act as a market maker. Accordingly, the
market for the Company's Common Stock could be adversely affected if other
firms are unwilling to make a market in the Company's Common Stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing stockholders could lead to a decline in
the market price of the Company's Common Stock. Because all of the Company's
Common Stock sold prior to this offering was sold pursuant to Rule 504 of
Regulation D, none of such shares of Common Stock are "restricted securities"
as defined in Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Consequently, in the absence of agreements
with the Representative, all of the 2,104,250 shares of outstanding Common
Stock could be sold immediately following the effective date of this offering.
However, 1,848,733 shares owned beneficially by officers and directors of the
Company and 239,267 shares owned beneficially by Selling Stockholders and
other existing stockholders of the Company which would otherwise be available
for sale in the public market, may not be sold, with certain exceptions, until
the expiration of the lock-up agreements with the Representative. See "Shares
Eligible for Future Sale" and "Underwriting."
POSSIBLE EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
As of September 30, 1996, there were 300,000 shares of Common Stock reserved
for issuance as restricted stock or upon exercise of outstanding stock options
granted and available for grant under the Company's Incentive Plan. Of such
reserved shares, there were 191,000 shares of Common Stock reserved for
issuance upon the exercise of outstanding stock options and 109,000 shares
were available for future grant. None of the outstanding options are currently
exercisable. In addition, 137,500 shares of Common Stock (assuming an initial
public offering price of $6.00 per share) are reserved for issuance upon the
exercise of the Private Placement Warrants, and 85,000 shares of Common Stock
are reserved for issuance upon the exercise of the Representative's Warrants.
In the event a significant number of outstanding options and/or warrants were
to be exercised in any period, the trading price of the Common Stock may be
adversely impacted. See "Shares Eligible for Future Sale" and "Description of
Capital Stock."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by it hereby, assuming a public offering price of $6.00 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses, are estimated to be approximately $4,135,000 ($4,715,725 if the
Underwriters' over-allotment option is exercised in full). The Company will
not receive any proceeds from the sale of shares by the Selling Stockholders.
The Company anticipates that it will use approximately $2,350,000 of the net
proceeds of this offering to finance increases in inventory and accounts
receivable. The cash demands of the Company's anticipated revenue growth will
depend upon the rate of sales growth, the timeliness of customer payments for
purchases, and the availability of receivables and inventory financing from
third parties. There can be no assurances, however, that the Company will
continue to realize growth in its revenues or that the Company will be able to
obtain financing from third parties. See "Risk Factors."
The Company anticipates that it will use approximately $725,000 of the net
proceeds of this offering to repay principal and interest of indebtedness held
by certain investors (the "Investors") including approximately $50,000 of
which will be paid to The Steven J. Goodman Charitable Remainder Trust of
which Steven J. Goodman, a director of the Company, is the trustee and an
income beneficiary and approximately $25,000 to the Jay Louis Kear Family
Trust of which Jay L. Kear, a director of the Company, is the trustee.
$600,000 of the indebtedness to the Investors was incurred after June 30,
1996. All of the indebtedness held by the Investors bears interest at 10%.
Pursuant to the terms of the promissory notes related to the indebtedness held
by the Investors, approximately $100,000 of such indebtedness becomes due and
payable two years from the date of issuance of the notes related thereto,
approximately $625,000 of such indebtedness becomes due and payable one year
from the date of issuance of the notes related thereto and the repayment of
all of such indebtedness accelerates and becomes due and payable on the
effective date of an initial public offering of the Company. All of this
indebtedness was incurred primarily to fund the Company's operations and for
working capital.
The Company anticipates that it will use approximately $350,000 of the net
proceeds of this offering for the expansion of its marketing and sales
activities, including hiring additional marketing and sales personnel.
The Company anticipates that it will use approximately $325,000 of such net
proceeds for the development of enhanced versions of its existing products and
new products. See "Business-Products." It is anticipated that development of
these products will include the construction of additional beta units, field
testing, and the initiation of manufacturing of production units, as well as
expenditures for engineering design services and purchases of tooling and test
equipment.
The Company anticipates that it will use approximately $275,000 of the net
proceeds of this offering for salaries and other costs associated with the
hiring of additional engineering and operations personnel.
The balance of the net proceeds are expected to be used for working capital
and general corporate purposes.
The Company has not determined the exact amounts it plans to expend on each
of such uses or the timing of such expenditures. The amounts actually expended
for each such use, if any, are at the discretion of the Company and may vary
significantly depending upon a number of factors, including expenses, delays
and complications frequently encountered by companies in the early stage of
development and experiencing significant growth, changes in the Company's
future revenue growth, changes in the Company's product development plans or
activities, the amount of cash generated by the Company's operations, and
changing competitive or economic conditions. See "Risk Factors--Broad
Discretion in Application of Proceeds." There can be no assurance that the
Company's estimates will prove accurate, that product introduction efforts
will not require considerable additional expenditures, or that unforeseen
expenses will not occur. Pending their use as set forth above, the net
proceeds of this offering will be invested in United States government or
governmental agency securities, short-term insured certificates of deposit,
short term bankers' acceptances or money market funds invested primarily in
United States government or governmental agency securities.
13
<PAGE>
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate that it will pay dividends in the foreseeable future. The
Company intends to apply any earnings to the development and expansion of its
business.
14
<PAGE>
DILUTION
As of June 30, 1996, the Company had a net tangible book value of
approximately $193,503 or $0.09 per share. "Net tangible book value" per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock issued and outstanding. After giving
effect to the sale of the Common Stock offered by the Company hereby at the
assumed initial public offering price of $6.00 per share, and assuming no
other changes in the net tangible book value after June 30, 1996, the
Company's net tangible book value (after deduction of underwriting discounts
and commissions and estimated offering expenses) at June 30, 1996 would have
been approximately $4,330,019 or $1.47 per share. This represents an immediate
increase in net tangible book value of $1.38 per share to existing
stockholders and an immediate dilution to new investors of $4.53 per share.
Dilution is determined by subtracting net tangible book value per share after
the offering from the amount of cash paid by a new investor for a share of
Common Stock. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $6.00
Net tangible book value per share as of June 30, 1996........ $0.09
Increase per share attributable to new investors............. 1.38
-----
Net tangible book value per share after the offering......... 1.47
-----
Dilution per share to new investors.......................... $4.53
=====
</TABLE>
The following table summarizes the differences in the total consideration
and the average price per share of Common Stock paid or contributed by
existing stockholders and to be paid by the purchasers of Common Stock in this
offering at the assumed initial public offering price of $6.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
---------------------- ----------------------AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ---------- ----------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(2)........ 2,104,250 71.23% $ 239,206 4.48% $0.11
New investors........... 850,000 28.77 5,100,000 95.52 6.00
----------- -------- ----------- -------
Total................. 2,954,250 100.00% $ 5,339,206 100.00%
=========== ======== =========== =======
</TABLE>
- --------
(1) As of June 30, 1996, assumes no issuance of 33,333 shares of Common Stock
(assuming an initial public offering price of $6.00 per share) issuable
upon exercise of the Private Placement Warrants at an aggregate exercise
price for all such shares of $4.00. Also assumes no issuance of the
following shares of Common Stock upon exercise of options and warrants
granted and/or issued subsequent to June 30, 1996: (i) 300,000 shares of
Common Stock reserved for issuance under the Company's Incentive Plan, of
which 111,000 shares are issuable upon exercise of options granted in
August 1996 at exercise prices of $3.50 per share, 60,000 shares are
issuable upon exercise of options granted in August and September 1996 at
exercise prices of $4.50 per share and 20,000 shares are issuable upon
exercise of an option granted in September 1996 at an exercise price of
$2.50 per share, (ii) 104,167 shares of Common Stock (assuming an initial
public offering price of $6.00 per share) issuable upon exercise of
additional Private Placement Warrants issued after June 30, 1996 at an
aggregate exercise price for all of such Warrants of $19.00 and (iii)
85,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants at an assumed exercise price of $7.20 per share.
See "Management--Stock Incentive Award Plan"; "Management--Certain
Transactions"; "Underwriting" and "Description of Capital Stock."
(2) If the Underwriters' over-allotment option is exercised in full, the sale
of 111,250 shares by the Company and 16,250 shares by the Selling
Stockholders in the offering will reduce the number of shares held by
existing stockholders to 2,088,000 or approximately 68.11% and will
increase the number of shares held by new investors to 977,500 or
approximately 31.89% of the total shares of Common Stock outstanding after
this offering.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at June
30, 1996 and (ii) as adjusted to reflect the receipt of the net proceeds from
the sale of the 850,000 shares of Common Stock offered hereby by the Company
at an assumed public offering price of $6.00 per share and the application of
the estimated net proceeds as described in "Use of Proceeds." This table
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus. The following table does not include
approximately $600,000 of indebtedness that was incurred after June 30, 1996
and that will be repaid out of the proceeds of this offering. See "Use of
Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
AS
ACTUAL ADJUSTED
--------- ----------
<S> <C> <C>
Long-term debt and notes payable to stockholders, net of
current portion......................................... $ 75,000 $ --
--------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value:1,000,000 shares
authorized, no shares issued and outstanding..........
Common stock, $0.01 par value: 10,000,000 shares
authorized, 2,104,250 shares issued and outstanding,
actual, 2,954,250 shares issued and outstanding, as
adjusted(1)........................................... 369,206 4,504,206
Deferred charge related to warrants issued in connection
with notes payable(2)................................... (119,845) --
Accumulated deficit(2)................................... (54,342) (174,187)
--------- ----------
Total stockholders' equity............................... 195,019 4,330,019
--------- ----------
Total capitalization..................................... $ 270,019 $4,330,019
========= ==========
</TABLE>
- --------
(1) As of June 30, 1996, assumes no issuance of 33,333 shares of Common Stock
(assuming an initial public offering price of $6.00 per share) issuable
upon exercise of the Private Placement Warrants at an aggregate exercise
price for all such shares of $4.00. Also assumes no issuance of the
following shares of Common Stock upon exercise of options and warrants
granted and/or issued subsequent to June 30, 1996: (i) 300,000 shares of
Common Stock reserved for issuance under the Company's Incentive Plan, of
which 111,000 shares are issuable upon exercise of options granted in
August 1996 at exercise prices of $3.50 per share, 60,000 shares are
issuable upon exercise of options granted in August and September 1996 at
exercise prices of $4.50 per share and 20,000 shares are issuable upon
exercise of an option granted in September 1996 at an exercise price of
$2.50 per share, (ii) 104,167 shares of Common Stock (assuming an initial
public offering price of $6.00 per share) issuable upon exercise of
additional Private Placement Warrants issued after June 30, 1996 at an
aggregate exercise price for all of such shares of $19.00 and (iii) 85,000
shares of Common Stock issuable upon exercise of the Representative's
Warrants at an assumed exercise price of $7.20 per share. Also excludes
111,250 shares which may be purchased from the Company by the Underwriters
to cover over-allotments, if any. See "Management--Stock Incentive Award
Plan"; "Management--Certain Transactions"; "Underwriting" and "Description
of Capital Stock."
(2) The remaining unamortized deferred charge related to warrants issued in
connection with notes payable will be recognized as interest expense as a
result of the retirement of the related notes payable upon the completion
of the offering contemplated herein as discussed in "Use of Proceeds."
16
<PAGE>
SELECTED FINANCIAL DATA
Selected financial data set forth below as of June 30, 1996 and for the
period from September 19, 1995 (inception) to June 30, 1996 has been derived
from, and are qualified by reference to, the Financial Statements of the
Company included elsewhere herein which have been audited by Ernst & Young
LLP, independent auditors. The selected financial data set forth below should
be read in conjunction with the Financial Statements (including the notes
thereto) and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
INCEPTION TO
JUNE 30, 1996(1)
----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $1,463,627
Cost of sales............................................. 1,104,171
----------
Gross profit.............................................. 359,456
Research and development.................................. 46,771
Selling and marketing..................................... 83,495
General and administrative................................ 244,736
----------
Operating loss............................................ (15,546)
Interest expense.......................................... 38,796
----------
Net loss.................................................. $ (54,342)
==========
Net loss per share(2)..................................... $ (0.03)
==========
Shares used in computing net loss per share............... 2,086,260
==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
BALANCE SHEET DATA(3):
Working capital............................................. $232,246
Total assets................................................ 951,313
Long-term debt and notes payable to stockholders, net of
current portion............................................ 75,000
Total stockholders' equity.................................. 195,019
</TABLE>
- --------
(1) The Company commenced business on September 19, 1995, accordingly, the
fiscal year ended June 30, 1996 contains less than twelve months.
(2) See Note 1 of Notes to Financial Statements for a description of the
calculation of net loss per share.
(3) The Balance Sheet Data does not include approximately $600,000 of
indebtedness incurred after June 30, 1996 that will be repaid out of the
proceeds of this offering. See "Use of Proceeds."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including, but not limited to those discussed in "Risk Factors" and elsewhere
in this Prospectus.
GENERAL
Javelin Systems, Inc. (the "Company") designs, develops, markets and sells
open system touch screen POS computers primarily for the foodservice industry.
From September 19, 1995 (the date of incorporation) to December 31, 1995,
management of the Company devoted substantially all of its efforts to the
raising of capital and the design and refinement of its NexDisplay-4 system.
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1996
The Company's 1996 fiscal year reflects results of operations for the period
from September 19, 1995 (date of incorporation) to June 30, 1996.
The Company's fiscal 1996 revenues totaled $1,463,627. These revenues were
realized primarily during the period from January 1, 1996 through June 30,
1996 and were solely from the sale of 777 NexDisplay-4 systems. Based upon
current market conditions and the competitive products currently available in
the market, management does not anticipate significant price erosion for this
product for the next twelve months. Management intends to introduce two
additional products in the fiscal year ending June 30, 1997: the NexDisplay-P
system and the Wheelman kitchen monitor. See "Business--Products."
Cost of sales for fiscal 1996 amounted to $1,104,171. Prior to June 1996,
the Company performed the final assembly and testing of its products in-house.
Commencing July 1996, substantially all of the Company's manufacturing and
assembly process is being performed by outside contractors. Management
anticipates that for the foreseeable future it will continue to outsource
substantially all of the manufacturing and assembly process. Management
anticipates that if the Company's revenues continue to increase, the cost per
unit may decrease in the fiscal year ending June 30, 1997 due primarily to
reductions in prices from the Company's suppliers and contract manufacturers
resulting from increased volume of purchases by the Company.
Research and development expenses for fiscal 1996 amounted to $46,771. Such
expenses consisted primarily of payroll costs. The amount of research and
development expenses incurred prior to the Company's incorporation that
benefitted the Company were less than $500. For the fiscal year ending June
30, 1997, management anticipates a substantial increase in product development
costs primarily due to the anticipated introduction of several product
enhancements and new products.
Selling and marketing expenses for fiscal 1996 amounted to $83,495. Such
expenses consisted primarily of commissions of $16,852, salaries of $35,792
and travel and entertainment of $27,882. Management anticipates that such
expenses will increase substantially in the fiscal year ending June 30, 1997
as the Company implements its strategy to expand its product line,
distribution network and markets.
General and administrative expenses for fiscal 1996 amounted to $244,736.
Such expenses consisted primarily of payroll costs of $73,288, consulting fees
of $62,812, office supplies of $25,411, rent of $16,596 and printing of
$10,087. For the fiscal year ending June 30, 1997 management anticipates a
substantial increase in general and administrative costs, primarily related to
payroll costs as the Company expands its personnel and costs associated with
being a public company.
18
<PAGE>
Interest expense for fiscal 1996 amounted to $38,796. Such expense included
interest of $10,155 related to warrants issued in connection with certain
promissory notes (see Note 3 of Notes to the Financial Statements). For the
fiscal year ending June 30, 1997, management anticipates a substantial
increase in interest expense due to the amortization of interest related to
the above-mentioned warrants as well as additional amortized interest expected
to be incurred in connection with the issuance of additional warrants in July
and August 1996 (See Note 8 of Notes to the Financial Statements). This non-
recurring interest expense is attributable to the imputation of interest based
upon the fair market value of the Private Placement Warrants and does not
represent a cash expense of the Company.
A provision for federal and state income taxes was not required since the
Company incurred losses for fiscal 1996.
The Company does not anticipate that inflation will have a significant
impact on the Company's results of operations in the foreseeable future.
QUARTERLY RESULTS OF OPERATIONS FOR EACH OF THE QUARTERS IN THE FISCAL YEAR
ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PERIOD ENDED QUARTER ENDED QUARTER ENDED
DECEMBER 31, 1995 MARCH 31, 1996 JUNE 30, 1996
----------------- -------------- -------------
<S> <C> <C> <C>
Net sales........................ $ 2,407 $275,238 $1,185,982
Cost of sales.................... 2,591 221,198 880,382
-------- -------- ----------
Gross profit (loss).............. (184) 54,040 305,600
Operating expenses
Research and development....... 5,975 13,869 26,927
Selling and marketing.......... 2,501 21,520 59,474
General and administrative..... 72,516 77,228 94,992
-------- -------- ----------
Total operating expenses......... 80,992 112,617 181,393
-------- -------- ----------
Operating income (loss).......... (81,176) (58,577) 124,207
Interest expense................. -- 621 38,175
-------- -------- ----------
Net income (loss)................ $(81,176) $(59,198) $ 86,032
======== ======== ==========
</TABLE>
A comparison of the results of operations for the period September 19, 1995
to December 31, 1995 is not provided since the Company's activities for such
period were primarily limited to the raising of capital and the design and
refinement of its NexDisplay-4 system.
Quarter Ended June 30, 1996 Compared to Quarter Ended March 31, 1996
Net sales for the quarter ended June 30, 1996 increased by $910,744 or 331%
to $1,185,982 as compared to net sales of $275,238 for the quarter ended March
31, 1996. As discussed above, the Company's net sales since inception have
been derived solely from the sale of its NexDisplay-4 system and the increase
in sales was due to the continued acceptance in the market of the NexDisplay-4
system. Operating expenses increased to $181,393 for the quarter ended June
30, 1996 from $112,617 for the quarter ended March 31, 1996, an increase of
60%. The increase in operating expenses was due to the higher level of sales
activity during the quarter ended June 30, 1996 and consists primarily of
additional personnel and related compensation costs within substantially all
functional areas of the Company's operations. Interest expense increased to
$38,175 during the quarter ended June 30, 1996 from $621 for the quarter ended
March 31, 1996 due primarily to increased borrowings under a line of credit
and promissory notes, including the issuance of the Private Placement
Warrants, the proceeds of which were used to fund working capital and other
operating requirements.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its incorporation, the Company has financed its operations and capital
expenditures with cash provided by securities issuances and financing
arrangements.
As of June 30, 1996, the Company had cash of $6,404. Since that date through
August 30, 1996, the Company raised an additional $600,000 through the
issuance of promissory notes and warrants. Cash used in operating activities
amounted to $558,330 for fiscal 1996. Cash used in investing activities
amounted to $37,833 for fiscal 1996 and represented primarily the purchase of
furniture, fixtures and equipment. Cash from financing activities for fiscal
1996 amounted to $602,567 and consisted primarily of proceeds from the
issuances of the Company's Common Stock of $85,050, borrowings under a line of
credit of $206,552 and proceeds from the issuance of notes payable of
$312,481.
The Company believes that the estimated net proceeds of this offering,
combined with other available funds, will be adequate to meet the Company's
anticipated cash needs during the next 18 to 24 months. If the anticipated
proceeds of this offering and other available funds are insufficient, or if
working capital requirements are greater than anticipated, the Company could
be required to raise additional financing. There can be no assurance that the
Company will be successful in obtaining additional equity or debt financing,
or, if available, that any such additional financing will be on terms
favorable to the Company or its stockholders. Significant additional dilution
may be incurred by investors in this offering as a result of such additional
financings and the Company may incur additional interest expense. See "Risk
Factors--Future Capital Requirements."
20
<PAGE>
BUSINESS
GENERAL
Javelin Systems, Inc. (the "Company") designs, develops, markets and sells
open system touch screen point-of-sale ("POS") computers primarily for the
foodservice industry. The Company's POS systems integrate substantially all of
the functionality of a standard desktop PC into a small footprint, network
ready package and run on industry standard operating systems, such as
Microsoft's DOS, Windows, Windows 95 and Windows NT. The Company's POS systems
provide quick service restaurants ("QSR"), full service restaurants and
hospitality and retail establishments with a hardware solution for transaction
processing, in-store controls and management information. The Company's
systems are sealed to protect against spillage and other foreign matter
entering the interior electronic chamber. The Company's systems are currently
being marketed by a number of original equipment manufacturers ("OEMs") and
value added resellers ("VARs"). The Company believes it has achieved a
strategic advantage by introducing higher performance POS systems that
integrate many of the most recent technological innovations.
The market for POS systems is divided into four major foodservice market
segments: QSRs, full service restaurants, hotel restaurants, and noncommercial
foodservice. According to Restaurant Consulting Group, Inc., a foodservice
industry market research firm based in Skokie, Illinois ("RCG"), the total
number of restaurants in the United States as of the Spring of 1995 was
394,420. The Company is primarily a supplier to the QSR and full service
restaurant segments and intends to increase its penetration into the hotel
restaurant and noncommercial foodservice segments.
The Company's products are primarily distributed through strategic
relationships with OEMs and VARs (collectively, "Resellers"). Over 90% of the
Company's net sales were within the United States during the fiscal year ended
June 30, 1996.
The Company was incorporated in the State of Delaware on September 19, 1995
and commenced shipments of its products in December 1995.
INDUSTRY BACKGROUND
While PC-based systems have become the standard platform in most industries,
the foodservice POS industry can be characterized as a unique vertical market
that has not kept pace with the technological developments and productivity
gains associated with most other industries. Rather than utilizing PC-based
systems, until recently, the solutions provided by foodservice POS vendors
have been of proprietary design and high cost. In addition, while in other
areas of the computer industry most companies have decided to specialize
either on software or hardware, in the foodservice industry, there are still
major players trying to develop both hardware and software.
The Company believes that the foodservice POS industry provides a major
market opportunity because of the scope of the overall restaurant industry and
the current shift towards open systems restaurant management software written
around Microsoft operating systems and hardware that uses Intel or similar
microprocessors. In responding to this market shift, the Company has elected
to focus its efforts on the development and sale of open system PC-based
hardware for the foodservice POS industry.
The Market Opportunity
Market Segments. The Company intends to target the following market
segments:
Quick Service Restaurants. This market is the largest segment within the
foodservice industry with approximately 206,000 units in the United States as
of the Spring of 1995 according to RCG. The fast food restaurants were
generally the first to accept the latest touch screen technology like the
NexDisplay-4. The Company's products have been sold by its Resellers to some
Taco Bell, Blimpies, and Kenny Rogers Roasters restaurants.
21
<PAGE>
Full Service Restaurants. According to RCG, this segment represented
approximately 111,000 units in the United States as of the Spring of 1995. The
Company has found this segment to be more price sensitive and more likely to
adopt technology later in the product life cycle. The Company's product has
been accepted in this market in head to head challenges with similar featured
products like the Micros and IBM 4695. The Company's products have been sold
by its Resellers to certain Chart House, Claim Jumper and Billboard Cafe
restaurants, and to the American Culinary Institute.
Hotel Restaurants. According to Technomic, Inc., a foodservice market
research firm based in Chicago, Illinois, this segment represented
approximately 20,260 units in the United States in 1995. The Company believes
that the casino, theme park, and cruise line industries are potential growth
areas within this segment.
Industrial Process Control. The Company's product has been accepted as an
operator interface by Mitsubishi/Siltec, a leading supplier of manufacturing
equipment to the semiconductor industry. The market potential for the
Company's products in this segment is currently unknown. The Company intends
to conduct a market research study on this segment before the end of 1996.
The Company believes that the foodservice industry, in particular, presents
a significant market opportunity for the Company's products because managers
in the foodservice industry face the following unique challenges that are
addressed by the Company's products:
. A perishable inventory that must be replenished every few days, that
cannot be easily counted and is subject to employee theft.
. Entry-level sales force with varying degrees of communication skills and
high turnover.
. Customer demands for high speed order processing.
. Multiple order entry locations within one restaurant and multiple
restaurants within one organization.
. Frequent menu and price changes which must be updated at the POS device.
. These management hurdles are compounded by the incompatibility of
electronic components with the hostile environment of high heat, steam,
grease, and flying food.
The Javelin Contribution
Traditional POS systems have typically been proprietary and inflexible and
could not be easily integrated into the organization's management information
system. For example, proprietary software solutions are limited in terms of
their ability to address the unique customization and management control
requirements in the highly dynamic foodservice environment. Additionally,
traditional hardware designs have not been optimized in terms of processing
speed, networking capabilities, food counter footprint and ruggedness.
Against this backdrop of inadequate proprietary systems, foodservice
companies are seeking greater compatibility with state of the art PC product
offerings such as the Microsoft NT operating system and Pentium chip powered
hardware. The Company believes that it is well situated to capitalize on this
market opportunity because of its engineering, product management and
marketing experience refined in the PC industry.
BUSINESS STRATEGY
The Company's objective is to be a significant worldwide OEM supplier of POS
systems to the foodservice industry and, over time, the Company intends to
explore other opportunities for sale of its POS systems in other industries.
In order to pursue this objective, the Company intends to implement the
following business strategies:
Maintain Technological Advantage. The Company's strategy is to continue to
develop new POS systems incorporating the latest PC technology. The Company
intends to maintain and enhance its product development process with the goal
of obsoleting its own products before the competition does. This strategy has
been successful for many leading technology companies such as Intel. The
Company intends to continue to build an engineering team composed of PC
industry veterans in order to design and enhance products that integrate the
latest PC technology.
22
<PAGE>
Maintain Product-to-Market Time Advantage. In the fast paced computer
industry, the window of opportunity to launch a product and capture a new
market is months, not years. Because a significant portion of the Company's
management is experienced in the PC industry, the Company believes that it
will be able to quickly launch new products in the POS system industry
incorporating the latest PC technologies.
Maintain Cost Advantage. The Company's strategy is to continue to outsource
the manufacturing and assembly of its products in order to maintain low
overhead and production costs. The Company also intends to control its costs
by utilizing components that are generally available in the PC industry. The
Company believes that it will be able to maintain a cost advantage in the
future because the Company utilizes in-house design capabilities and
integrates the design and manufacturing engineering of its products, which
reduces engineering costs and costly design changes.
Expand Third Party Distribution Channels. The Company uses OEMs and VARs,
and, in the future, intends to also use independent distributors, to sell its
products. The Company intends to concentrate on building a technically
proficient sales force that will support the third party sales channels and
build long term customer loyalty.
Expand into New Markets. The Company believes that its technology is suited
for other industries in addition to the foodservice industry, such as
industrial process control. The Company intends to sell its existing products
into these new markets and develop new products for these markets if it
determines that there is large volume potential.
No assurance can be given that the Company will be able to successfully
implement any of the foregoing business strategies and achieve its objectives.
PRODUCTS
NexDisplay-4(TM)
The Company currently derives 100% of its sales from the NexDisplay-4 and
derivative versions of that product. The NexDisplay-4 is a small footprint,
high performance color touch screen computer. Unlike standard off-the-shelf PC
products, the NexDisplay-4 has been designed and manufactured for harsh
environments and optimized with features required by the foodservice industry,
such as an integrated customer display. As a result of the product's inherent
flexibility, the product has been successfully marketed and sold as a POS
workstation, a customer activated system, and as an industrial operator
interface. The Company offers a private labeling program for large customers
and will be offering 4-5 different packaging styles to allow for product
differentiation in the market. The Company will be introducing an enhanced
version of the NexDisplay-4 (estimated release date: fourth quarter of
calendar 1996) with the goal of reducing the product cost, increasing
performance and increasing reliability. The suggested retail price to end
users of the current product is approximately $3,400.
NexDisplay-P(TM) (estimated release date: fourth quarter of calendar 1996)
The Company intends to release a Pentium version of the NexDisplay in the
fourth quarter of 1996. The modular design of the NexDisplay-4 ensures that
the unit can be upgraded to a Pentium version by simply replacing the system
board which slides out on rails. This product will offer roughly double the
performance of the previous version. The NexDisplay-P will be optimized to run
process intensive operating systems like Windows 95 and Windows NT.
Wheelman(TM) (estimated release date: first quarter of calendar 1997)
The typical Taco Bell restaurant uses 4 POS workstations like the
NexDisplay-4 and 7 kitchen monitors. A kitchen monitor receives POS orders via
a local area network from the front counter and displays the order to
23
<PAGE>
the food preparers in the kitchen. This high speed communication allows the
restaurant production team to operate more efficiently. The Company intends to
release a state of the art kitchen monitor which integrates a networked single
board computer inside a ruggedized 14 inch CRT.
PRODUCT DISTRIBUTION
The Company's products are primarily distributed through strategic
relationships with OEMs and VARs. These Resellers typically provide
installation, support and service directly to their customers. By distributing
its products through Resellers, the Company has been able to take advantage of
the existing name recognition and market position of its Resellers and reach a
broader market for its products while avoiding incurring significant
expenditures for sales, marketing, technical support and service. The Company
intends to continue to distribute its products through Resellers and intends
to expand its national and international distribution network by using the
following channels:
Original Equipment Manufacturers (OEMs)
The Company currently sells its products to several OEM foodservice POS
companies with significant market presence in the industry. The Company's
current OEMs include Touch Menus, Positran, Inc., Hospitality Systems, Inc.
and POSNET Computers, Inc. The OEMs market the Company's products under their
own name and sell either through dealers or directly. Because of the high
likelihood of the Company's product being offered by more than one OEM into an
end user account, the Company offers the OEM an opportunity to choose their
own customized design. The OEM is charged for mechanical design, prototyping,
and tooling. Sales to OEMs and resellers represented 99% of the Company's net
sales during the fiscal year ended June 30, 1996. One of the Company's
principal strategies is to increase the number of OEMs selling its products.
Value Added Resellers (VARs)
The Company also sells its products to VARs who integrate POS software sold
by independent software companies with the Company's hardware product for
resale to foodservice companies. The Company works closely with POS software
providers in order to market the Company's products to the software provider's
VARs. Approximately 45 VARs have purchased POS systems from the Company, none
of which have individually purchased a significant amount of products. The
Company believes that utilizing VARs is advantageous to the Company because
VARs generally have existing geographically diverse customers, focus their
businesses on providing customized solutions to their customers and maintain
their own sales and technical support staff. The Company believes that VARs
find the Company's product attractive because the addition of the Company's
hardware solution provides the VAR with an integrated product that facilitates
an immediate penetration by the VAR into the markets of competitors offering
full turnkey solutions such as Micros Systems, Inc. and Sulcus Computer
Corporation.
During the fiscal year ended June 30, 1996, sales of the Company's products
to Touch Menus and Positran, Inc. accounted for approximately 30% and 24%,
respectively, of the Company's net sales. No other customer accounted for more
than 10% of the Company's net sales in the fiscal year ended June 30, 1996.
MARKETING AND SALES
The Company's marketing and sales staff currently consists of a marketing
coordinator who reports directly to the Company's Vice President, Sales and
Marketing. The Company's marketing department includes product development,
marketing communications and market development. To date, the Company has not
engaged in significant marketing activities due to its limited financial
resources. The Company consults with the Company's Resellers to assist in
identifying potential product enhancements and new products. The Company
believes that this marketing feedback is a critical component in the Company's
ability to achieve a competitive advantage in terms of rapid and seamless
design innovation as well as accelerating the time to market for product
enhancements and new products. The Company currently markets its products with
a Company brochure and
24
<PAGE>
participates in trade shows both in the United States and abroad. The Company
also focuses on additional methods to promote its products, including product
refinement, new product introduction and competitive pricing, all with the
goal of increasing the distribution of the Company's products. Following
consummation of this offering, the Company intends to commence more
significant marketing activities, including targeted trade advertising and
public relations.
The Company's marketing and sales staff is also responsible for the
development and support of the Company's domestic and international
distribution network. The sales staff is augmented by two independent sales
representatives. Commissions to sales representatives are negotiated on a
customer-by-customer basis and the Company has no long term agreements with
any of its sales representatives. The Company intends to expand its sales
force to a total of three salespersons in 1996, each of whom will be given
regional responsibilities but will be based out of the Company's executive
offices located in Tustin, California. The Company maintains a computerized
order entry system at its Tustin office to track incoming orders and orders in
process.
The Company sells to a technically sophisticated customer base that is
expected to handle most technical problems without reliance on the Company,
thereby reducing the need for the Company to maintain a large in-house
technical support department. The Company's technical support staff currently
consists of one person responsible for telephonic support and return
merchandise authorization. The Company expects that an increased volume of
sales will place an increased burden on its technical support staff and
intends to add at least one more technician in 1996.
SOURCES OF MANUFACTURING AND QUALITY ASSURANCE
The Company's products are manufactured by third party contract
manufacturers located in Hong Kong and California. The Company imports the
motherboard utilized in its products from Sunwood Services Limited
("Sunwood"), a Hong Kong-based company owned by John R. Amos, a founder and
stockholder of the Company, under purchase orders submitted from time to time.
See "Management--Certain Transactions." The Company has identified other
United States-based manufacturers capable of manufacturing the Company's
motherboard. In addition, the Company purchases its LCD displays from All
American, a distributor located in California, and is in the process of
transitioning its purchases of LCD displays to Lucky Goldstar. The Company's
products are assembled in California by an ISO 9000 certified manufacturer,
although the Company is not ISO 9000 certified. The Company normally must
place orders 60 days in advance and current terms are open account. The
Company has no written long term contracts with the manufacturers of its
products or with any suppliers of the components used in the Company's
products; however, the Company has submitted a purchase order for an aggregate
of 5,000 units of LCD components utilized in its products, which are
deliverable over 12 months commencing October 1, 1996. Moreover, the Company
historically has placed orders for products and components based on its
projected sales over the next approximately 90 days and does not normally have
binding purchase orders for products at the time it places its orders with its
manufacturers and suppliers. Consequently, the Company is subject to
significant risk if actual sales of its products do not approximate its
projected sales. To date, the Company has not experienced any material delays
in the delivery of its products or components; however, delivery schedules are
subject to various factors beyond the control of the Company and any delays in
the future could adversely affect the Company's results of operations. The
Company currently maintains an approximately 15 to 20 days supply of products
in its inventory. However, the Company believes that a 60 day supply is more
desirable, and the Company intends to increase its inventory of products
following consummation of this offering. Because the Company orders components
and has products manufactured in advance of binding commitments for the sale
of its products, and because the Company does not have firm contracts with any
of its Resellers providing for a minimum purchase requirements, no assurance
can be given that the Company will be able to continue to appropriately match
its inventory levels to its actual sales in the future.
Although the Company does not conduct the day-to-day manufacturing or
assembly of its products, the Company oversees the manufacturing process from
component selection to the specification of assembly and test procedures.
Although the manufacturing and substantially all of the assembly of the
Company's products are currently performed by outside contractors, the Company
has the ability to undertake limited production runs, customization, and
product upgrades at its facility.
25
<PAGE>
The principal components that make up the Company's products are standard
electronics available from a wide variety of suppliers. Certain of the
components utilized in the Company's products, however, are currently provided
by a single supplier. The Company believes that, with respect to these
components, there are a number of alternative suppliers that could supply
components that could be integrated into the Company's products without any
significant interruption in the Company's operations. No assurance can be
given, however, that the Company will be able to successfully obtain
alternative sources of supply for all of its components, or that the Company
will be able to redesign its products on an appropriate time-table to
incorporate alternative components. Any significant interruption in the supply
of components could have a material adverse effect on the Company's results of
operations and financial condition.
BACKLOG
The Company does not have any significant backlog.
COMPETITION
The market for POS products is highly competitive, and the Company expects
this competition to increase as open systems architecture in POS products
becomes more common. The principal elements of the competition in the
Company's markets include product features and performance, price, quality and
reliability, brand awareness, compatibility with open systems, accuracy of
touch-screen input, quality of display, and level of customer service. The
Company's products compete with a number of products designed to provide user
friendly touch screen workstations. Most of the Company's competitors, as well
as certain potential competitors, are more established, benefit from greater
name recognition, have significantly greater financial, technological,
production and marketing resources, and have more extensive distribution
networks than the Company.
The Company believes its use of open systems architecture in POS systems is
an important competitive element. Several of the Company's competitors
currently also offer open systems POS systems and the Company also believes
that the number of competitors offering open systems solutions will grow over
the next several years. The Company anticipates that a significant source of
such future competition may be from existing competitors in the POS market
that the Company believes are currently attempting to develop POS systems
utilizing open systems architecture. Due to the greater sales, marketing,
product development and financial resources of the Company's competitors, the
Company anticipates that competition from these competitors will intensify in
the future. In order to effectively compete against these competitors, the
Company will need to grow and attain sufficient size to have the resources to
timely develop new products in response to evolving technology and customer
demands and to sell products through a broad distribution channel in
competition with these other existing and potential competitors. No assurance
can be given that the Company will be able to grow sufficiently to enable it
to compete effectively in this marketplace.
The Company's competitors include a substantial number of large well-
established companies including International Business Machines (IBM), Micros
Systems, Inc., PAR Technology Corporation, ATT/GIS, Panasonic and Olivetti,
each of which also offers open systems architecture POS systems. Although the
Company believes that it currently has a competitive advantage with respect to
these competitors from a technological and cost standpoint, including
compatibility with open systems, there can be no assurance that the Company
will be able to maintain its competitive advantage or that these existing
substantial competitors, or new competitors, will not develop competitive
products utilizing open systems architecture and with favorable pricing.
Moreover, the Company has little or no proprietary barriers to entry that
could keep its competitors from developing similar products and technology or
selling competing products in the Company's markets. The Company anticipates
that as the existing and potential competitors increasingly perceive the
market opportunity for open systems architecture POS systems, these
competitors will try to "clone" market leading products and sell such cloned
products at significantly reduced prices. There can be no assurance that such
competitors will not develop products that are competitive with or superior to
the Company's products or achieve greater market acceptance.
Increased competition from manufacturers or distributors of products similar
to or competitive with the Company's products could result in price
reductions, reduced margins and loss of market share or could render
26
<PAGE>
the Company's technology obsolete, all of which could have a material adverse
effect on the Company's results of operations and financial condition. There
can be no assurance that the Company will be able to successfully compete in
this marketplace or develop sufficient new products to remain competitive, and
any failure to do so could have a material adverse effect on its results of
operations and financial condition. See "Risk Factors--Competition."
GOVERNMENTAL REGULATION
The Company's operations are subject to a number of federal, state and local
laws relating to health, safety and labor matters. The Company believes its
business is operated in substantial compliance with all material applicable
government regulations. There can be no assurance that future regulations will
not require the Company to modify its products, business or operations to meet
health, safety or labor requirements, or that the Company will be able, for
financial or other reasons, to comply with such future requirements. Failure
to comply with future governmental regulations could subject the Company to
fines and injunctions, which could result in a material adverse effect on the
Company's results of operations and financial condition. Although the Company
is not aware of any claim involving violation of health, safety or labor laws
or regulations, there can be no assurance that such claim may not arise in the
future, which may have a material adverse effect on the Company.
INTELLECTUAL PROPERTY
The Company relies on nondisclosure agreements to protect its intellectual
property. The Company holds no patents and believes that its competitive
position is not materially dependent upon patent protection. The Company
believes that most of the current technology used in the design and
manufacture of most of the Company's products is generally known and available
to others. Before the Company was incorporated, Sunwood, the Company's
motherboard manufacturer located in Hong Kong, was supplying the Company's
existing motherboard technology to a North American POS company located in
Canada, and Sunwood will continue to have the rights to sell the existing
technology to that POS company only for sale in Canada. Sunwood and its
principal, John R. Amos, have transferred to the Company all of the
proprietary rights related to the motherboard utilized in the Company's
products and neither Sunwood nor Mr. Amos has any rights to any future
technology developed by the Company.
EMPLOYEES
As of September 30, 1996, the Company had approximately 12 full-time
employees, including 3 employed in sales and marketing, 6 employed in research
and development, engineering, technical support and production, and 3 employed
as administrative and support staff. The Company also employed as of that date
one temporary production employee and may from time to time augment its
temporary staffing. None of the Company's employees are represented by unions
and the Company considers its employee relations to be good.
PROPERTIES
The Company's executive offices, research and product development,
warehousing and distribution facilities are currently housed in a single
leased industrial unit comprised of approximately 3,950 square feet located in
Tustin, California. Under the terms of the lease, the Company presently pays
rent of approximately $2,764 per month with scheduled increases during the
second and third years of the lease to approximately $2,843 and $2,922 per
month, respectively. The lease expires on October 31, 1998. The Company
believes that its existing facilities are adequate to meet its needs for at
least the next 9 months to one year.
LEGAL PROCEEDINGS
There are currently no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.
27
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Richard P. Stack.................... 31 President, Chief Executive Officer
and Director
C. Norman Campbell.................. 42 Vice President, Engineering and
Director
Alexander J. Nelson................. 40 Vice President, Sales and Marketing
Lawrence W. McCorkle................ 36 Controller, Treasurer and Secretary
Steven J. Goodman(1)(2)............. 56 Director
Jay L. Kear(1)(2)................... 59 Director
</TABLE>
- --------
(1) Member of Audit Committee of the Board of Directors
(2) Member of Compensation Committee of the Board of Directors
RICHARD P. STACK. Mr. Stack has been President, Chief Executive Officer and
a Director of the Company since the Company's inception in September 1995.
Prior to that time, from 1991 through September 1995, Mr. Stack was Managing
Director of Hi-Technology Supply, a manufacturer and distributor of personal
computers and components located in South Africa which he founded and grew to
approximately $6 million in annual sales and 15 employees prior to its sale to
a South Africa-based personal computer and component manufacturing company.
Prior to that time, from 1988 through 1991, Mr. Stack was employed by Pan
American Airlines in technical management positions. Mr. Stack holds a B.A.
degree from the University of California at Berkeley.
C. NORMAN CAMPBELL. Mr. Campbell has been Vice President, Engineering, and a
Director of the Company since its inception in September 1995. Prior to that
time, from May 1991 through September 1995, Mr. Campbell served in various
engineering management positions, including Director of Research and
Development, for Advanced Logic Research ("ALR"), a publicly-traded $200
million revenue per year high end file server manufacturing company. Mr.
Campbell was responsible for the design of ALR's first PCI bus and first
Pentium Pro computers. At the time of Mr. Campbell's departure from ALR in
September 1995, he was the principal designer of the Evolution QSMP-6 (Quad
Pentium Pro high end file server), Revolution MP (dual Pentium file server,
PCI/EISA), Evolution V STE (mini tower dual Pentium, PCI/EISA), Evolution 5 ST
(mini tower Pentium PCI/ISA), and Evolution X (Pentium desktop PC, PCI/ISA).
Mr. Campbell has acted as a consultant to the computer industry with such
companies as Intel, ITT, Orange Micro Inc. and IBC (UK). Mr. Campbell attended
Burlington College.
ALEXANDER J. NELSON. Mr. Nelson joined the Company in October 1995 as Vice
President, Sales and Marketing. Mr. Nelson has over 20 years experience in
sales and marketing management with growing businesses in the electronics
industry. Prior to joining the Company, from 1992 through 1995, he was Vice
President, Sales and Marketing and co-founder of Interactive Computer Devices,
Inc., a company engaged in the business of local area network (LAN)
workstations. From 1990 to 1992, Mr. Nelson was Vice President, International
Sales and Marketing for Republic Technology Corporation, a computer
workstation manufacturing company. Mr. Nelson graduated with a B.S. degree in
marketing from the California State University, Fullerton and attended post-
graduate studies at UCLA in international business and marketing.
LAWRENCE W. MCCORKLE. Mr. McCorkle joined the Company in July 1996 as
Controller and was elected Treasurer and Secretary in August 1996. Mr.
McCorkle has over 12 years of experience both in public accounting and in
private industry. From July 1993 to July 1996, Mr. McCorkle was Accounting
Manager for Diedrich Coffee, a chain of specialty coffee houses. Prior to that
time, from July 1988 to July 1993, Mr. McCorkle was
28
<PAGE>
financial manager and a consultant for the Republican Party of Orange County.
Mr. McCorkle received a B.S. degree in Business Administration from Biola
University and has passed the Uniform Certified Public Accounting exam.
STEVEN J. GOODMAN. Mr. Goodman was elected as a Director of the Company in
January 1996. In July 1995, Mr. Goodman joined Tessa Financial Group, Inc., a
regional investment banking firm, as Vice President, Corporate Finance. From
November 1991 through March 1995, Mr. Goodman was West Coast Managing Director
of Creative Business Strategies, Inc., a financial corporate consulting firm.
From 1990 to 1991, Mr. Goodman was a private investor. Mr. Goodman currently
is a director and consultant for Tivoli Industries, Inc., a publicly-held
corporation engaged in the manufacture and sale of specialty lighting.
JAY L. KEAR. Mr. Kear was elected as a Director of the Company in August
1996. Mr. Kear has approximately 35 years of experience in the computer
industry. Since 1988, Mr. Kear has been involved in representing the Noorda
Family Trust and Kear Enterprises in working with and investing in high
technology companies. These activities included assisting companies in their
early growth phase looking forward to either an initial public offering or a
sale or merger. He has in the past served as a director of a number of
companies including Newport Systems, X-Tree, Locus Software Development, and
Phaser Systems, and is currently a director of Wonderware Software Development
Corp., a public corporation engaged in the development and sale of industrial
automation software. Prior to 1988, Mr. Kear held sales, marketing,
engineering, and general management positions with private and public
companies in the high technology sector. Mr. Kear received a BSME degree from
the University of Southern California and did graduate work at the University
of Rochester and the University of Southern California in an MBA program.
To date, the Company has not found it necessary to retain the services of a
full-time Chief Financial Officer and has instead relied upon Richard P.
Stack, its President and Chief Executive Officer, and an outside consultant
with respect to financial and accounting matters. In July 1996, the Company
hired Lawrence W. McCorkle as its Controller, but Mr. McCorkle has had only
limited involvement in the preparation of the financial information presented
in this Prospectus. Following the consummation of this offering, the Company
intends to commence a search for a Chief Financial Officer with the experience
and salary requirements consistent with the Company's then current revenues
and growth prospects.
BOARD OF DIRECTORS
During the nine months ended June 30, 1996, the Company's Board of Directors
held two meetings and adopted five actions by written consent. The Board of
Directors has established the following committees: (i) an Audit Committee,
which consults with the Company's independent auditors concerning their
engagement and audit plan and report and management letter and, with the
assistance of the independent auditors, monitors the adequacy of the Company's
internal accounting controls and financial management practices; and (ii) a
Compensation Committee, which is responsible for reviewing the compensation
and benefits of the Company's executive officers, making recommendations to
the Board of Directors concerning the compensation and benefits of the
Company's executive officers and administering the Company's 1996 Stock
Incentive Award Plan.
The Board of Directors is divided into three classes, with each class
holding office for staggered three-year terms. The term of Steven J. Goodman
expires in 1997, the term of Jay L. Kear expires in 1998 and the terms of
Richard P. Stack and C. Norman Campbell expire in 1999. All executive officers
of the Company are elected by the Board of Directors and serve at the Board's
discretion. No family relationships exist between any of the officers or
directors of the Company.
DIRECTOR COMPENSATION
The Company's directors who are not also employees of the Company receive
$500 for attendance at each Board of Directors meeting and are reimbursed for
expenses incurred in connection with attendance at Board of Directors'
meetings. No additional compensation is paid for attendance at committee
meetings, whether or not
29
<PAGE>
held on the same date as Board meetings. In August 1996, Jay L. Kear, a
director of the Company, was granted an option to purchase 10,000 shares of
the Company's Common Stock at an exercise price of $4.50 per share. See
"Management--Stock Incentive Award Plan."
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. The following table sets
forth information regarding compensation for services in all capacities paid
or accrued for the Company's nine-month fiscal year ended June 30, 1996 by the
Company to the Company's chief executive officer. No other executive officer
of the Company had total annual compensation in excess of $100,000 on an
annualized basis during the fiscal year ended June 30, 1996:
SUMMARY COMPENSATION TABLE
(NINE MONTHS)
<TABLE>
<CAPTION>
OTHER ANNUAL
SALARY BONUS COMPENSATION
YEAR ($) ($) ($)(1)
---- ------- ----- ------------
<S> <C> <C> <C> <C>
Richard P. Stack(2)
President, Chief Executive Officer and
Director.................................. 1996 $15,000 $ 0 $898
</TABLE>
- --------
(1) The amounts indicated under the heading "Other Annual Compensation"
represent health insurance benefits.
(2) The Company and Richard P. Stack have entered into an Employment Agreement
dated August 19, 1996 (the "Stack Employment Agreement"). The Stack
Employment Agreement expires on August 19, 1999 (subject to annual
renewals thereafter) and provides for payment to Mr. Stack of an annual
salary of $84,000 through December 31, 1996, $95,000 from January 1, 1997
through December 31, 1997 and $105,000 from and after January 1, 1998. In
addition to his salary, Mr. Stack is reimbursed for all reasonable and
necessary travel and other business expenses incurred in connection with
the performance of his duties, the Company is obligated to pay the premium
for a life insurance policy insuring Mr. Stack's life providing for death
benefits of up to $750,000 and Mr. Stack receives a $100 per month car
allowance. If Mr. Stack's employment with the Company is terminated for
cause (as defined in the Stack Employment Agreement), then Mr. Stack is
entitled to receive his base salary through the date of termination. If
Mr. Stack's employment with the Company is terminated without cause, then
he is entitled to receive payment of his base salary for the greater of
(i) the remaining term of the Stack Employment Agreement or (ii) one year
from the date of termination.
The Company anticipates that Richard P. Stack, the Company's President and
Chief Executive Officer, C. Norman Campbell, the Company's Vice President,
Engineering, and Alexander J. Nelson, the Company's Vice President, Sales and
Marketing, will each earn total compensation in excess of $100,000 during the
fiscal year ending June 30, 1997. The terms of Mr. Stack's Employment
Agreement are described above. The Company and C. Norman Campbell have entered
into an Employment Agreement dated August 19, 1996 (the "Campbell Employment
Agreement"). The Campbell Employment Agreement expires on August 19, 1999
(subject to annual renewals thereafter) and provides for payment to Mr.
Campbell of an annual salary of $84,000 through December 31, 1996, $95,000
from January 1, 1997 through December 31, 1997 and $105,000 from and after
January 1, 1998. In addition to his salary, Mr. Campbell is reimbursed for all
reasonable and necessary travel and other business expenses incurred in
connection with the performance of his duties, the Company is obligated to pay
the premium for a life insurance policy insuring Mr. Campbell's life providing
for death benefits of up to $750,000 and Mr. Campbell receives a $100 per
month car allowance. If Mr. Campbell's employment with the Company is
terminated for cause (as defined in the Campbell Employment Agreement), then
Mr. Campbell is entitled to receive his base salary through the date of
termination. If Mr. Campbell's employment with the Company is terminated
without cause, then he is entitled to receive payment of his base salary for
the greater of (i) the remaining term of the Campbell Employment Agreement or
(ii) one year from the date of termination. The Company does not have any
employment agreements with any other executive officer of the Company.
30
<PAGE>
STOCK INCENTIVE AWARD PLAN
The Company's 1996 Stock Incentive Award Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by the written consent of the
stockholders in August 1996. The purpose of the Incentive Plan is to attract
and retain qualified personnel, provide additional incentives to employees,
officers, directors and consultants of the Company and promote the success of
the Company's business. Pursuant to the Incentive Plan, the Company may grant
incentive and nonqualified stock options, restricted stock, stock appreciation
rights, dividend equivalents, stock payments and/or performance awards
(collectively "Incentive Awards") to key employees, officers, directors, and
consultants of the Company. As of September 30, 1996, a total of 300,000
shares of Common Stock were reserved for issuance under the Incentive Plan,
191,000 of which are subject to outstanding options.
The Board of Directors has delegated to the Compensation Committee the
discretionary authority to designate the persons to whom Incentive Awards may
be granted (provided that incentive stock options can only be granted to
employees of the Company), determine the time when Incentive Awards will be
granted, the amounts, terms and conditions of such grants (consistent with the
terms of the Incentive Plan), interpret the Incentive Plan, and adopt rules
for the operation of the Incentive Plan.
The maximum term of Incentive Awards granted under the Incentive Plan is ten
years. Incentive Awards granted under the Incentive Plan are nontransferable
and generally expire three months after the termination of the grantee's
service to the Company. In general, if a grantee is permanently disabled or
dies during his or her service to the Company, such Incentive Award may be
exercised up to 12 months following such disability or death.
Stock Options. Under the Incentive Plan, the exercise price of incentive and
non-qualified stock options must equal at least the fair market value of the
Common Stock on the date of grant. In addition, the exercise price of
incentive and non-qualified stock options granted to any person who at the
time of grant owns stock possessing more than 10% of the total combined voting
power of all classes of stock must be at least 110% of the fair market value
of such stock on the date of grant and, with respect to incentive stock
options only, the term of those incentive stock options cannot exceed five
years. The aggregate fair market value of the stock with respect to which
incentive stock options are first exercisable in any calendar year may not
exceed $100,000 per optionee.
Stock Appreciation Rights. Stock appreciation rights awarded under the
Incentive Plan vest or become exercisable as determined by the Compensation
Committee. Upon exercise of a stock appreciation right, the grantee is
entitled to receive an amount equal to the excess of the fair market value of
a share of Common Stock on the exercise date of such stock appreciation right
over the fair market value of a share of Common Stock on the date of grant of
such stock appreciation right.
Restricted Stock. Restricted stock granted under the Incentive Plan
generally may not be sold, transferred or otherwise hypothecated until the
restrictions on transferability imposed by the Compensation Committee are
removed or expire. Generally, holders of restricted stock have all the rights
of a stockholder with respect to the restricted stock granted, including the
right to vote the shares and receive all dividends and other distributions
paid or made with respect thereto.
Performance Awards. Performance awards may be granted by the Compensation
Committee based on the performance of the Company's stock over a period
determined by the Compensation Committee or any other measures determined
appropriate by the Compensation Committee. Payment of performance awards
generally will be in cash unless replaced by a stock payment in full or in
part as determined by the Compensation Committee.
Stock Payments and Dividend Equivalents. The Compensation Committee may
grant stock payments to eligible persons for all or any portion of the
compensation (other than base salary) that would otherwise become payable to
such eligible person in cash. The Compensation Committee may also grant
dividend equivalent rights
31
<PAGE>
based on the dividends declared on the stock of the Company on record dates
during the period between the date an option or stock appreciation right is
granted and the date such option or stock appreciation right is exercised or
such other periods as determined by the Compensation Committee. Dividend
equivalents are converted into additional shares of stock or cash in
accordance with a formula determined by the Compensation Committee.
The Board of Directors may amend, suspend, alter or terminate the Incentive
Plan at any time provided that the Board of Directors shall not amend the
Incentive Plan to reduce the minimum option price requirements set forth in
the Incentive Plan, to increase the maximum number of stock appreciation
rights or shares of stock subject to Incentive Awards available for grant
under the Incentive Plan, to provide for the administration of the Incentive
Plan other than by the Board of Directors or the Compensation Committee, to
change the classes of persons eligible to receive Incentive Awards, to extend
the maximum period during which Incentive Awards may be exercised or to extend
the term of the Incentive Plan, without the approval of a majority of the
outstanding voting stock of the Company. The Compensation Committee may, in
its discretion, provide that upon the consummation of certain events,
including the dissolution or liquidation of the Company, the merger or
consolidation of the Company, the sale of all or substantially all of the
assets of the Company, the acquisition of equity securities of the Company
representing 20% or more of the aggregate voting power of the outstanding
equity securities of the Company or a change in the composition of a majority
of the Board of Directors (collectively, a "Terminating Transaction"), that
outstanding Incentive Awards shall become immediately exercisable upon the
occurrence of such events.
Stock Options Granted. No options were granted by the Company during the
Company's fiscal year ended June 30, 1996 to the Chief Executive Officer or
any other executive officer of the Company. In August and September 1996,
options to purchase an aggregate of 191,000 shares of Common Stock of the
Company were granted to certain employees of the Company, including options
with respect to 30,000 shares granted to Alexander J. Nelson, the Company's
Vice President, Sales and Marketing, at an exercise price of $3.50 per share
and an option to purchase 10,000 shares of the Company's Common Stock granted
to Jay L. Kear, a director of the Company, at an exercise price of $4.50 per
share. Each of the options expires five years from the date of grant. The
options granted to Mr. Nelson and Mr. Kear become exercisable at the rate of
40% on the date that is one year from the date of grant, 30% on the second
anniversary of the grant date and 30% on the third anniversary of the grant
date. In addition, the Compensation Committee may, in its discretion, provide
that upon the occurrence of a Terminating Transaction, the options shall
become immediately exercisable with respect to all of the shares subject to
the options. During fiscal 1996, no options to purchase shares of the
Company's Common Stock were exercised by any executive officers of the Company
and no executive officers held any outstanding options to purchase shares of
the Company's Common Stock.
CERTAIN TRANSACTIONS
Prior to this offering, the Company entered into various transactions with
certain officers, directors and affiliates. Any future transactions, including
any loan transactions, between the Company and its officers, directors or
stockholders owning 5% or more of the voting securities of the Company, or
their affiliates, will be subject to approval by a majority of the
disinterested directors after a finding that the proposed transaction is on
terms no less favorable to the Company than could be obtained from an
independent third party.
Since the formation of the Company, the Company has purchased the
motherboard components of its products from Sunwood Services Limited, a Hong
Kong corporation ("Sunwood"), which has the components manufactured by a
contract manufacturer located in Hong Kong. John R. Amos ("J. Amos") is the
sole stockholder of Sunwood and is a stockholder of the Company and a founder
of the Company. The total amount of purchases from Sunwood during the fiscal
year ended June 30, 1996 was approximately $445,000. The Company believes that
the purchases of components from Sunwood have been and currently are on terms
no less favorable to the Company than were and currently are available from
independent third parties.
On October 1, 1995, the Company borrowed $80,481.45 from Richard P. Stack
("R.P. Stack"), the President and Chief Executive Officer and a director of
the Company, $40,000 from Teresa M. McRae ("T. McRae"), the mother of R.P.
Stack, and $12,000 from Richard A. Stack ("R.A. Stack"), the father of
32
<PAGE>
R.P. Stack. In connection with these loans, the Company entered into non-
interest bearing convertible promissory notes with each of R.P. Stack, T.
McRae and R.A. Stack, which were due and payable on demand. On April 1, 1996,
May 1, 1996 and May 31, 1996, each of R.P. Stack, T. McRae and R.A. Stack,
respectively, elected to convert the aggregate principal amounts outstanding
under their respective notes into 430,000 shares, 86,000 shares and 17,200
shares, respectively, of Common Stock of the Company. The Company believes
that each of the loans and other related transactions between it and each of
R.P. Stack, T. McRae and R.A. Stack were on terms no less favorable to the
Company than were available from independent third parties.
The Company was formed September 19, 1995 by R.P. Stack, C. Norman Campbell
("C.N. Campbell") and J. Amos (collectively, the "Founders"). In connection
with such formation, on September 26, 1995 R.P. Stack purchased 430,000 shares
of Common Stock of the Company in exchange for payment to the Company of
$2,500, C.N. Campbell purchased 288,100 shares of Common Stock of the Company
in exchange for the assignment to the Company of equipment (which C.N.
Campbell acquired in July 1995 at the cost of $1,750) valued at $1,675 by the
Founders based upon the estimated replacement cost of such equipment and C.N.
Campbell's interest in certain intellectual property (which C.N. Campbell and
J. Amos developed in January 1995 at an out-of-pocket cost of less than $500)
valued at less than $500 by the mutual agreement of the Founders, and J. Amos
purchased 77,400 shares of Common Stock of the Company in exchange for the
agreement by J. Amos to pay to the Company $450 (the "Amos Indebtedness"). On
October 1, 1995, the Company borrowed $15,000 from R.P. Stack pursuant to a
promissory note (the "Stack Note") bearing no interest and which provided that
the principal amount of such note was due and payable on October 1, 1996. On
November 1, 1995, C.N. Campbell purchased 288,100 shares of Common Stock of
the Company in exchange for payment to the Company of $1,675. On April 1,
1996, R.P. Stack purchased 430,000 shares of Common Stock of the Company upon
conversion of a convertible promissory note in the amount of $80,481.45. On
May 31, 1996, the Company borrowed $25,000 from J. Amos pursuant to a
promissory note (the "Amos Note") bearing interest at the rate of 10% per
annum and providing that the principal amount of and all accrued and unpaid
interest on such note is due and payable upon the earlier of May 31, 1998 or
the effectiveness of a public offering of the Company. In connection with the
issuance of the Amos Note, the Company granted to J. Amos a warrant to
purchase the number of shares of Common Stock of the Company that results from
dividing 50% of the per share offering price of the Company's Common Stock in
the public offering into $25,000. The aggregate exercise price of such warrant
is $1.00. On July 22, 1996, the Company agreed to cancel the Amos Indebtedness
in exchange for the assignment by J. Amos to the Company of J. Amos' interest
in certain intellectual property (which C.N. Campbell and J. Amos developed in
January 1995 at an out-of-pocket cost of less than $500) valued at $450 by the
mutual agreement of the Founders. On August 6, 1996, the Company granted to
Quinciana D. Campbell, an employee of the Company and the wife of C.N.
Campbell for no consideration, an option to purchase 13,500 shares of Common
Stock of the Company at an exercise price of $3.50 per share under the
Incentive Plan. On August 26, 1996, the Company repaid to R.P. Stack the
principal amount outstanding under the Stack Note.
33
<PAGE>
SECURITY OWNERSHIP
OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996 by each
director and each executive officer of the Company whose compensation is
required to be disclosed in the Summary Compensation Table, each person known
to the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, and all directors and executive officers of the Company as a
group. Except as otherwise indicated below, the Company believes that each
person listed below has sole voting and investment power with respect to the
shares owned, subject to applicable community property laws.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BENEFICIAL PRIOR TO THE OFFERING(1) AFTER THE OFFERING(2)
OWNER OR IDENTITY OF -----------------------------------------------------------
GROUP NUMBER PERCENT NUMBER PERCENT
-------------------- -------------- --------------------------- -------------
<S> <C> <C> <C> <C>
Richard P. Stack(3)..... 860,000 40.86% 860,000 29.11%
C. Norman Campbell(3)... 576,200 27.38% 576,200 19.50%
Steven J. Goodman(3).... 305,033(4) 14.44% 305,033 10.29%
Alexander J. Nelson(3).. 107,500 5.11% 107,500 3.64%
Jay L. Kear(3).......... 4,166(5) * 4,166 *
All directors and
executive officers as a
group (6 persons)(6)... 1,852,899 87.49% 1,848,733 62.39%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of September 30, 1996, are
deemed outstanding for computing the percentage of the persons holding
such options but are not deemed outstanding for computing the percentage
of any other person. As of September 30, 1996, no options to acquire
shares of Common Stock were exercisable or became exercisable within 60
days. Includes 12,499 shares of Common Stock subject to warrants
exercisable within 60 days of September 30, 1996 (assuming an initial
public offering price of $6.00 per share). See Footnotes 4 and 5 below.
(2) Assumes the Underwriters' over-allotment option is not exercised. In the
event that the Underwriters' over-allotment option is exercised in full,
the Company will sell an additional 111,250 shares of Common Stock and
certain Selling Stockholders will sell 16,250 shares of Common Stock.
(3) The address of such stockholder is c/o Javelin Systems, Inc., 2882C Walnut
Avenue, Tustin, California 92780.
(4) Includes 296,700 shares issued in favor of The Steven J. Goodman Revocable
Living Trust of which Steven J. Goodman, a director of the Company, is the
sole trustee and the sole beneficiary, and with respect to which Mr.
Goodman has sole voting and investment power. Also, includes 8,333 shares
(assuming an initial public offering price of $6.00 per share) subject to
warrants exercisable within 60 days of September 30, 1996 held by The
Steven J. Goodman Charitable Remainder Trust of which Steven J. Goodman, a
director of the Company, is the sole trustee and an income beneficiary,
and with respect to which Mr. Goodman has sole voting and investment
powers. Mr. Goodman disclaims beneficial ownership of all of the shares
issuable upon exercise of such warrants for all other purposes.
(5) Represents 4,166 shares (assuming an initial public offering price of
$6.00 per share) subject to a warrant exercisable within 60 days of
September 30, 1996 held by the Jay Louis Kear Family Trust of which Jay L.
Kear, a director of the Company, is the trustee.
(6) Includes directors' and executive officers' shares listed above, including
16,665 shares subject to warrants exercisable within 60 days after
September 30, 1996.
34
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as of September 30, 1996
with respect to each Selling Stockholder that will sell shares of the
Company's Common Stock to the Underwriters if the Underwriters exercise the
over-allotment option granted by the Selling Stockholders and the Company to
the Underwriters. If the over-allotment option is exercised in full, the
Underwriters will purchase an aggregate of 16,250 shares of Common Stock from
the Selling Stockholders as set forth in the following table, and 111,250
shares of Common Stock from the Company. If the over-allotment option is
exercised only in part, the Underwriters have agreed that they first will
purchase from each Selling Stockholder a pro rata portion of the number of
shares to be purchased in connection with the exercise of the over-allotment
option, which pro rata portion shall be determined based upon the number of
shares which each Selling Stockholder has requested to be sold in the offering
and which shall not exceed the number of shares specified in the following
table as being offered by each such Selling Stockholder. If and only if all
Selling Stockholders have sold all of the shares of Common Stock specified in
the following table as being offered by the Selling Stockholders, the
Underwriters will then purchase from the Company any additional shares to be
purchased in connection with such partial exercise of the over-allotment
option, but in no event will more than 111,250 additional shares of Common
Stock be purchased from the Company.
<TABLE>
<CAPTION>
SHARES OF COMMON
NUMBER OF SHARES OF NUMBER OF SHARES OF STOCK OWNED AFTER
COMMON STOCK COMMON STOCK TO BE THE OFFERING
NAME OF OWNED BEFORE OFFERED IN THE -------------------
SELLING STOCKHOLDER THE OFFERING OFFERING NUMBER PERCENT
------------------- ------------------- ------------------- --------- ---------
<S> <C> <C> <C> <C>
Herbert R. and Janice N.
Donica, as joint ten-
ants by the entire-
ties(1)................ 10,750 6,250 4,500 0.15%
Teresa M. McRae(2)...... 86,000 10,000 76,000 2.48%
------ ------ --------- -------
Total .............. 96,750 16,250 80,500 2.63%
====== ====== ========= =======
</TABLE>
- --------
(1) At no time since the date that the Company was formed (September 19, 1995)
has the Selling Stockholder had any position, office or other material
relationship with the Company or any of its predecessors or affiliates.
(2) Teresa M. McRae is the mother of Richard P. Stack, the President, Chief
Executive Officer and a Director of the Company.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01
par value. The following description of the Company's capital stock is
qualified in all respects by reference to the Company's Amended and Restated
Certificate of Incorporation ("Certificate of Incorporation"), which has been
filed as an exhibit to the Registration Statement incorporating this
Prospectus.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may, from time to time, determine, subject
to any preferences which may be granted to the holders of Preferred Stock.
Holders of Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote. The Common Stock is
not entitled to preemptive rights and is not subject to redemption or
conversion. Upon liquidation, dissolution or winding-up of the Company, the
assets (if any) legally available for distribution to stockholders are
distributable ratably among the holders of the Common Stock after payment of
all debt and liabilities of the Company and the liquidation preference of any
outstanding class or series of Preferred Stock. All outstanding shares of
Common Stock are, and the shares of Common Stock to be issued pursuant to this
offering will be, when issued and delivered, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to any series of Preferred Stock that the Company may issue
in the future. Certain holders of Common Stock are entitled to the
registration rights discussed below.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series, and
the Board of Directors, without action by the holders of the Common Stock, may
fix or alter the voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation preferences,
conversion rights and any other rights, preferences, privileges and
restrictions of any wholly unissued series of Preferred Stock. The Board of
Directors, without stockholder approval, can issue shares of Preferred Stock
with rights that could adversely affect the rights of the holders of Common
Stock. No shares of Preferred Stock presently are outstanding, and the Company
has no present plans to issue any such shares. The issuance of shares of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and could have the effect of delaying, deferring or preventing a change
in control of the Company or other corporate action.
REPRESENTATIVE'S WARRANTS
The Company has agreed to sell to the Representative warrants to purchase up
to 85,000 shares of Common Stock at an exercise price per share equal to 120%
of the initial public offering price per share (the "Representative's
Warrants"). The Representative's Warrants, which are not transferable (other
than to officers or partners of the Representative) are exercisable for a
period of four years beginning one year from the date of this Prospectus. See
"Underwriting."
PRIVATE PLACEMENT WARRANTS
The Company issued the Private Placement Warrants to accredited investors in
connection with the Company's 1996 Private Placement of $725,000 of promissory
notes. Pursuant to the terms of the Private Placement Warrants, the investors,
in the aggregate, have the right to purchase up to 137,500 shares of the
Company's Common Stock (assuming an initial public offering price of $6.00 per
share) for an aggregate exercise price for all of such shares of $23.00. The
Private Placement Warrants are transferable and may be exercised at any time
after the effectiveness of an underwritten public offering by the Company. The
holders of the Private Placement Warrants are entitled to the registration
rights discussed below.
36
<PAGE>
REGISTRATION RIGHTS
In connection with the sale of 371,950 shares of Common Stock during the
first six months of 1996, the Company granted to the holders of such shares
(the "Private Placement Shares") certain rights to register such shares. In
addition, in connection with the 1996 Private Placement, the Company granted
to the holders of the Private Placement Warrants certain rights to register
the shares of Common Stock issuable upon exercise of the Private Placement
Warrants. If the Company registers any of its Common Stock for its own
account, the holders of the Private Placement Shares and the Private Placement
Warrants are entitled to include their shares of Common Stock in the
registration, subject to certain limitations. Any such shares of Common Stock
not sold in this offering will continue to have the foregoing registration
rights.
The Representative's Warrants have certain rights of registration with
respect to the 85,000 shares of Common Stock issuable upon exercise thereof.
The holders of the shares issuable upon exercise of the Representative's
Warrants may require the Company to file one registration statement under the
Securities Act with respect to such shares. In addition, if the Company
registers any of its Common Stock either for its own account or for the
account of other security holders, the holders of the shares issuable upon
exercise of the Representative's Warrants are entitled to include their shares
of Common Stock in the registration, subject to certain limitations.
The Company generally is required to bear substantially all costs incurred
in connection with any such registrations, other than underwriting discounts
and commissions. The foregoing registration rights could result in substantial
future expense to the Company and could adversely affect any future equity or
debt offerings of the Company.
CERTAIN PROVISIONS OF DELAWARE LAW AND CHARTER DOCUMENTS
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware GCL"), an anti-takeover law.
In general, Section 203 of the Delaware GCL prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as the approval of the board of directors and of the
holders of at least two-thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The existence of this provision would be
expected to have an anti-takeover effect, including attempts that might result
in a premium over the market price of the shares of Common Stock held by
stockholders.
As permitted by the Delaware GCL, the Company has included in its
Certificate of Incorporation a provision to eliminate the personal liability
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors to the extent permitted by the Delaware GCL. In
addition, the Amended and Restated Bylaws ("Bylaws") of the Company provide
that the Company is required to indemnify its officers and directors under
certain circumstances, including those circumstances in which indemnification
would otherwise be discretionary, and the Company is required to advance
expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. The Company has
entered into indemnification agreements with its officers and directors
containing provisions that are in some respects broader than the specific
indemnification provisions contained in the Delaware GCL. The indemnification
agreements require the Company, among other things, to indemnify such officers
and directors against certain liabilities that may arise by reason of their
status or service as directors or officers to the fullest extent permitted by
Delaware law and to advance their expenses incurred as a result of any
proceedings against them as to which they could be indemnified. The Company
intends to obtain directors' and officers' liability insurance concurrent with
the effectiveness of this offering. The foregoing provisions of the Company's
Bylaws and indemnification agreements would be available for indemnification
of, and advancing of expenses to, officers and directors of the Company in
connection with liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company
pursuant
37
<PAGE>
to the Company's Bylaws and/or indemnification agreements, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. At present, the Company is
not aware of any pending or threatened litigation or proceeding involving a
director, officer, employee or agent of the Company in which indemnification
would be required or permitted. The Company believes that its charter
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers.
The Company's Certificate of Incorporation and Bylaws provide for the Board
of Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. The provisions of the Certificate of
Incorporation and Bylaws of the Company with respect to the foregoing may be
amended, modified or rescinded by the holders of at least 66 2/3% of the
Company's outstanding voting stock. These provisions could have the effect of
delaying, deferring or preventing a change in control or other corporation
action.
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation, Glendale, California.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 2,954,250 shares of
Common Stock outstanding. All of such outstanding shares will be freely
transferable by persons other than "affiliates" of the Company (as that term
is defined under the Securities Act) without restriction or further
registration under the Securities Act. In addition, all of the 137,500 shares
of Common Stock (assuming an initial public offering price of $6.00 per share)
issuable upon exercise of the Private Placement Warrants will be similarly
freely transferable by persons other than "affiliates" of the Company. As of
August 30, 1996, the Company had 10 holders of record of its Common Stock and
22 holders of record of its Private Placement Warrants.
Pursuant to the terms of certain lock-up agreements and the Underwriting
Agreement, the Representative has required that 2,088,000 shares of such
Common Stock owned by the Selling Stockholders, officers, directors and other
holders, as well as Common Stock obtained by them upon exercise of stock
options, and all of the 137,500 shares of Common Stock (assuming an initial
public offering price of $6.00 per share) issuable upon exercise of the
Private Placement Warrants, may not be sold until one year from the effective
date of the Registration Statement of which this Prospectus is a part (the
"Effective Date"); provided, however, that holders of Common Stock other than
the officers and directors of the Company may sell up to fifty percent (50%)
of the shares of Common Stock held by them at the Effective Date after the
expiration of 180 days from the Effective Date; and, provided, further,
however, that holders of Common Stock acquired upon exercise of the Private
Placement Warrants may sell up to twenty-five percent (25%) of the shares of
Common Stock held by them at the Effective Date every 90 days following the
Effective Date.
With respect to persons who are deemed to be "affiliates" of the Company, in
general, under Rule 144, as currently in effect, an "affiliate" is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock
(approximately 30,000 shares immediately following the offering) or the
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about the Company.
In addition to the shares of Common Stock that are currently outstanding, a
total of (a) 300,000 shares of Common Stock have been reserved for issuance
under the Company's Incentive Plan, of which options to acquire 191,000 shares
of Common Stock have been granted, (b) 137,500 shares of Common Stock may be
issued upon the exercise of the Private Placement Warrants (assuming an
initial public offering price of $6.00 per share), and (c) 85,000 shares of
Common Stock may be issued upon the exercise of the Representative's Warrants.
See "Description of Capital Stock;" "Management--Certain Transactions" and
"Management--Stock Incentive Award Plan."
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or
contract (such as the Incentive Plan) is entitled to rely on the resale
provisions of Rule 701, which permits non-affiliates to sell their Rule 701
shares to the extent vested on the Effective Date without having to comply
with the public-information, holding-period, volume-limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144, in
each case commencing 90 days after the Effective Date.
Following the consummation of this offering, the Company may file a
registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under the Incentive Plan, thus permitting the
resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statement will become
effective immediately upon its filing.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of Common Stock
prevailing from time to time. Sales of a substantial number of shares of
Common Stock by existing stockholders could adversely affect prevailing market
prices.
39
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Meridian Capital Group, Inc.
(the "Representative"), have severally agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase from the
Company the number of shares of Common Stock indicated below opposite their
respective names at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions and that the Underwriters are committed to
purchase all of such shares (other than the Common Stock covered by the over-
allotment option as described below), if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Meridian Capital Group, Inc....................................
Sharpe Capital, Inc............................................
-------
Total...................................................... 850,000
=======
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain securities dealers
at such price less a concession of not more than $. per share, and that the
Underwriters and such dealers may reallow to other dealers, including the
Underwriters, a discount not in excess of $. per share. After the public
offering, the public offering price and concessions and discounts may be
changed by the Representative. No change in such terms shall change the amount
of proceeds to be received by the Company as set forth on the cover page of
this Prospectus.
The Company and Selling Stockholders have granted an option to the
Underwriters, exercisable in the discretion of the Representative for a period
of 45 days after the date of this Prospectus, to purchase up to an additional
111,250 shares and 16,250 shares of Common Stock, respectively, at the public
offering price set forth on the cover page of this Prospectus less the
underwriting discounts and commissions. The Representative may exercise this
option only to cover over-allotments, if any. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase pro rata from the Company and each Selling Stockholder
an aggregate percentage of such additional shares approximately equal to the
percentage of shares it was obligated to purchase from the Company pursuant to
the Underwriting Agreement.
The Representative has informed the Company that it does not expect any
sales in excess of 5% of the number of shares of Common Stock offered hereby
to be made to discretionary accounts by the Underwriters.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the offering proceeds, including any proceeds from the sale
of shares subject to the Underwriter's over-allotment option, if exercised.
The Representative's expenses in excess of the non-accountable expense
allowance, including its legal expenses, will be borne by the Representative.
To the extent that the expenses of the Representative are less than the non-
accountable expense allowance, the excess may be deemed to be compensation to
the Representative.
The Underwriting Agreement provides that the Company (and the Selling
Stockholders, with respect to the over-allotment option) will indemnify the
Underwriters and their controlling persons against certain liabilities
40
<PAGE>
under the Securities Act or will contribute to payments the Underwriters and
their controlling persons may be required to make in respect thereof. The
Company and the Selling Stockholders have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
The Company has agreed to sell to the Representative, for a total of $8.50,
warrants (the "Representative's Warrants") to purchase up to 85,000 shares of
Common Stock at an exercise price per share equal to 125% of the initial
public offering price per share. The Representative's Warrants are exercisable
for a period of four years beginning one year from the date of this
Prospectus, and are not transferable for a period of one year except to
officers of the Representative or any successor to the Representative. In
addition, the Company has granted certain rights to the holders of the
Representative's Warrants to register the Common Stock underlying the
Representative's Warrants under the Securities Act.
The Company, the Selling Stockholders, certain other existing stockholders,
the holders of the Private Placement Warrants and the officers and directors
of the Company have agreed not to sell any shares of Common Stock prior to the
expiration of one year from the date of this Prospectus; provided, however,
that the Selling Stockholders and the other existing stockholders (other than
the officers and directors of the Company) may sell up to fifty percent (50%)
of the shares of Common Stock held by them at the Effective Date after the
expiration of 180 days from the Effective Date and, provided, further,
however, that holders of Common Stock acquired upon exercise of the Private
Placement Warrants may sell up to twenty-five percent (25%) of the shares of
Common Stock held by them at the Effective Date every 90 days following the
Effective Date. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no market for the Common Stock of the
Company. Accordingly, the initial public offering price has been determined by
negotiations between the Company and the Representative. Among the factors
considered in determining the initial public offering price were the Company's
results of operations, current financial condition and products, the markets
addressed by the Company's products, the Company's future prospects, the
experience of its management, the general condition of the equity securities
market and the demand for similar securities of companies considered
comparable to the Company.
The Representative was registered as a broker/dealer and became a member of
the National Association of Securities Dealers, Inc. in October 1994. The
Representative has previously participated in two public offerings as an
underwriter.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of
the Company and the Securities and Exchange Commission, Washington, D.C. See
"Additional Information."
41
<PAGE>
LEGAL MATTERS
The legality of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company by Allen,
Matkins, Leck, Gamble & Mallory LLP, a limited liability partnership including
professional corporations, Irvine, California. Certain legal matters will be
passed upon for the Underwriters by Radcliff, Frandsen, Tricker & Dongell, Los
Angeles, California.
EXPERTS
The financial statements of Javelin Systems, Inc. at June 30, 1996 and for
the period from September 19, 1995 (date of inception) to June 30, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A registration statement on Form SB-2, including amendments thereto (herein,
the "Registration Statement") relating to the Common Stock offered hereby has
been filed by the Company with the Securities and Exchange Commission (the
"Commission"). This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office located at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the following regional offices:
the New York Regional Office located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and the Chicago Regional Office located at Northwestern
Atrium Center, 500 West Madison Street, Chicago Illinois 60661-2511 and copies
of all or any part thereof may be obtained from the Public Reference Branch of
the Commission upon the payment of certain fees prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
42
<PAGE>
JAVELIN SYSTEMS, INC.
FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 19, 1995
(DATE OF INCEPTION) TO JUNE 30, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Financial Statements
Balance Sheet............................................................... F-3
Statement of Operations..................................................... F-4
Statement of Stockholders' Equity........................................... F-5
Statement of Cash Flows..................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Javelin Systems, Inc.
We have audited the accompanying balance sheet of Javelin Systems, Inc. as
of June 30, 1996, and the related statements of operations, stockholders'
equity and cash flows for the period from September 19, 1995 (date of
inception) to June 30, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Javelin Systems, Inc. at
June 30, 1996, and the results of its operations and its cash flows for the
period from September 19, 1995 (date of inception) to June 30, 1996 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Orange County, California
August 15, 1996
except as to Note 8, as to which the
date is August 29, 1996.
F-2
<PAGE>
JAVELIN SYSTEMS, INC.
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................. $ 6,404
Accounts receivable............................................... 693,679
Inventories....................................................... 209,350
Other current assets.............................................. 4,107
---------
Total current assets................................................ 913,540
Furniture, fixtures and equipment, at cost:
Computer equipment................................................ 21,960
Furniture and fixtures............................................ 4,455
Leasehold improvements............................................ 4,551
---------
30,996
Less accumulated depreciation and amortization.................... 3,044
---------
27,922
Other assets, net................................................... 9,851
---------
Total assets........................................................ $ 951,313
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.................................................... $ 206,552
Accounts payable.................................................. 356,769
Accrued expenses.................................................. 32,973
Current maturities of notes payable to stockholders............... 65,000
Current maturities of long-term debt.............................. 20,000
---------
Total current liabilities........................................... 681,294
Notes payable to stockholders, net of current portion............... 25,000
Long-term debt, net of current portion.............................. 50,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares--1,000,000
Issued and outstanding shares--none............................. --
Common stock, $0.01 par value:
Authorized shares--10,000,000
Issued and outstanding shares--2,104,250........................ 369,206
Deferred charge related to warrants issued in connection with
notes payable.................................................... (119,845)
Accumulated deficit............................................... (54,342)
---------
Total stockholders' equity.......................................... 195,019
---------
Total liabilities and stockholders' equity.......................... $ 951,313
=========
</TABLE>
See accompanying notes.
F-3
<PAGE>
JAVELIN SYSTEMS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 19, 1995 (DATE OF INCEPTION) TO JUNE 30, 1996
<TABLE>
<S> <C>
Net sales.......................................................... $1,463,627
Cost of sales...................................................... 1,104,171
----------
Gross profit....................................................... 359,456
Operating expenses:
Research and development......................................... 46,771
Selling and marketing............................................ 83,495
General and administrative....................................... 244,736
----------
Total operating expenses........................................... 375,002
----------
Operating loss..................................................... (15,546)
Interest expense................................................... 38,796
----------
Net loss........................................................... $ (54,342)
==========
Net loss per share................................................. $ (0.03)
==========
Shares used in computing net loss per share........................ 2,086,260
==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
JAVELIN SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 19, 1995 (DATE OF INCEPTION) TO JUNE 30, 1996
<TABLE>
<CAPTION>
DEFERRED
CHARGE RELATED
TO WARRANTS
ISSUED IN
COMMON STOCK CONNECTION
------------------ WITH NOTES ACCUMULATED
SHARES AMOUNT PAYABLE DEFICIT TOTAL
--------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
for cash............... 1,274,950 $ 85,050 $ -- $ -- $ 85,050
Issuance of common stock
for equipment.......... 288,100 1,675 -- -- 1,675
Issuance of common stock
upon conversion of
notes payable.......... 541,200 152,481 -- -- 152,481
Value assigned to war-
rants issued in connec-
tion with notes pay-
able................... -- 130,000 (130,000) -- --
Amortization of deferred
charge................. -- -- 10,155 -- 10,155
Net loss................ -- -- -- (54,342) (54,342)
--------- -------- --------- -------- --------
Balance at June 30,
1996................... 2,104,250 $369,206 $(119,845) $(54,342) $195,019
========= ======== ========= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
JAVELIN SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 19, 1995 (DATE OF INCEPTION) TO JUNE 30, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss........................................................... $ (54,342)
Adjustments to reconcile net loss to net cash used in operating ac-
tivities:
Depreciation and amortization.................................... 3,251
Amortization of deferred charge related to warrants.............. 10,155
Changes in operating assets and liabilities:
Accounts receivables........................................... (693,679)
Inventories.................................................... (209,350)
Other current assets........................................... (4,107)
Accounts payable............................................... 356,769
Accrued expenses............................................... 32,973
---------
Net cash used in operating activities.............................. (558,330)
INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment...................... (29,291)
Other.............................................................. (8,542)
---------
Net cash used in investing activities.............................. (37,833)
FINANCING ACTIVITIES
Net borrowings under line of credit................................ 206,552
Proceeds from issuance of notes payable to related parties......... 222,481
Increase in long-term debt......................................... 90,000
Issuance of common stock........................................... 85,050
Deferred offering costs............................................ (1,516)
---------
Net cash provided by financing activities.......................... 602,567
---------
Net increase in cash............................................... 6,404
Cash at beginning of period........................................ --
---------
Cash at end of period.............................................. $ 6,404
=========
SUPPLEMENTARY DISCLOSURE OF CASH PAID DURING THE PERIOD FOR:
Interest........................................................... $ 28,641
=========
State franchise taxes.............................................. $ 800
=========
SUPPLEMENTARY DISCLOSURE OF NON CASH FINANCING ACTIVITIES:
Equipment acquired for common stock................................ $ 1,675
=========
Notes payable converted to common stock............................ $ 152,481
=========
</TABLE>
See accompanying notes.
F-6
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Javelin Systems, Inc. ("the Company") was incorporated in the State of
Delaware under the name of Sunwood Research, Inc. on September 19, 1995. The
Company designs, develops, markets and sells open system touch screen point-
of-sale ("POS") computers, primarily for the foodservice industry.
The Company has incurred losses of $54,342 from inception, primarily due to
the start-up nature of its business. The ability of the Company to establish
itself as a successful operating entity on an ongoing basis is dependent upon
future events, including further marketing of its products and achieving
profitable operations. As discussed in Note 8, the Company plans to sell its
common stock through an initial public offering.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements. Actual results could differ from those estimates.
INVENTORIES
Inventories consist primarily of computer hardware and components and are
stated at the lower of cost (first-in, first-out) or market as follows:
<TABLE>
<S> <C>
Raw materials....................................................... $203,950
Finished goods...................................................... 5,400
--------
$209,350
========
</TABLE>
CONCENTRATION OF BUSINESS AND CREDIT RISK
The Company operates within an industry that is subject to rapid
technological advancement, intense competition and uncertain market
acceptance. The introduction of new technologies, competitors' alternative
products and ultimate market acceptance of the products sold by the Company,
could have a substantial impact on the future operations of the Company.
Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers
and collateral is generally not required. Accordingly, the Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential losses which, when realized, have been within the range of
management's expectations. As of June 30, 1996, four customers accounted for
68% of total accounts receivable.
Sales to two customers aggregated 30% and 24%, respectively, of net sales
since inception.
DEFERRED OFFERING COSTS
Deferred offering costs of $1,516 consist of incremental costs incurred in
connection with the planned initial public offering described in Note 8. Such
costs will be offset against the proceeds from the sale of securities upon
successful completion of the planned public offering.
F-7
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight line method over the estimated
useful lives of the respective assets, generally three years.
WARRANTIES
The Company's products are under warranty for defects in material and
workmanship for one year. Certain components included in the Company's
products are covered by manufacturer's warranties. Costs related to after-sale
service and repair are accrued as warranty expense at the time of sale, and to
date, such costs have been insignificant.
REVENUE RECOGNITION
Revenues from sales of products are recognized upon shipment of the
products. The Company generally does not have any significant remaining
obligations upon shipment of its products. Product returns and sales
allowances, which have not been significant historically, are provided for at
the date of sale.
RESEARCH AND DEVELOPMENT
The Company expenses the cost of research and development as incurred.
Continuous research and development is necessary for the Company to maintain
its competitive position.
ADVERTISING COSTS
The Company expenses the production costs of advertising as incurred. To
date, advertising expenses have not been significant.
TAXES BASED ON INCOME
Deferred taxes are provided for items recognized in different periods for
financial and tax reporting purposes in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
common shares and common share equivalents outstanding during the period
presented. Common share equivalents result from the effect of outstanding
options and warrants to purchase common stock. Pursuant to the requirements of
the Securities and Exchange Commission, common shares and common share
equivalents issued by the Company during the twelve months immediately
preceding the proposed initial public offering have been included in the
calculation of the shares used in computing net loss per common share as if
they were outstanding for the entire period presented (using the treasury
stock method and the estimated public offering price of $6 per share in
calculating equivalent shares).
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (FAS 123) was issued and is effective
for fiscal years that begin after December 15, 1995. The Company intends to
continue to account for employee stock options in accordance with APB Opinion
No. 25 and will make the pro forma disclosures required by FAS 123 in fiscal
1997. Accordingly, the adoption of the standard will not have a material
effect on the Company's financial position or results of operations.
F-8
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. LINE OF CREDIT
The Company has a line of credit with a financial institution under which it
may borrow up to 80% of the Company's eligible accounts receivable (as
defined) with monthly interest based upon the prime rate of a national
financial institution, however, such rate cannot be less than 2.5% per month.
Borrowings under the line of credit are collateralized by substantially all
the assets of the Company. The line of credit expires in December 1996. As of
June 30, 1996, borrowings under the line aggregated $206,552 (2.5% per month)
and there was $20,898 available for future borrowings.
3. STOCKHOLDERS' EQUITY
WARRANTS
In connection with the issuance of various promissory notes through June 30,
1996 the Company granted warrants to acquire the Company's common stock to the
noteholders. The number of shares that can be acquired under the warrants is
based upon the per share offering price in an initial public offering by the
Company. Assuming an offering price of $6 per share, the warrants will entitle
the holders to purchase a total of 33,333 shares of the Company's common stock
for an aggregate purchase price of $4. The outstanding warrants become
exercisable following the effectiveness of a public offering of the Company's
common stock and have no expiration date. The Company has assigned a value of
$130,000 to the warrants which has been accounted for as additional paid in
capital in the accompanying financial statements. The deferred charge related
to the warrants is being amortized over the lives of the related promissory
notes.
4. INCOME TAXES
No provision for federal or state income taxes is required since the Company
has incurred losses since inception.
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their bases
for financial reporting purposes. Temporary differences which give rise to
deferred tax assets are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards................................... $ 7,200
Accrued liabilities................................................ 10,400
Valuation allowance................................................ (17,600)
--------
Net deferred tax assets............................................ $ --
========
</TABLE>
The Company has incurred operating losses since inception, and due to the
uncertainty regarding future results of operations, the Company has provided a
full valuation allowance against its net deferred tax assets.
At June 30, 1996, the Company has a net operating loss carryforward
available to offset future taxable income of approximately $18,000 which
expires in 2011. Under the change in ownership provisions of the Tax Reform
Act of 1986, net operating loss carryforwards for federal income tax reporting
purposes may be subject to annual limitations. Should a change in ownership
occur, the availability of net operating loss carryforwards may be limited in
future years.
F-9
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE TO STOCKHOLDERS AND LONG-TERM DEBT
Notes payable to stockholders at June 30, 1996 consists of the following:
<TABLE>
<S> <C>
Promissory notes, bearing interest at 10%, due on various dates in
1997 and 1998..................................................... $75,000
Unsecured, noninterest bearing demand note......................... 15,000
-------
90,000
Less current portion............................................... 65,000
-------
$25,000
=======
</TABLE>
Long-term debt at June 30, 1996 consists of the following:
<TABLE>
<S> <C>
Unsecured demand note, bearing interest at 8%....................... $20,000
Promissory notes, bearing interest at 10% due on various dates in
1997 and 1998...................................................... 50,000
-------
70,000
Less current portion................................................ 20,000
-------
$50,000
=======
</TABLE>
Annual maturities of notes payable to stockholders and long-term debt are as
follows:
<TABLE>
<S> <C>
1997................................................................. $85,000
1998................................................................. 75,000
</TABLE>
Promissory notes become due and payable upon the effectiveness of a public
offering of the Company's common stock.
Due to their short-term nature and/or market rate of interest, the fair
values of the Company's notes payable to stockholders, long-term debt and
other financial instruments approximate their carrying values.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through 1998.
Future minimum annual lease payments at June 30, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................. $42,853
1998................................................................. 42,718
1999................................................................. 8,767
-------
$94,338
=======
</TABLE>
Rent expense under operating lease agreements aggregated $16,596 for the
period ended June 30, 1996, and is included in general and administrative
expenses in the accompanying statement of operations.
F-10
<PAGE>
JAVELIN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY
During the period ended June 30, 1996, the Company purchased a total of
approximately $445,000 of electronic components from a company owned by a
shareholder and founder of the Company. Included in accounts payable at June
30, 1996, is $73,580 due to that Company.
8. SUBSEQUENT EVENTS
STOCK SPLIT
On August 23, 1996, the Company effected a 4,300-for-1 stock split. All
references in the accompanying financial statements and notes to shares
outstanding and per share amounts have been adjusted to reflect the impact of
this stock split.
STOCK OPTIONS
In August 1996, the Company adopted a stock incentive award plan (the
"Plan") under which the Board of Directors, or a committee appointed for such
purpose, may from time to time grant options, restricted stock or other stock-
based compensation to the directors, officers, eligible employees or
consultants of the Company to acquire up to an aggregate of 300,000 shares of
common stock, in such numbers, under such terms and at such exercise prices as
are determined by the Board or such committee. It is the Company's intention
to grant options under the Plan principally to employees. In August 1996, the
Company granted options to certain employees and a director to purchase an
aggregate of 121,000 shares of its common stock at exercise prices of $3.50 to
$4.50 per share.
BRIDGE FINANCING
In July and August 1996, the Company issued $600,000 of the Company's 10%
Promissory Notes, due on the earlier of (i) one year from the date of the
respective notes, or (ii) the effectiveness of a public offering of the
Company's common stock, together with warrants to purchase shares of the
Company's common stock. The majority of the warrants expire 90 days after the
effectiveness of a public offering of the Company's common stock. The number
of shares of common stock that can be acquired under the warrants will be
based upon the offering price of the Company's common stock in a public
offering. Assuming an initial public offering price of $6 per share, these
warrants will entitle the holders to purchase a total of 104,167 shares of the
Company's common stock for the aggregate exercise price of $19.00.
REGISTRATION STATEMENT
On August 6, 1996, the Board of Directors authorized the Company to file a
registration statement on Form SB-2 with the Securities and Exchange
Commission for an initial public offering of 850,000 shares of common stock at
an estimated offering price of $5.00 to $7.00 per share. In connection with
the offering, the Company will sell the representatives of the underwriters a
warrant, for $8.50, to purchase 85,000 shares of the Company's common stock at
120 percent of the offering price.
F-11
<PAGE>
Hardware Solutions for quick service restaurants, full service restaurants,
hospitality and retail establishments including:
Transaction Processing
In-Store Controls
Management Information
Javelin Systems, Inc. is dedicated to offering the latest in design and
technology.
[COLOR PHOTOGRAPHS]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF THE
COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 21
Management................................................................ 28
Security Ownership of Certain Beneficial Owners and Management............ 34
Selling Stockholders...................................................... 35
Description of Capital Stock.............................................. 36
Shares Eligible for Future Sale........................................... 39
Underwriting.............................................................. 40
Legal Matters............................................................. 42
Experts................................................................... 42
Additional Information.................................................... 42
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
JAVELIN SYSTEMS, INC.
850,000 SHARES
COMMON STOCK
---------------
PROSPECTUS
---------------
MERIDIAN CAPITAL GROUP, INC.
SHARPE CAPITAL, INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws require that directors and officers be indemnified to
the maximum extent permitted by Delaware law.
The Delaware GCL provides that a director or officer of a corporation (i)
shall be indemnified by the corporation for all expenses of litigation or
other legal proceedings when he is successful on the merits, (ii) may be
indemnified by the corporation for the expenses, judgments, fines and amounts
paid in settlement of such litigation (other than a derivative suit) even if
he is not successful on the merits if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation (and, in the case of a criminal proceeding, had no reason to
believe his conduct was unlawful), and (iii) may be indemnified by the
corporation for expenses of a derivative suit (a suit by a stockholder
alleging a breach by a director or officer of a duty owed to the corporation),
even if he is not successful on the merits, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, provided that no such indemnification may be made in
accordance with this clause (iii) if the director or officer is adjudged
liable to the corporation, unless a court determines that, despite such
adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. The indemnification described in clauses
(ii) and (iii) above shall be made upon order by a court or a determination by
(i) a majority of disinterested directors, (ii) if there are no such directors
or if such directors so direct, by independent legal counsel in a written
opinion or (iii) the stockholders that indemnification is proper because the
applicable standard of conduct is met. Expenses incurred by a director or
officer in defending an action may be advanced by the corporation prior to the
final disposition of such action upon receipt of an undertaking by such
director or officer to repay such expenses if it is ultimately determined that
he is not entitled to be indemnified in connection with the proceeding to
which the expenses relate. The Company's Certificate of Incorporation includes
a provision eliminating, to the fullest extent permitted by Delaware law,
director liability for monetary damages for breaches of fiduciary duty.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with each director or officer designated by the Board of
Directors. The Indemnity Agreements require that the Company indemnify
directors and officers who are parties thereto in all cases to the fullest
extent permitted by Delaware law. Under the Delaware GCL, except in the case
of litigation in which a director or officer is successful on the merits,
indemnification of a director or officer is discretionary rather than
mandatory. Consistent with the Company's Bylaw provision on the subject, the
Indemnity Agreements require the Company to make prompt payment of litigation
expenses at the request of the director or officer in advance of
indemnification provided that he undertakes to repay the amounts if it is
ultimately determined that he is not entitled to indemnification for such
expenses. The advance of litigation expenses is mandatory; under the Delaware
GCL such advance would be discretionary. Under the Indemnity Agreements, the
director or officer is permitted to bring suit to seek recovery of amounts due
under the Indemnity Agreements and is entitled to recover the expenses of
seeking such recovery unless a court determines that the action was not made
in good faith or was frivolous. Without the Indemnity Agreements, the Company
would not be required to pay the director or officer for his expenses in
seeking indemnification recovery against the Company. Under the Indemnity
Agreements, directors and officers are not entitled to indemnity or advancing
of expenses (i) if such director or officer has recovered payment under an
insurance policy for the subject claim, or has otherwise been indemnified
against the subject claim, (ii) for actions initiated or brought by the
director or officer and not by way of defense (except for actions seeking
indemnity or expenses from the Company), (iii) if the director or officer
violated section 16(b) of the Securities Exchange Act of 1934 or similar
provisions of law or (iv) if a court of competent jurisdiction determines that
the director or officer failed to act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any proceeding which is of a criminal nature, had reasonable cause
to believe his conduct was unlawful. Absent the Indemnity Agreements,
indemnification that might be made available to directors and officers could
be changed by amendments to the Company's Certificate of Incorporation or
Bylaws.
II-1
<PAGE>
The Company intends to have a policy of directors and officers liability
insurance in effect upon consummation of the offering contemplated hereby
which will insure directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions and the non-accountable expense allowance, payable
by the Registrant in connection with the sale of the Common Stock being
registered. All of the amounts will be paid by the Registrant, and Selling
Stockholders will not be required to pay any portion of such amounts. All of
the amounts are estimates except for the registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
Registration fee.................................................. $2,606
NASD filing fee................................................... 1,256
Nasdaq inclusion fee.............................................. *
Blue sky qualification fees and expenses.......................... *
Directors and officers Insurance.................................. *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Transfer agent and registrar fees................................. *
Miscellaneous..................................................... *
------
Total........................................................... $ *
======
</TABLE>
- --------
* To be completed by Amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception (September 19, 1995), the Registrant has sold and issued the
following unregistered securities pursuant to an exemption under the
Securities Act:
1. On September 26, 1995, the Registrant issued 430,000 shares of Common
Stock to Richard P. Stack, 288,100 shares of Common Stock to C. Norman
Campbell and 77,400 shares of Common Stock to John R. Amos at a per share
price of approximately $.006 per share. The issuance of the Common Stock was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
2. On November 1, 1995, the Registrant issued 288,100 shares of Common Stock
to C. Norman Campbell and 107,500 shares of Common Stock to Alex Nelson at a
per share price of approximately $.006 per share. The issuance of the Common
Stock was deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) of the Securities Act and Rule 504 of Regulation D
promulgated thereunder because the issuance did not involve a public offering.
3. On January 9, 1996, the Registrant issued 180,600 shares of Common Stock
to The Steven J. Goodman Revocable Living Trust ("Goodman") and 25,800 shares
of Common Stock to GAK Limited, a Delaware limited partnership ("GAK"), of
which Horace and Madeleine Hertz are the general partners, at a per share
price of approximately $.02 per share. The issuance of the Common Stock was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
II-2
<PAGE>
4. On April 1, 1996, the Registrant issued 430,000 shares of Common Stock to
Richard P. Stack at a per share price of approximately $.19 per share upon
conversion of a convertible promissory note originally issued in October 1995.
The issuance of the convertible promissory note and the Common Stock was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
5. On April 3, 1996, the Registrant issued 116,100 shares of Common Stock to
Goodman at a per share price of approximately $.22 per share. The issuance of
the Common Stock was deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and Rule 504 of
Regulation D promulgated thereunder because the issuance did not involve a
public offering.
6. On May 1, 1996, the Registrant issued 86,000 shares of Common Stock to
Teresa M. McRae at a per share price of approximately $.47 per share upon
conversion of a convertible promissory note originally issued in October 1995.
The issuance of the convertible promissory note and the Common Stock was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
7. On May 23, 1996, the Registrant issued 38,700 shares of Common Stock to
GAK at a per share price of approximately $.65 per share. The issuance of the
Common Stock was deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2) of the Securities Act and Rule 504 of Regulation
D promulgated thereunder because the issuance did not involve a public
offering.
8. On May 31, 1996, the Registrant issued 17,200 shares of Common Stock to
Richard A. Stack at a per share price of approximately $.70 per share upon
conversion of a convertible promissory note originally issued in October 1995.
The issuance of the convertible promissory note and the Common Stock was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
9. On June 3, 1996, the Registrant issued 10,750 shares of Common Stock to
Herbert R. and Janice N. Donica, as joint tenants by the entireties, at a per
share price of approximately $2.33 per share. The issuance of the Common Stock
was deemed to be exempt from registration under the Securities Act by virtue
of Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
10. On October 1, 1995, the Registrant issued a Promissory Note in the
amount of $15,000 to Richard P. Stack. The issuance of the Promissory Note was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
thereunder because the issuance did not involve a public offering.
11. In February 1996, the Company issued two Promissory Notes, each in the
original principal amount of $20,000, to each of Peter Aiello and Jim Cox. The
Promissory Note issued to Mr. Cox is convertible at his option into shares of
Common Stock at a per share price of $2.50 per share. Effective as of June 30,
1996, Mr. Cox converted his Promissory Note into 8,000 shares of Common Stock.
The issuance of the Promissory Notes and the Common Stock issued upon
conversion of Mr. Cox's Promissory Note was deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and Rule 504 of Regulation D promulgated thereunder because the
issuance did not involve a public offering.
12. At various times commencing May 1996 through August 1996, the Registrant
issued Promissory Notes to the following accredited investors in the following
original principal amounts: (1) The Steven J. Goodman Charitable Remainder
Trust (the "Goodman CRT"), $50,000; (2) John R. Amos, $25,000; (3) Kanayo
Partabrai Gangwani, $25,000; (4) Jack S. Kompan, two Promissory Notes
aggregating $50,000; (5) Universal Partners, L.P., a partnership that
specializes in providing bridge financing of which Windy City Bridges, Inc. is
a general partner, $25,000; (6) Scott Robinson, $25,000; (7) Rebecca L.
Gregarek, $12,500; (8) David M. Munch, $25,000;
II-3
<PAGE>
(9) David J. Gregarek, $25,000; (10) Jay Louis Kear Family Trust, $25,000;
(11) Mildred J. Geiss, $37,500; (12) Westerling Family Trust, $100,000; (13)
Yu Family Revocable Trust, $25,000; (14) Kenneth and Linda Bloom, $25,000;
(15) Christopher Neil, $25,000; (16) Izzy Rabinowitz, $50,000; (17) Don R.
Thorne, $50,000; (18) Mark Ratto, $12,500; (19) B.C. Investments, $12,500;
(20) Chris Brown, $50,000; (21) Victor A. Ince and Terry A. Ince, joint
tenants, $25,000; and (22) Caribou Bridge Fund, LLC, $25,000. Concurrent with
the issuance of each of the foregoing Promissory Notes, the Registrant issued
warrants to purchase shares of Common Stock (the "Warrants") in an amount
equal to the number of shares that results from dividing the initial public
offering price into the original principal amount of the Promissory Note, with
the exception of the Promissory Notes issued to Mr. Amos, Mr. Gangwani and
Mr. Kompan which provided for 50% of the initial public offering price being
divided into the original principal amount of their respective Promissory
Notes. The total purchase price for all of the shares of Common Stock issuable
upon the exercise of such Warrants is an aggregate of $1.00 per Warrant, or
$23.00 in the aggregate. The Warrants become exercisable after the Registrant
obtains effectiveness of an underwritten public offering of its Common Stock.
In connection with the sales of certain of the Promissory Notes and Warrants,
the Registrant paid a total of $15,000 in commissions to Spencer Edwards in
its capacity as a selling agent and $27,500 to Meridian Capital Group, Inc. in
its capacity as a selling agent. The issuance of the Promissory Notes and the
Warrants was deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) of the Securities Act and Rule 504 of Regulation D
promulgated thereunder because the issuance did not involve a public offering.
13. In August and September 1996, the Registrant granted options to purchase
an aggregate of 111,000 shares of Common Stock at exercise prices of $3.50 per
share, 60,000 shares at exercise prices of $4.50 per share and 20,000 shares
at exercise prices of $2.50 per share to certain officers, directors, key
employees and consultants under the Registrant's 1996 Stock Incentive Award
Plan. The grant of all such options was deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated under the
Securities Act.
The foregoing information has been adjusted to reflect a 4,300 for 1 stock
split of the Common Stock effected in August 1996.
ITEM 27. EXHIBITS.
The following is a list of exhibits filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and between the Registrant and
Meridian Capital Group, Inc.
3.1 Amended and Restated Certificate of Incorporation of Registrant(2)
3.2 Amended and Restated Bylaws of Registrant(2)
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant
3.4 Amendment to Amended and Restated Bylaws of Registrant
4.1 Form of Representative's Warrant Agreement by and between the
Registrant and Meridian Capital Group, Inc. (1)
4.2 Form of Certificate Evidencing Shares of Registrant's Common Stock
5.1 Opinion of Allen, Matkins, Leck, Gamble & Mallory LLP(1)
10.1 1996 Stock Incentive Award Plan of Registrant(2)
10.2 Form of 1996 Director Non-Qualified Stock Option Agreement(2)
10.3 Form of 1996 Employee Non-Qualified Stock Option Agreement(2)
10.4 Employment Agreement dated August 19, 1996 by and between the
Registrant and Richard P. Stack(2)
10.5 Employment Agreement dated August 19, 1996 by and between the
Registrant and C. Norman Campbell(2)
10.6 Form of Indemnity Agreement entered into with each of the Registrant's
officers and directors(2)
10.7 Form of Stockholders Lock-Up Agreement to be entered into by the
stockholders of Registrant(2)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.8 Form of Directors and Officers Lock-Up Agreement to be entered into by
directors and officers of Registrant(2)
10.9 Form of Bridge Investors Lock-Up Agreement to be entered into by the
holders of Warrants to purchase Common Stock of Registrant(2)
10.10 Promissory Note dated October 1, 1995 in the original principal amount
of $80,481.45 payable by the Registrant in favor of Richard P. Stack
(the "R.P. Stack Note")(2)
10.11 Letter Agreement dated April 1, 1996 between the Registrant and
Richard P. Stack regarding the conversion of the R.P. Stack Note into
shares of the Common Stock of the Registrant(2)
10.12 Promissory Note dated October 1, 1995 in the original principal amount
of $40,000 payable by the Registrant in favor of Teresa M. McRae (the
"T. McRae Note")(2)
10.13 Letter Agreement dated May 1, 1996 between the Registrant and Teresa
M. McRae regarding the conversion of the T. McRae Note into shares of
the Common Stock of the Registrant(2)
10.14 Promissory Note dated October 1, 1995 in the original principal amount
of $12,000 payable by the Registrant in favor of Richard A. Stack (the
"R.A. Stack Note")(2)
10.15 Letter Agreement dated May 31, 1996 between the Registrant and Richard
A. Stack regarding the conversion of the R.A. Stack Note into shares
of the Common Stock of the Registrant(2)
10.16 Standard Industrial/Commercial Single-Tenant Lease-Gross dated October
19, 1995 by and between Robert P. Peebles Trust, Dated 4-11-79, and
the Registrant for that certain real property located at 2882C Walnut
Avenue, Tustin, California 92780(2)
10.17 Loan and Security Agreement dated December 4, 1995 by and between Main
Credit Corp. and the Registrant, as amended by that certain letter
agreement dated June 17, 1996(2)
10.18 Accounts Collateral Security Agreement dated December 4, 1995 by and
between Main Credit Corp. and the Registrant(2)
10.19 Inventory Collateral Security Agreement dated December 4, 1995 by and
between Main Credit Corp. and the Registrant(2)
10.20 Equipment Collateral Security Agreement dated December 4, 1995 by and
between Main Credit Corp. and the Registrant(2)
10.21 Stock Purchase Agreement dated January 9, 1996 by and among the
Registrant, the Steven J. Goodman Revocable Living Trust and Richard
P. Stack(2)
10.22 Stock Purchase Agreement dated January 9, 1996 by and among the
Registrant, GAK Limited and Richard P. Stack(2)
10.23 Letter Agreement dated February 15, 1996 between the Registrant and
Jim Cox regarding loan in the original principal amount of $20,000
made by Jim Cox to the Registrant (the "Cox Note")(2)
10.24 Letter Agreement dated June 30, 1996 between the Registrant and Jim
Cox regarding the conversion of the Cox Note into shares of the Common
Stock of Registrant(2)
10.25 Letter Agreement dated February 16, 1996 between the Registrant and
Peter Aiello regarding loan in the original principal amount of
$20,000 made by Peter Aiello to the Registrant(2)
10.26 Stock Purchase Agreement dated April 3, 1996 by and among the
Registrant, the Steven J. Goodman Revocable Living Trust and Richard
P. Stack(2)
10.27 Securities Purchase Agreement dated May 17, 1996 by and between the
Registrant and John R. Amos(2)
10.28 Promissory Note dated May 31, 1996 in the original principal amount of
$25,000 payable by the Registrant in favor of John R. Amos(2)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.29 Warrant dated May 31, 1996 issued by the Registrant in favor of John
R. Amos(2)
10.30 Securities Purchase Agreement dated May 17, 1996 by and between the
Registrant and Jack S. Kompan(2)
10.31 Promissory Note dated May 31, 1996 in the original principal amount of
$25,000 payable by the Registrant in favor of Jack S. Kompan(2)
10.32 Warrant dated May 31, 1996 issued by the Registrant in favor of Jack
S. Kompan(2)
10.33 Securities Purchase Agreement dated May 17, 1996 by and between the
Registrant and Kanayo Partabrai Gangwani(2)
10.34 Promissory Note dated May 31, 1996 in the original principal amount of
$25,000 payable by the Registrant in favor of Kanayo Partabrai
Gangwani(2)
10.35 Warrant dated May 31, 1996 issued by the Registrant in favor of Kanayo
Partabrai Gangwani(2)
10.36 Stock Purchase Agreement dated May 23, 1996 by and among the
Registrant, GAK Limited and Richard P. Stack(2)
10.37 Securities Purchase Agreement dated May 23, 1996 by and between the
Registrant and the Steven J. Goodman Charitable Remainder Trust(2)
10.38 Promissory Note dated May 23, 1996 in the original principal amount of
$50,000 payable by the Registrant in favor of the Steven J. Goodman
Charitable Remainder Trust(2)
10.39 Warrant dated May 23, 1996 issued by the Registrant in favor of the
Steven J. Goodman Charitable Remainder Trust(2)
10.40 Securities Purchase Agreement dated July 2, 1996 by and between the
Registrant and Jack S. Kompan(2)
10.41 Promissory Note dated July 2, 1996 in the original principal amount of
$25,000 payable by the Registrant in favor of Jack S. Kompan(2)
10.42 Warrant dated July 2, 1996 issued by the Registrant in favor of Jack
S. Kompan(2)
10.43 Subscription Agreement dated June 3, 1996 by and between the
Registrant and Herbert R. Donica and Janice N. Donica(2)
10.44 Letter Agreement dated July 22, 1996 between the Registrant and John
R. Amos regarding the transfer of certain intellectual property by
John R. Amos to the Registrant(2)
10.45 Letter Agreement dated July 29, 1996 between the Registrant and C.
Norman Campbell regarding the transfer of certain intellectual
property by C. Norman Campbell to the Registrant(2)
10.46 Purchase Order dated July 29, 1996 between Registrant and LG
Electronics with respect to LCD displays(2)
10.47 Form of Securities Purchase Agreement, including form of Promissory
Note and Warrant, utilized in 1996 Private Placement(2)
11.1 Statement re Calculation of Net Loss Per Share(2)
21.1 Subsidiaries of the Registrant(2)
23.1 Consent of Allen, Matkins, Leck, Gamble & Mallory LLP (included in the
opinion to be filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney(2)
27 Financial Data Schedule(2)
</TABLE>
- --------
(1) To be filed by amendment.
(2) Previously filed.
II-6
<PAGE>
ITEM 28. UNDERTAKINGS.
The small business issuer (the "Registrant") hereby undertakes the
following:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the
Commission declared it effective.
(3) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
Registration Statement for the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that the Registrant will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in information in the registration
statement; and
(iii) Include additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorizes this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Tustin, State of California, on the
3rd day of October, 1996.
Javelin Systems, Inc.
/s/ Richard P. Stack
By: _________________________________
Richard P. Stack, President and
Chief Executive Officer (Principal
Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard P. Stack President, Chief Executive October 3, 1996
____________________________________ Officer and Director
Richard P. Stack (Principal Executive
Officer)
/s/ C. Norman Campbell* Vice President, Engineering October 3, 1996
____________________________________ and Director
C. Norman Campbell
/s/ Lawrence W. McCorkle* Controller, Treasurer and October 3, 1996
____________________________________ Secretary (Principal
Lawrence W. McCorkle Financial and Accounting
Officer)
/s/ Steven J. Goodman* Director October 3, 1996
____________________________________
Steven J. Goodman
/s/ Jay L. Kear* Director October 3, 1996
____________________________________
Jay L. Kear
</TABLE>
*By: /s/ Richard P. Stack
- -------------------------------
Richard P. Stack
Attorney-in-Fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and between the Registrant and
Meridian Capital Group, Inc......................................
3.1 Amended and Restated Certificate of Incorporation of
Registrant(2)....................................................
3.2 Amended and Restated Bylaws of Registrant(2).....................
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant......................................
3.4 Amendment to Amended and Restated Bylaws of Registrant...........
4.1 Form of Representative's Warrant Agreement by and between the
Registrant and Meridian Capital Group, Inc. (1)..................
4.2 Form of Certificate Evidencing Shares of Registrant's Common
Stock............................................................
5.1 Opinion of Allen, Matkins, Leck, Gamble & Mallory LLP(1).........
10.1 1996 Stock Incentive Award Plan of Registrant(2).................
10.2 Form of 1996 Director Non-Qualified Stock Option Agreement(2)....
10.3 Form of 1996 Employee Non-Qualified Stock Option Agreement(2)....
10.4 Employment Agreement dated August 19, 1996 by and between the
Registrant and Richard P. Stack(2)...............................
10.5 Employment Agreement dated August 19, 1996 by and between the
Registrant and C. Norman Campbell(2).............................
10.6 Form of Indemnity Agreement entered into with each of the
Registrant's officers and directors(2)...........................
10.7 Form of Stockholders Lock-Up Agreement to be entered into by the
stockholders of Registrant(2)....................................
10.8 Form of Directors and Officers Lock-Up Agreement to be entered
into by directors and officers of Registrant(2)..................
10.9 Form of Bridge Investors Lock-Up Agreement to be entered into by
the holders of Warrants to purchase Common Stock of
Registrant(2)....................................................
10.10 Promissory Note dated October 1, 1995 in the original principal
amount of $80,481.45 payable by the Registrant in favor of
Richard P. Stack (the "R.P. Stack Note")(2)......................
10.11 Letter Agreement dated April 1, 1996 between the Registrant and
Richard P. Stack regarding the conversion of the R.P. Stack Note
into shares of the Common Stock of the Registrant(2).............
10.12 Promissory Note dated October 1, 1995 in the original principal
amount of $40,000 payable by the Registrant in favor of Teresa M.
McRae (the "T. McRae Note")(2)...................................
10.13 Letter Agreement dated May 1, 1996 between the Registrant and
Teresa M. McRae regarding the conversion of the T. McRae Note
into shares of the Common Stock of the Registrant(2).............
10.14 Promissory Note dated October 1, 1995 in the original principal
amount of $12,000 payable by the Registrant in favor of Richard
A. Stack (the "R.A. Stack Note")(2)..............................
10.15 Letter Agreement dated May 31, 1996 between the Registrant and
Richard A. Stack regarding the conversion of the R.A. Stack Note
into shares of the Common Stock of the Registrant(2).............
10.16 Standard Industrial/Commercial Single-Tenant Lease-Gross dated
October 19, 1995 by and between Robert P. Peebles Trust, Dated 4-
11-79, and the Registrant for that certain real property located
at 2882C Walnut Avenue, Tustin, California 92780(2)..............
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.17 Loan and Security Agreement dated December 4, 1995 by and
between Main Credit Corp. and the Registrant, as amended by that
certain letter agreement dated June 17, 1996(2).................
10.18 Accounts Collateral Security Agreement dated December 4, 1995 by
and between Main Credit Corp. and the Registrant(2).............
10.19 Inventory Collateral Security Agreement dated December 4, 1995
by and between Main Credit Corp. and the Registrant(2)..........
10.20 Equipment Collateral Security Agreement dated December 4, 1995
by and between Main Credit Corp. and the Registrant(2)..........
10.21 Stock Purchase Agreement dated January 9, 1996 by and among the
Registrant, the Steven J. Goodman Revocable Living Trust and
Richard P. Stack(2).............................................
10.22 Stock Purchase Agreement dated January 9, 1996 by and among the
Registrant, GAK Limited and Richard P. Stack(2).................
10.23 Letter Agreement dated February 15, 1996 between the Registrant
and Jim Cox regarding loan in the original principal amount of
$20,000 made by Jim Cox to the Registrant (the "Cox Note")(2)...
10.24 Letter Agreement dated June 30, 1996 between the Registrant and
Jim Cox regarding the conversion of the Cox Note into shares of
the Common Stock of Registrant(2)...............................
10.25 Letter Agreement dated February 16, 1996 between the Registrant
and Peter Aiello regarding loan in the original principal amount
of $20,000 made by Peter Aiello to the Registrant(2)............
10.26 Stock Purchase Agreement dated April 3, 1996 by and among the
Registrant, the Steven J. Goodman Revocable Living Trust and
Richard P. Stack(2).............................................
10.27 Securities Purchase Agreement dated May 17, 1996 by and between
the Registrant and John R. Amos(2)..............................
10.28 Promissory Note dated May 31, 1996 in the original principal
amount of $25,000 payable by the Registrant in favor of John R.
Amos(2).........................................................
10.29 Warrant dated May 31, 1996 issued by the Registrant in favor of
John R. Amos(2).................................................
10.30 Securities Purchase Agreement dated May 17, 1996 by and between
the Registrant and Jack S. Kompan(2)............................
10.31 Promissory Note dated May 31, 1996 in the original principal
amount of $25,000 payable by the Registrant in favor of Jack S.
Kompan(2).......................................................
10.32 Warrant dated May 31, 1996 issued by the Registrant in favor of
Jack S. Kompan(2)...............................................
10.33 Securities Purchase Agreement dated May 17, 1996 by and between
the Registrant and Kanayo Partabrai Gangwani(2).................
10.34 Promissory Note dated May 31, 1996 in the original principal
amount of $25,000 payable by the Registrant in favor of Kanayo
Partabrai Gangwani(2)...........................................
10.35 Warrant dated May 31, 1996 issued by the Registrant in favor of
Kanayo Partabrai Gangwani(2)....................................
10.36 Stock Purchase Agreement dated May 23, 1996 by and among the
Registrant, GAK Limited and Richard P. Stack(2).................
10.37 Securities Purchase Agreement dated May 23, 1996 by and between
the Registrant and the Steven J. Goodman Charitable Remainder
Trust(2)........................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.38 Promissory Note dated May 23, 1996 in the original principal
amount of $50,000 payable by the Registrant in favor of the
Steven J. Goodman Charitable Remainder Trust(2).................
10.39 Warrant dated May 23, 1996 issued by the Registrant in favor of
the Steven J. Goodman Charitable Remainder Trust(2).............
10.40 Securities Purchase Agreement dated July 2, 1996 by and between
the Registrant and Jack S. Kompan(2)............................
10.41 Promissory Note dated July 2, 1996 in the original principal
amount of $25,000 payable by the Registrant in favor of Jack S.
Kompan(2).......................................................
10.42 Warrant dated July 2, 1996 issued by the Registrant in favor of
Jack S. Kompan(2)...............................................
10.43 Subscription Agreement dated June 3, 1996 by and between the
Registrant and Herbert R. Donica and Janice N. Donica(2)........
10.44 Letter Agreement dated July 22, 1996 between the Registrant and
John R. Amos regarding the transfer of certain intellectual
property by John R. Amos to the Registrant(2)...................
10.45 Letter Agreement dated July 29, 1996 between the Registrant and
C. Norman Campbell regarding the transfer of certain
intellectual property by C. Norman Campbell to the
Registrant(2)...................................................
10.46 Purchase Order dated July 29, 1996 between Registrant and LG
Electronics with respect to LCD displays(2).....................
10.47 Form of Securities Purchase Agreement, including form of
Promissory Note and Warrant, utilized in 1996 Private
Placement(2)....................................................
11.1 Statement re Calculation of Net Loss Per Share(2)...............
21.1 Subsidiaries of the Registrant(2)...............................
23.1 Consent of Allen, Matkins, Leck, Gamble & Mallory LLP (included
in the opinion to be filed as Exhibit 5.1)......................
23.2 Consent of Ernst & Young LLP....................................
24.1 Power of Attorney(2)............................................
27 Financial Data Schedule(2)......................................
</TABLE>
- --------
(1) To be filed by amendment.
(2) Previously filed.
<PAGE>
EXHIBIT 1.1
850,000 Shares/1/
JAVELIN SYSTEMS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
October __, 1996
MERIDIAN CAPITAL GROUP, INC.
As Representative of the Underwriting Group
4675 MacArthur Court, Suite 740
Newport Beach, California 92660
Ladies and Gentlemen:
SECTION 1. Introductory. Javelin System, Inc., a Delaware
------------
corporation (the "Company"), proposes to issue and sell 850,000 shares of its
authorized but unissued Common Stock (the "Firm Common Shares") to Meridian
Capital Group, Inc. (the "Representative") and members of the Underwriting Group
(collectively the "Underwriting Group" or "you"). In addition, the Company and
certain Selling Stockholders named in Schedule A annexed hereto (the "Selling
Stockholders") propose to grant to the Underwriting Group an option (the
"Option") to purchase up to 111,250 and 16,250 additional shares of Common
Stock, respectively (collectively, the "Optional Common Shares"), as provided in
Section 5 hereof. The Firm Common Shares and, to the extent such option is
exercised, the Optional Common Shares are hereinafter collectively referred to
as the "Common Shares."
You have advised the Company and the Selling Stockholders that the
Underwriting Group proposes to make a public offering of the Common Shares on
the "effective date of the Registration Statement" (as defined in Rule 158(c) of
the Rules and Regulations)("Effective Date"), or as soon thereafter as in your
judgment is advisable.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriting Group as follows:
- -----------------------
1
Plus an option to purchase up to 111,250 additional shares of Common
Stock from the Company and an additional 16,250 shares of Common Stock from the
Selling Stockholders to cover over-allotments, if any.
<PAGE>
SECTION 2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the Underwriting Group that:
(a) A registration statement on Form SB-2 (File No. 333-11217) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes to file prior to
the Effective Date of such registration statement an amendment or amendments to
such registration statement, which amendment or amendments have been or will be
similarly prepared.
There have been delivered to you two signed copies of such
registration statement and amendments, together with two copies of each exhibit
filed therewith. Conformed copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested. The
Company will next file with the Commission one of the following: (i) prior to
effectiveness of such registration statement, a further amendment thereto,
including the form of final prospectus, (ii) a final prospectus in accordance
with Rules 430A and 424(b) of the Rules and Regulations or (iii) a term sheet
(the "Term Sheet") as described in and in accordance with Rules 434 and 424(b)
of the Rules and Regulations. As filed, such amendment and form of final
prospectus, or such final prospectus, or such Term Sheet, shall include all Rule
430A Information (as defined below) and, except to the extent that you shall
agree in writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the date and time that this Underwriting
Agreement (this "Agreement") was executed and delivered by the parties hereto,
or, to the extent not completed at such date and time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company shall have previously advised you
in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall
mean such registration statement at the time such registration statement becomes
or became effective and, in the event any post-effective amendment thereto
becomes effective prior to the First Closing Date (as hereinafter defined),
shall also mean such registration statement as so amended; provided, however,
that such term shall also include all Rule 430A Information deemed to be
included in such registration statement at the time such registration statement
becomes or became effective as provided by Rule 430A of the Rules and
Regulations. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes or became
effective that omits Rule 430A Information. The term "Prospectus" as used in
this Agreement shall mean either (i) the prospectus relating to the Common
Shares in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or, (ii) if a Term Sheet is not used
and no filing pursuant to Rule 424(b) of the Rules and Regulations is required,
shall mean the form of final prospectus included in the Registration Statement
at the time such registration statement becomes or became effective. The term
"Rule 430A Information" means information with respect to the Common Shares and
the offering thereof permitted to be omitted from the Registration Statement
when it becomes or became effective pursuant to Rule 430A of the Rules and
Regulations.
<PAGE>
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes or
became effective, and at all times subsequent thereto up to and including each
Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will contain or contained
all material statements and information required to be included therein by the
Act and the Rules and Regulations and will in all material respects conform, or
did in such respects conform, to the requirements of the Act and the Rules and
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, included or will include any untrue statement
of a material fact or omit to state a 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, no
representation or warranty contained in this subsection 2(b) shall be applicable
to information contained in or omitted from any Preliminary Prospectus, the
Registration Statement, the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any member of the Underwriting Group, reciting in
writing that it is specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of Delaware, with full power and authority (corporate and other) to own and
lease its properties and conduct its business as described in the Prospectus;
the Company is in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders material to
the conduct of its business, all of which are valid and in full force and
effect; the Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the ownership or leasing of
properties or the conduct of its business requires such qualification, except
for jurisdictions in which the failure to so qualify would not have a material
adverse effect upon the Company; and no proceeding has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit
or curtail such power and authority or qualification.
(d) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus; the issued and outstanding
shares of Common Stock have been duly authorized and the outstanding shares of
Common Stock have been validly issued, are fully paid and nonassessable, and
have been duly approved for quotation on the Nasdaq SmallCap Market; the issued
and outstanding shares of Common Stock and the outstanding options and warrants
described in the Prospectus have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
conform to any description thereof contained in the Prospectus. No Preferred
Stock of the Company is issued and outstanding and the Company does not have
outstanding any options to purchase or other rights to subscribe for or issue
any Preferred Stock. Except as otherwise disclosed in the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, the
<PAGE>
Company does not have 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 Incentive Award Plan and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fully presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. The Common Shares to be sold by the Selling Stockholders have been
duly authorized, and are validly issued, fully paid and nonassessable, and
conform to the description thereof contained in the Prospectus. No preemptive
rights or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares pursuant to this Agreement. No holder of
any securities of the Company has any right that has not been waived or complied
with to require the Company to register the sale of any shares of Common Stock
or other securities of the Company owned by such holder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the stockholders, the Board of Directors of the Company or any
other party will be required for the transfer and sale of the Firm Common Shares
or the Optional Common Shares to be sold as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws, or equitable
principles relating to or limiting creditor's rights generally and (ii) the
unenforceability under certain circumstances of provisions indemnifying a party
against liability for its own wrongful or negligent acts or where such
indemnification is against public policy. The making and performance of this
Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provisions of the certificate of incorporation
or bylaws, as amended or restated, or other organizational documents, of the
Company, and will not conflict with, result in the acceleration of any
indebtedness under or performance required by, result in any right of
termination of, increase any amounts payable under, decrease any amounts
receivable under, result in the breach or violation of, constitute, either by
itself or upon notice or the passage of time or both, a default under, or to the
Company's best knowledge adversely change any other rights pursuant to, any of
the terms or provisions of any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
is a party or by which the Company or any of its properties may be bound or
affected, or any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body, or arbitrator (domestic or foreign) applicable to the Company
or any of its properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement except for compliance with the
Act, the Blue Sky laws applicable to the public
<PAGE>
offering of the Common Shares by the Underwriting Group and the clearance of
such offering with the National Association of Securities Dealers, Inc. (the
"NASD").
(g) Ernst & Young LLP, who have expressed their opinion with respect to
the financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and Regulations.
(h) The financial statements of the Company, and the related notes
thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the dates of such financial
statements, and the results of operations and cash flows of the Company, for the
respective periods covered thereby. Such statements, schedules and related notes
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis as certified by the independent accountants named
in subsection 2(g). No other financial statements, schedules or information are
required by the Act or the Rules and Regulations to be included in the
Registration Statement. The financial data set forth in the Prospectus under the
captions "Capitalization" and "Selected Financial Data" fairly present the
information set forth therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to violations,
breaches, defaults and events of default that individually or in the aggregate
would not have a material adverse effect on the Company, (i) the Company is not
in violation or default of any provision of its certificate of incorporation or
bylaws, as amended or restated, or other organizational documents, nor is it in
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which the Company is a party or by which the
Company or any of its properties are bound; and (ii) there does not exist any
state of facts that constitutes an event of default on the part of the Company
as defined in such documents or which, with notice or lapse of time or both,
would constitute such an event of default.
(j) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations that have not been
described or filed as required. The descriptions of the contracts in the
Prospectus are accurate and fairly present the information required by the Act
and/or the Rules and Regulations to be presented in Form SB-2; except as
disclosed in the Prospectus, the contracts so described in the Prospectus are in
full force and effect on the date hereof; and neither the Company nor, to the
best of the Company's knowledge, any other party is in breach of or default
under any of such contracts other than any such breach or default as would not,
individually or in the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change in the
condition (financial or other), properties, business, results of operations or
prospects of the Company.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company is or may be a party or of
which property owned or leased by the Company is or may be the subject or
related to environmental or discrimination matters, that might, individually or
in the aggregate, prevent or adversely affect the transactions contemplated by
this Agreement or result
<PAGE>
in a material adverse change in the condition (financial or other), properties,
business, results of operations or prospects of the Company, and no labor
disturbance by the employees of the Company exists or is imminent that might be
expected to affect adversely such condition, properties, business, results of
operations or prospects. The Company is not a party or subject to the provisions
of any injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body that could be expected to
result in a material adverse change in the condition (financial or other),
properties, business, results of operations or prospects of the Company.
(l) The Company has good and marketable title to all the properties and
assets reflected as owned by it in the Prospectus and the financial statements
included in the Registration Statement, subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those which are
not material in amount and do not adversely affect the use made and proposed to
be made of such property by the Company. The Company holds its leased
properties under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company. Except as
disclosed in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted.
(m) 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 that
is not in the ordinary course of business or that could result in a material
reduction in the future earnings of the Company; (ii) the Company has not
sustained any loss or interference with its business or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance, that materially and adversely affects the condition (financial or
other), business, results of operations or prospects of the Company; (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 of 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 Common
Shares hereunder and upon the exercise of options, warrants, and other rights
described in the Registration Statement or otherwise as contemplated in the
Registration Statement and Prospectus) or increase in indebtedness material to
the Company (other than in the ordinary course of business); and (v) there has
not been any material adverse change in the condition (financial or other),
business, properties, results of operations or prospects of the Company.
(n) Except as disclosed in or specifically contemplated by the Prospectus,
the Company has sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to conduct its
business as now conducted; the expiration of any trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the condition
(financial or other), business, results of operations or prospects of the
Company; except as disclosed in or specifically contemplated by the Prospectus,
the Company has no knowledge of any material infringement by it, or its
customers, with respect to the use of the Company's
<PAGE>
products, trademarks, trade name rights, patent rights, mask works, copyrights,
licenses, trade secrets or other similar rights of others, and there is no claim
being made against the Company, or its customers with respect to their use of
the Company's products, trademarks, trade names, patents, mask works,
copyrights, licenses, trade secrets or other infringement, which could have a
material adverse effect on the condition (financial or other), business, results
of operations or prospects of the Company.
(o) The Company is in compliance with all applicable laws, rules,
regulations, judgments, decrees, orders and statutes of the jurisdictions in
which it is conducting business, including without limitation, all applicable
local, state and federal environmental laws and regulations; except where
failure to be so in compliance would not materially adversely affect the
condition (financial or other), business, results of operations or prospects of
the Company.
(p) The Company has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against it which could materially and adversely affect
the business, operations or properties of the Company.
(q) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.
(s) The Company maintains, with insurers of recognized financial
responsibility, insurance of the types and in the amounts as are prudent and
customary in the business in which it is engaged, including but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
(t) The Company has not at any time during the last five years (i) made
any unlawful contribution to any candidate for foreign or domestic office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any foreign or federal or state governmental officer or official or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(u) The Company will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(v) Other than the Representative acting in its capacity as such, no
person is or will be owed any finders fee or commission or similar payment in
connection with the transactions contemplated by this Agreement.
<PAGE>
SECTION 3. Representations, Warranties and Covenants of the Selling
--------------------------------------------------------
Stockholders. Each of the Selling Stockholders severally represents and
- ------------
warrants to, and agrees with, the Underwriting Group and the Company that:
(a) Such Selling Stockholder has, and on the First Closing Date and the
Second Closing Date, hereinafter mentioned will have, good and valid title to
the Optional Common Shares proposed to be sold by such Selling Stockholder
hereunder on such Closing Date and full right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all voting trust arrangements, liens, encumbrances,
equities, security interests, restrictions and claims whatsoever, and upon
delivery of and payment for such Common Shares hereunder, the Underwriting Group
will acquire good and valid title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests, voting trusts
or other defects of title whatsoever.
(b) Such Selling Stockholder has executed and delivered a Transmittal
Letter and Custody Agreement and a Seller's Irrevocable Power of Attorney
(hereinafter collectively referred to as the "Stockholders Agreements") and in
connection herewith such Selling Stockholder further represents, warrants and
agrees that such Selling Stockholder has deposited in custody, under the
Stockholders Agreements, with the agents named therein (the "Agents") as
custodians, certificates in negotiable form for the Common Shares to be sold
hereunder by such Selling Stockholder, for the purpose of further delivery
pursuant to this Agreement. Such Selling Stockholder agrees that the Common
Shares to be sold by such Selling Stockholder on deposit with the Agents are
subject to the interests of the Company and the Underwriting Group, that the
arrangements made for such custody are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Stockholders Agreements, by any
act of such Selling Stockholder, by operation of law, by the death or incapacity
of such Selling Stockholder or by the occurrence of any other event if the
Selling Stockholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares hereunder, the documents
evidencing Common Shares then on deposit with the Agents shall be delivered by
the Agents in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether or
not the Agents shall have received notice thereof. This Agreement and the
Stockholders Agreements have been duly executed and delivered by or on behalf of
such Selling Stockholder and the form of such Stockholders Agreements has been
delivered to you.
(c) The performance of this Agreement and the Stockholders Agreements and
the consummation of the transactions contemplated hereby and by the Stockholders
Agreements will not result in a breach or violation by such Selling Stockholder
of any of the terms or provisions of, or constitute a default by such Selling
Stockholder under, (i) any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, (ii) any statute, or
any judgment, decree, order, rule or regulation of any court or governmental
agency or body applicable to such Selling Stockholder or any of its properties
or (iii) if such Selling Stockholder is other than a natural person, any
provisions of the charter, bylaws or other organizational documents of such
Selling Stockholder.
(d) Such Selling Stockholder has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or
<PAGE>
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Shares.
(e) Each Preliminary Prospectus and the Prospectus, insofar as it has
related to such Selling Stockholder, has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and has not included
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made; and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, as it relates to
such Selling Stockholder, included or will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) Such Selling Stockholder is not aware that any of the representations
and warranties set forth in Section 2 above is untrue or inaccurate in any
material respect.
SECTION 4. Representations and Warranties of the Representative. The
----------------------------------------------------
Representative represents and warrants to the Company and to the Selling
Stockholders that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus, was furnished
to the Company by the Representative for use in connection with the preparation
of the Registration Statement and the Prospectus, and is correct in all material
respects.
SECTION 5. Purchase, Sale and Delivery of Common Shares. (a) On the
--------------------------------------------
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to members of the Underwriting Group named in Schedule I hereto
(for all of whom the Representative is acting), severally and not jointly, and
each member of the Underwriting Group, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees to purchase from the Company, severally and not jointly, the number of
Common Shares set forth opposite their respective names in Schedule I hereto at
a purchase price of $[price to be paid by the underwriters for shares purchased
which is the offering price to the public less the underwriting discount] per
share.
(b) The Company and the Selling Shareholders, severally and not jointly,
hereby grant to the Underwriting Group an option (the "Option") for a period of
45 days after Closing to purchase at a purchase price of $[price to be paid by
the underwriters for shares purchased which is the offering price to the public
less the underwriting discount] per share up to 111,250 and 16,250 additional
shares, respectively of Optional Common Shares in order to cover over-
allotments. The Optional Common Shares shall be purchased for the account of
each member of the Underwriting Group as nearly as practicable in the proportion
that the number of shares of Firm Common Shares set opposite the name of each
Underwriter in Schedule I hereto bears to 850,000. The Option may be exercised
at any time and from time to time within 45 days after the first date that any
of the Common Shares are released by you for sale to the public, upon notice by
you to the Company and the Selling Stockholders setting forth the aggregate
number of Optional Common Shares as to which the Representative is exercising
the Option, the names and denominations in which the certificates for such
shares are to be registered and the time and place at which such certificates
will be delivered. Such time of delivery (which may not be earlier than the
First Closing Date), being herein referred to as the "Second Closing Date,"
shall be
<PAGE>
determined by you, but if at any time other than the First Closing Date
shall not be earlier than three nor later than four full business days after
delivery of such notice of exercise (or such other time and date not later than
ten business days after such date as may be agreed upon by the Company and the
Representative). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in Newport Beach, California, as may be designated by
you (or such other place as may be agreed upon by the Company and the
Representative). The manner of payment for and delivery of the Optional Common
Shares shall be the same as for the Firm Common Shares, as specified in sections
5(g) and (h) below. At any time before lapse of the Option, you may cancel the
Option by giving written notice of such cancellation to the Company and the
Selling Stockholders. If the Option is canceled or expires unexercised in whole
or in part the Company will deregister under the Act the number of Option Shares
as to which the Option has not been exercised.
(c) If any of the Underwriters shall fail to purchase the entire number of
Firm Common Shares set opposite its name in Schedule I hereto, and such failure
to purchase shall constitute a default by such Underwriter in the performance of
its obligations under this Agreement, the remaining Underwriters shall have the
right and shall be obligated to take up and pay for (in the respective
proportions which the number of Firm Common Shares set opposite the names of the
several remaining Underwriters bears to the aggregate number of Firm Common
Shares set opposite the names of all the remaining Underwriters) the entire
amount of Firm Common Shares which the defaulting Underwriter agreed but failed
to purchase.
(d) Nothing contained in this section 5 shall relieve any defaulting
Underwriter of its liability, if any, to the Company or to the remaining
Underwriters for damages occasioned by its default hereunder.
(e) If any of the Underwriters shall fail to purchase the entire number of
Firm Common Shares set opposite its name and such failure to purchase shall not
constitute a default by such Underwriter in the performance of its obligations
under this Agreement, the remaining Underwriters shall have the right, but shall
not be obligated, to take up and pay for (in such proportions as may be agreed
upon among them) the entire amount (but not less than all) of the Common Shares
which all withdrawing Underwriters agreed but failed to purchase.
(f) After the Commission notifies the Company that the Registration
Statement has become effective, the Underwriters propose to offer the Common
Shares to the public at a public offering price of $[offering price to the
public] per share as set forth in the Prospectus. The Underwriters may allow
such concessions and discounts upon sales to selected dealers as may be
determined from time to time by the Representative.
(g) Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriting Group and payment therefor shall be made at the offices of
Meridian Capital Group, Inc., 4675 MacArthur Court, Suite 740, Newport Beach,
California 92660 (or such other place as may be agreed upon by the Company and
the Representative), at such time and date, not later than the fourth full
business day following the first date that any of the Common Shares are released
by you for sale to the public (or such other time and date not later than ten
business days after such date as may be agreed upon by the Company and the
Representative), as you shall
<PAGE>
designate by at least 48 hours prior notice to the Company (the "First Closing
Date"); provided, however, that if the Prospectus is at any time prior to the
First Closing Date recirculated to the public, the First Closing Date shall
occur upon the later of the fourth full business day following the first date
that any of the Common Shares are released by you for sale to the public or the
date that is 48 hours after the date that the Prospectus has been so
recirculated (or such other time and date not later than ten business days after
such date as may be agreed upon by the Company and the Representative).
(h) Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company to you, for the account of the Underwriting Group
against payment by you, of the purchase price therefor by certified or official
bank checks payable in next day funds to the order of the Company. The
certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
Newport Beach, California, as may be designated by you (or such other place as
may be agreed upon by the Company and the Representative). Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriting Group.
(i) Subject to the terms and conditions hereof, the Underwriter proposes
to make a public offering of the Common Shares as soon after the Effective Date
of the Registration Statement as in the judgment of the Representative is
advisable and at the public offering price set forth on the cover page of and on
the terms set forth in the Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and
------------------------
agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly after it receives notice thereof advise you
in writing (i) of the receipt of any comments of the Commission, (ii) of any
request of the Commission for amendment of or supplement to the Registration
Statement (either before or after it becomes effective), any Preliminary
Prospectus or the Prospectus or for additional information, (iii) when the
Registration Statement shall have become effective and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose. If the Commission shall enter any such stop order at any time, the
Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. The Company will not file any amendment or supplement
to the Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus of which you have not been furnished
with a copy a reasonable time prior to such filing or to which you reasonably
object or which is not in compliance with the Act and the Rules and Regulations.
<PAGE>
(b) The Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or the
Prospectus which in your judgment may be necessary or advisable to enable you to
continue the distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible. The Company will
fully and completely comply with the provisions of Rule 430A of the Rules and
Regulations with respect to information omitted from the Registration Statement
in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in Section
10(a)(3) of the Act during which a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, including any amendments or supplements, would include an 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 not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case you are required under the Act to deliver a
prospectus after such nine-month period, the Company upon request, but at your
expense, will promptly prepare such amendment or amendments to the Registration
Statement and such Prospectus or Prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the end of the
first quarter ending after one year following the Effective Date, the Company
will make generally available to its security holders an earnings statement
(which need not be audited) covering a period of 12 consecutive months beginning
after the Effective Date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law or regulation to
be delivered in connection with sales by you or a dealer, the Company, at its
expense, but only for the nine-month period referred to in Section 10(a)(3) of
the Act (or as the Act may be amended), will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration Statement, the
Prospectus, the Preliminary Prospectus and all amendments and supplements to any
such documents in each case as soon as available and in such quantities as you
and the Selling Stockholders may reasonably request, for the purposes
contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly after
it receives notice thereof of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
<PAGE>
offering, sale or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish to
you: (i) as soon as practicable after the end of each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the Company's
independent public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-KSB, Quarterly
Report on Form 10-QSB, Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed generally
to holders of its Common Stock.
(h) During the period of one year after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of the Representative (which consent may be withheld at the sole
discretion of the Representative), the Company will not (other than pursuant to
outstanding warrants or stock options disclosed in the Prospectus, pursuant to
the Company's Stock Incentive Award Plan as disclosed in the Prospectus, or
otherwise as contemplated in the Prospectus) issue, offer, sell, grant options
to purchase or otherwise dispose of any of the Company's equity securities or
any other securities convertible into or exchangeable for its Common Stock or
other equity security.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to remain qualified for quotation
on the Nasdaq SmallCap Market.
(k) The Company will deliver to you, prior to or simultaneously with the
execution of this Agreement, the undertaking of each officer, director, and each
other holder listed on the schedule attached hereto that such person shall not
directly or indirectly offer or sell any portion of the shares of Common Stock
owned prior to the Effective Date of this Agreement or hereafter acquired by
exercise of an option for a period of twelve months from the Effective Date,
provided that holders who are not officers or directors may sell the shares held
by them as permitted by the Lock Up Agreements executed by each of them.
(l) At all times prior to the Closing Date, the Company will cooperate with
you in such investigation as you may make or cause to be made of all the
properties, business and operations of the Company in connection with the
purchase and public offering of the Common Shares, and the Company will make
available to you in connection therewith such information in its possession as
you may reasonably request.
(m) The Company has appointed the U.S. Stock Transfer Corporation as
Transfer Agent for the Common Stock subject to the Closing. The Company will
not change or terminate
<PAGE>
such appointment for a period of one year from the Effective Date without first
obtaining the written consent of the Representative, which consent shall not be
unreasonably withheld.
(n) The Company will use all reasonable efforts to comply or cause to be
complied with the conditions precedent to the several obligations of the
Underwriting Group in Section 8 hereof.
(o) The Company agrees to file with the Commission all required reports on
Form SR in accordance with the provisions of Rule 463 promulgated under the Act
and to provide a copy of such reports to you and your counsel.
(p) Concurrently with the Effective Date, the Company shall register the
class of equity securities which constitutes the Common Shares by filing with
the Securities and Exchange Commission a registration statement (and such copies
thereof as the Commission may require) with respect to such security, containing
such information and documents as the Commission may specify comparable to that
which is required in an application to register a security pursuant to
subsection (g) of Section 12 of the Securities Exchange Act of 1934, as amended.
(q) The Company shall, within 120 days after the Effective Date, apply for
listing in Moody's Over-The-Counter Manual and shall use its best efforts to
have the Company listed in such manual.
You may in your sole discretion, waive in writing the performance by
the Company of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and each of the Selling Stockholders agree to pay all
costs, fees and expenses incurred in connection with the performance of the
Company's and the Selling Stockholders' obligations hereunder and in connection
with the transactions contemplated hereby, on such basis as shall be agreed
between or among them, including without limiting the generality of the
foregoing, (i) all expenses incident to the issuance and delivery of the Common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agents of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Common Shares to the Underwriting Group, (iv) all fees and expenses of
the Company's and the Selling Stockholders' counsel and the Company's
independent accountants, (v) all costs and expenses incurred in connection with
the preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preliminary Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, this Agreement, the Selected Dealers Agreement, the Underwriter's
Questionnaire, the Underwriter's Custody Agreement and Power of Attorney and the
Blue Sky memorandum, as well as the shipping and distribution of the foregoing
documents in accordance with your reasonable requests, (vi) all filing fees,
attorneys' fees and expenses incurred by the Company or the Representative in
connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of), all or any part of the Common Shares for
offer and sale under the Blue Sky laws, (vii) the filing fee of the National
Association of Securities Dealers, Inc., (viii) a non-accountable expense
allowance equal to three percent (3%) of the aggregate offering price of
<PAGE>
the Common Shares, including any Optional Common Shares sold hereunder, (ix) all
customary expenses relating to the announcement of the offering in the local
press and The Wall Street Journal, and (x) all other fees, costs and expenses
referred to in Item 25 of the Registration Statement. Except as provided in
this Section 7, Section 9 and Section 11 hereof, the Representative shall pay
all of its own expenses, including the fees and disbursements of its counsel
(excluding those relating to qualification, registration or exemption under the
Blue Sky laws and the Blue Sky memorandum referred to above). This Section 7
shall not affect any agreements relating to the payment of expenses between the
Company and the Selling Stockholders.
SECTION 8. Conditions of the Obligations of the Underwriting Group.
-------------------------------------------------------
The obligations of the Underwriting Group to purchase and pay for the Firm
Common Shares on the First Closing Date, and the Optional Common Shares on the
Second Closing Date, shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 P.M., Washington, D.C. time, on the date of this Agreement, or at such
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, 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, to the knowledge of
the Company, the Selling Stockholders or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock (other than pursuant to the
exercise of outstanding warrants or options disclosed in the Prospectus, the
grant of options pursuant to the Company's existing Stock Incentive Award Plan,
or otherwise as contemplated in the Prospectus) of the Company or any material
increase in the consolidated indebtedness (other than in the ordinary course of
business or as contemplated in the Prospectus) of the Company, (ii) except as
set forth or contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have been
entered into by the Company which is not in the ordinary course of business or
which could result in a material reduction in the future earnings of the
Company, (iii) no loss or damage (whether or not insured) to the property of the
Company shall have been sustained which materially and adversely affects the
condition (financial or other), business, results of operations or prospects of
the Company, (iv) no legal or governmental action, suit or proceeding affecting
the Company which is material to the Company or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material change in the
condition (financial or other), business, management results
<PAGE>
of operations or prospects of the Company which makes it impractical or
inadvisable in the reasonable judgment of the Representative to proceed with the
public offering or purchase the Common Shares as contemplated hereby.
(c) There shall have been furnished to you on each Closing Date, in form
and substance satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Allen, Matkins, Leck, Gamble & Mallory LLP, counsel
for the Company and the Selling Stockholders, addressed to the
Representative and dated the First Closing Date, or the Second Closing
Date, as the case may be, to the effect that:
(1) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which it owns or leases any material properties or the conduct of its
business requires such qualification, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the Company. The Company has full corporate power and
corporate authority to own its properties and conduct its business as
described in the Prospectus. As of the date of such opinion, the
Company has no subsidiaries;
(2) The authorized, issued and outstanding capital stock of the
Company as of ___________, 1996, is as set forth under the caption
"Capitalization" in the Prospectus; all outstanding shares of Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase any
securities of the Company and conform to the description thereof
contained in the Prospectus under the captions "Capitalization" and
"Description of Capital Stock"; and the offer and sale of the
Promissory Notes and Warrants issued and outstanding from and after
August 1, 1996, were exempt from the registration requirements of
Section 5 of the Act and from the registration or qualification
requirements of all applicable state securities laws; without limiting
the foregoing, there are no preemptive or other rights to subscribe
for or purchase any of the Common Shares to be sold by the Company
hereunder;
(3) The certificates evidencing the Common Shares to be delivered
hereunder are in due and proper form under Delaware law, and when duly
countersigned by the Company's transfer agents and registrar, and
delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of this
Agreement, the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable, will not
have been issued in violation of or subject to any preemptive rights
or other rights to subscribe for or purchase securities and will
conform in all respects to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock";
<PAGE>
(4) To the knowledge of such counsel, no Preferred Stock of the
Company is issued and outstanding and no options to purchase Preferred
Stock or other rights to subscribe for Preferred Stock exist or are
outstanding. Except as disclosed in or specifically contemplated by
the Prospectus, to the knowledge of such counsel, there are no
outstanding options, warrants or other rights calling for the issuance
of, and no commitments or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable
for capital stock of the Company;
(5) At the time the Registration Statement became effective
under the Act, the statements contained therein under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale,"
fairly summarize, in all material respects, the matters described
therein insofar as such statements constitute a summary of documents
referred to therein or descriptions of statutes, regulations or legal
or governmental proceedings;
(6) (a) The Registration Statement has become effective under
the Act, and, to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or preventing the use
of the Prospectus has been issued and no proceedings for that purpose
have been instituted by or are pending before or contemplated by the
Commission; any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period required by such Rule
424(b);
(b) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for the financial statements,
the notes thereto, financial statement schedules, if any, and other
financial and statistical data included therein as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations;
(c) To such counsel's knowledge, there are no leases,
contracts, agreements or documents binding upon the Company or any of
its properties which are required to be disclosed in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required under the Act
or the Rules and Regulations; and
(d) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened
against the Company which are required under the Act or the Rules and
Regulations to be described in the Prospectus which are not described
as required;
(7) The Company has the requisite corporate power and corporate
authority to enter into this Agreement and to sell and deliver the
Common Shares to be sold by it to the Underwriting Group; this
Agreement has been duly and validly authorized by all necessary
corporate action by the Company and has been duly and validly executed
and delivered by and on behalf of the Company; this
<PAGE>
Agreement has been duly and validly delivered by and on behalf of the
Selling Stockholders; and no approval, authorization, order, consent,
registration, filing, qualification, license or permit of or with any
court, regulatory, administrative or other governmental body is
required for the execution and delivery of this Agreement by the
Company or the consummation of the transactions contemplated by this
Agreement except such as have been obtained and are in full force and
effect under the Act and such as may be required under applicable
state securities or Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriting Group and the
clearance of such offering with the NASD;
(8) To such counsel's knowledge, the execution and performance
of this Agreement and the consummation of the transactions herein
contemplated will not conflict with, result in the acceleration of any
indebtedness under or performance required by, result in any right of
termination of, increase any amounts payable under, result in the
breach of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any agreement, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other
instrument which is filed as an Exhibit in Item 27 of the Registration
Statement (collectively "Material Agreements") to which the Company is
a party or by which the Company or any of its property may be bound or
affected which is material to the Company, or violate any of the
provisions of the certificate of incorporation or bylaws of the
Company or, to such counsel's knowledge, violate any statute,
judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over the Company or any of its
property, which conflict, acceleration, right of termination, breach,
default or violation would, with respect to any of the foregoing, have
a material adverse effect on the condition (financial or other),
properties, business, results of operations or prospects of the
Company;
(9) As of the date of such opinion, the Company is not in
violation of its certificate of incorporation or bylaws, as amended or
restated.
(10) To the knowledge of such counsel, no holders of securities
of the Company have rights which have not been waived or complied with
to the registration of shares of Common Stock or other securities
because of the filing of the Registration Statement by the Company or
the offering contemplated hereby;
(11) This Agreement and the Stockholders Agreements have been
duly delivered by or on behalf of each of the Selling Stockholders; to
the knowledge of such counsel, the performance of this Agreement and
the Stockholders Agreements, and the consummation of the transactions
herein and therein contemplated by or on behalf of the Selling
Stockholders will not conflict with, result in the acceleration of any
indebtedness under or performance required by, result in any right of
termination of, result in a breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a
default under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license, or
other agreement or instrument to which any of the
<PAGE>
Selling Stockholders is a party or by which any of the Selling
Stockholders or any of their properties may be bound, or to the
knowledge of such counsel violate any statute, judgment, decree,
order, rule or regulation of any court or governmental body having
jurisdiction over any of the Selling Stockholders or any of their
properties; and no approval, authorization, order or consent of any
court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of this Agreement and
the Stockholders Agreements or the consummation by the Selling
Stockholders of the transactions contemplated herein or therein except
such as have been obtained and are in full force and effect under the
Act and such as may be required under the rules of the NASD and
applicable state securities or Blue Sky laws;
(12) To the knowledge of such counsel, the Selling Stockholders
have full right, power and authority to enter into this Agreement and
the Stockholders Agreements and to sell, transfer and deliver the
Common Shares to be sold on such Closing Date by such Selling
Stockholders hereunder and good and valid title to such Common Shares
so sold, free and clear of all liens, encumbrances, security
interests, or any other adverse claim within the meaning of the
Uniform Commercial Code, has been transferred to the Underwriting
Group (whom counsel may assume to be a bona fide purchaser) who has
purchased such Common Shares hereunder in good faith and without
notice of any such lien, encumbrance, security interest or any other
adverse claim within the meaning of the Uniform Commercial Code.
In rendering such opinions, such counsel may rely as to matters of
local law, on opinions of local counsel and as to matters of fact, on
certificates of the Selling Stockholders and of officers of the Company and of
governmental officials, in which case their opinion is to state that they are so
doing and that the Underwriting Group is justified in relying on such opinions
or certificates and copies of said opinions or certificates are to be attached
to the opinion. In addition, in rendering such opinions, such counsel shall
state that the statements "to such counsel's knowledge," "known to such counsel"
and similar phrases with reference to matters of fact means that after an
examination of the Registration Statement and all amendments thereto, the
Company's Certificate of Incorporation and Bylaws, as amended to date, the
resolutions of the Company's Board of Directors and pricing committee
authorizing the offering contemplated hereby, this Agreement, specimen
certificates representing the Common Shares, the Custody Agreement and Power of
Attorney of each Selling Stockholder, certificates of the Selling Stockholders,
stock powers of each Selling Stockholder, the closing certificate of the
President and Chief Financial Officer, all documents filed as an Exhibit in Item
27 of the Registration Statement and considering the actual knowledge of those
attorneys in such counsel's firm who have given substantive attention to the
Registration Statement and matters related thereto, and, to the Selling
Stockholders' matters in connection with the Registration Statement, but not
including any constructive or imputed notice of any information, such counsel
finds no reason to believe that the opinions expressed are factually incorrect.
Beyond that, such counsel need make no independent factual investigation for the
purpose of rendering an opinion with respect to such matters. With respect to
matters of fact related to opinions on behalf of the Selling Stockholders, such
counsel may state that they are relying solely upon certificates from the
Selling Stockholders.
<PAGE>
Further, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company, the
Representative, Representative's counsel and the independent public accountants
of the Company, at which conferences the contents of the Registration Statement
and the Prospectus and related matters were discussed, and although they have
not verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which caused them to believe that, at the time the Registration
Statement became effective, the Registration Statement (except as to financial
statements, the notes thereto, financial data and supporting schedules and other
financial or statistical data contained therein, as to which such counsel need
make no statement) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; or at the date of the opinion, the
Registration Statement or the Prospectus (except as aforesaid) contains any
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, in light of
the circumstances in which made, not misleading.
(ii) Such opinion or opinions of Radcliff, Frandsen, Tricker &
Dongell, counsel for the Representative, dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the
sufficiency of all corporate proceedings and other legal matters relating
to this Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you may
reasonably require, and the Company and the Selling Stockholders shall have
exhibited to such counsel such documents, such papers and records as they
may reasonably request for the purpose of enabling them to pass upon such
matters. In connection with such opinions, such counsel may rely, as to
matters of local law, on opinions of local counsel and as to matters of
fact on representations or certificates of officers of the Company and
governmental officials, in which case their opinion is to state that they
are so doing.
(iii) A certificate of the Company executed by the Chairman of
the Board or President and the Chief Financial Officer of Company, dated
the First Closing Date or the Second Closing Date, as the case may be, to
the effect that:
(1) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of
this Agreement, and as if made at and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied in all material respects with all the agreements and
satisfied in all material respects all the conditions on its part to
be performed or satisfied on or prior to such Closing Date;
(2) The Registration Statement has become effective and the
Commission has not issued any order preventing or suspending the use
of the Prospectus or any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no stop order
suspending the effectiveness of the Registration Statement has been
issued; and to the best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or are pending under
the Act;
<PAGE>
(3) Since the initial date on which the Registration
Statement was filed, no written or oral agreement, transaction or
event has occurred which should have been set forth in an amendment to
the Registration Statement or in a supplement to or amendment of any
prospectus which has not been disclosed in such a supplement or
amendment;
(4) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not been any
material adverse change or a development involving a material adverse
change in the condition (financial or other), business, properties,
results of operations, management or prospects of the Company; and no
legal or governmental action, suit or proceeding is pending or, to the
best knowledge of such officers, threatened against the Company which
is material to the Company, whether or not arising from transactions
in the ordinary course of business, or which may adversely affect the
transactions contemplated by this Agreement; since such dates and
except as so disclosed, the Company has not entered into any 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 or incurred any material liability
or obligation, direct, contingent or indirect, made any change in its
capital stock, made any material increase in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to the First Closing
Date or Second Closing Date; and
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
disclosed in or contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or damage by strike,
fire, flood, windstorm, accident or other calamity (whether or not
insured); and
(6) The respective signers have each carefully examined
the Registration Statement and Prospectus and any amendments and
supplements thereto, and to the best of their knowledge, the
Registration Statement and the Prospectus and any amendments and
supplements thereto contain all statements required to be stated
therein, and all statements contained therein are true and correct,
and neither the Registration Statement nor Prospectus nor any
amendment or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading and, since the Effective Date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or a supplemented Prospectus which has not been so set forth.
(iv) On the First Closing Date and the Second Closing Date, as the
case may be, a certificate, dated such Closing Date and addressed to you,
signed by or on behalf of
<PAGE>
each of the Selling Stockholders to the effect that the representations and
warranties of such Selling Stockholder in this Agreement are true and correct,
as if made at and as of the First Closing Date or the Second Closing Date, as
the case may be, and such Selling Stockholder has complied in all material
respects with all the agreements and satisfied in all material respects all the
conditions on his part to be performed or satisfied prior to the First Closing
Date or the Second Closing Date, as the case may be.
(v) On a date before this Agreement is executed and also on the First
Closing Date and the Second Closing Date a letter addressed to you, from
Ernst & Young LLP, independent accountants, the first one to be dated the
day before the date of this Agreement, the second one to be dated the First
Closing Date and the third one (in the event of a Second Closing) to be
dated the Second Closing Date, in form and substance satisfactory to you,
stating that (1) with respect to the Company they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and the response to Item 509 of Regulation
SB-2 as reflected by the Registration Statement is correct insofar as it
relates to them; (2) in their opinion, the financial statements examined by
them of the Company at all dates and for all periods referred to in their
opinion and included in the Registration Statement and Prospectus, comply
in all material respects with the applicable accounting requirements of the
Act and the published Rules and Regulations thereunder with respect to
registration statements on Form SB-2; (3) on the basis of certain indicated
procedures (but not an examination in accordance with generally accepted
accounting principles), including examinations of the instruments of the
Company set forth under "Capitalization" in the Prospectus, a reading of
the latest available interim unaudited financial statements of the Company,
whether or not appearing in the Prospectus, inquiries of the officers of
the Company or other persons responsible for its financial and accounting
matters regarding the specific items for which representations are
requested below and a reading of the minute books of the Company, nothing
has come to their attention which would cause them to believe that during
the period from the last audited balance sheet included in the Registration
Statement to a specified date not more than five days prior to the date of
such letter (a) there has been any change in the capital stock or other
securities of the Company or any payment or declaration of any dividend or
other distribution in respect thereof or exchange therefor from that shown
on its audited balance sheets or in the debt of the Company from that shown
or contemplated under "Capitalization" in the Registration Statement or
Prospectus other than as set forth in or contemplated by the Registration
Statement or Prospectus; (b) there have been any material decreases in net
current assets or net assets as compared with amounts shown in the last
audited balance sheet included in the Prospectus so as to make said
financial statements misleading; and (c) on the basis of the indicated
procedures and discussions referred to in clause (3) above, nothing has
come to their attention which, in their judgment, would cause them to
believe or indicate that (i) the unaudited financial statements and
schedules set forth in the Registration Statement and Prospectus do not
present fairly the financial position and results of the Company, for the
periods indicated, in conformity with the generally accepted accounting
principles applied on a consistent basis with the audited financial
statements, and (ii) the dollar amounts, percentages and other financial
information set forth in the Registration Statement and Prospectus under
the captions "Prospectus Summary," "Risk Factors," "Dilution,"
"Capitalization," "Selected Financial Data", "Security Ownership of Certain
Beneficial Owners and
<PAGE>
Management", and "Description of Capital Stock" are not in agreement with
the Company's general ledger, financial records or computations made by the
Company therefrom; (4) such other matters as you may reasonably request.
You shall be furnished without charge, in addition to the original
signed copies, such number of signed or photostatic or conformed copies of
such letters as the Representative shall reasonably request.
(vi) A warrant for the purchase of 85,000 shares of the Company's
Common Stock at an exercise price per share equal to 125% of the offering
price per share of the Common Shares, in the form attached hereto as
Exhibit A.
(d) You shall not have disclosed in writing to the Company that the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto contains an untrue statement of a fact which, in the opinion of your
counsel, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein, or is necessary to
make the statements therein not misleading.
(e) All of the Common Shares being offered by the Company and the
Warrants being purchased from the Company by you shall be tendered for delivery
in accordance with the terms and provisions of this Agreement.
(f) The Common Shares shall be qualified in such states as you may
reasonably request pursuant to paragraph 6(f), and each such qualification shall
be in effect and not subject to any stop order or other proceeding on the
Closing Date; provided, that the Company shall not be required to submit to the
general jurisdiction of any state or qualify as a foreign corporation in any
state where it is not presently qualified.
(g) All opinions, letters, certificates and evidence mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to your
counsel, whose approval shall not be unreasonably withheld. The suggested form
of such documents shall be provided to your counsel at least one business day
before the Closing Date. Your counsel will provide a written memorandum stating
such closing documents which he deems necessary for their review. Such
memorandum shall be delivered five business days before the Closing Date to
counsel for the Company.
(h) Any certificate signed by an officer of the Company and
delivered to you or to your counsel will be deemed a representation and warranty
by the Company to you as to the statements made therein.
If any condition to the Underwriting Group's obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you to the
Company and the Selling Stockholders without liability on the part of you, the
Company or the Selling Stockholders except for the expenses to be paid or
<PAGE>
reimbursed by the Company and by the Selling Stockholders pursuant to Sections 7
and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. Reimbursement of Representative's Expenses.
------------------------------------------
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriting
Group of the Common Shares at the First Closing is not consummated because of
any refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating directly to the
offering contemplated by the Prospectus, less the sum of $25,000 previously paid
to you. Any such termination shall be without liability of any party to any
other party except that the provisions of this Section, Section 7 and Section 11
shall at all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the
---------------------------------------
Company and the Selling Stockholders will use your, its and their best efforts
to cause the Registration Statement to become effective, to prevent the issuance
of any stop order suspending the effectiveness of the Registration Statement
and, if such stop order be issued, to obtain as soon as possible the lifting
thereof.
SECTION 11. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Underwriting
Group and each person, if any, who controls the Underwriting Group within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several to which the Underwriting Group or such controlling person may
become subject, under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or any failure of the Company to
perform its obligations hereunder or under law, and the Company will reimburse
the Underwriting Group and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by the Underwriting Group or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable in any such case
-------- -------
to the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with the written information furnished to
<PAGE>
the Company pursuant to Section 4 hereof; provided, further, that the indemnity
-------- -------
agreement provided in this Section 11(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of the Underwriting Group from whom
the person asserting any losses, claims, charges, liabilities or litigation
based upon any untrue statement or alleged untrue statement of any material fact
or omission or alleged omission to state therein a material fact purchased
Common Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected has not
been sent or given to such person within the time required by the Act and the
Rules and Regulations thereunder, unless such failure is the result of
noncompliance by the Company with Section 6(e) hereof. In addition to its other
obligations under this Section 11(a), the Company agrees that as an interim
measure during the pendency of any claims, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company herein or failure to perform its obligations
hereunder, all as described in this Section 11(a), it will reimburse the
Underwriting Group on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriting Group for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction.
(b) Each Selling Stockholder jointly and severally agrees to indemnify and
hold harmless the Underwriting Group and each person, if any, who controls the
Underwriting Group within the meaning of the Act against any losses, claims,
damages, liabilities or expenses, joint or several to which the Underwriting
Group or such controlling person may become subject, under the Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Selling Stockholder), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of such Selling Stockholder
contained herein or any failure of such Selling Stockholder to perform his, her
or its obligations hereunder or under law, or arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, in each case to the extent but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with the
information furnished to the Company or the Underwriting Group, directly or
through such Selling Stockholder's representatives, specifically for inclusion
therein; and will reimburse the Underwriting Group and each such control person
for any legal and other expenses as such expenses are reasonably incurred by the
Underwriting Group or such control person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. In addition to their other obligations under this
Section 11(a)(2), the Selling Stockholders agree that as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of
<PAGE>
such Selling Stockholder herein or failure to perform their obligations
hereunder, all as described in this Section 11(a)(2), they will reimburse the
Underwriting Group on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Selling Stockholders' obligation to reimburse the Underwriting Group for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. Notwithstanding the foregoing,
the liability of each Selling Stockholder hereunder shall be limited to the
aggregate purchase price received by such Selling Stockholder from the
Underwriting Group for the Shares sold by such Selling Stockholder hereunder.
(c) The Underwriting Group will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Representative), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof; and will
reimburse the Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Stockholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability that it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
- -------- -------
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that
<PAGE>
there may be legal defenses available to it and/or other indemnified parties
that are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel approved
by the indemnified parties, representing the indemnified parties who are parties
to such action) or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
(e) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b),
(c) or (d) in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriting Group from the offering
of the Common Shares or (ii) if the allocation provided by clause (i) 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 the Company, the Selling Stockholders and the Underwriting
Group in connection with the statements or omissions or inaccuracies in the
representations and warranties herein that resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriting Group shall be deemed to be in the
same proportion, in the case of the Company and the Selling Stockholders, as the
total price paid to the Company and to the Selling Stockholders, respectively,
for the Common Shares sold by them to the Underwriting Group (net of
underwriting discounts but before deducting expenses), and, in the case of the
Underwriting Group, as the underwriting discounts received by them bears to the
total of such amounts paid to the Company and to the Selling Stockholders and
received by the Underwriting Group as underwriting discounts. The relative
fault of the Company, the Selling Stockholders and the Underwriting Group 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 or the inaccurate or the alleged inaccurate representation
and/or warranty relates to information supplied by the Company, the Selling
Stockholders or the Underwriting Group and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in subparagraph (d) of
this Section 11, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim. The
provisions set
<PAGE>
forth in subparagraph (d) of this Section 11 with respect to notice of
commencement of any action shall apply if a claim for contribution is to be made
under this subparagraph (e); provided, however, that no additional notice shall
be required with respect to any action for which notice has been given under
subparagraph (d) for purpose of indemnification. The Company, the Selling
Stockholders and the Underwriting Group agree that it would not be just and
equitable if contribution pursuant to this Section 11 were determined solely by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 11, the Underwriting Group shall
not be required to contribute any amount in excess of the amount of the total
underwriting discounts received in connection with the Common Shares
underwritten by it and distributed to the public. 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.
(f) The remedies provided for in this Section 11 are not exclusive and
shall not limit any rights or remedies that may otherwise be available to any
indemnified party at law or in equity.
SECTION 12. This Section Intentionally Omitted.
-----------------------------------
SECTION 13. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 7, 9, 11, 13, 14 and 15 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., California time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 9:00 a.m. Eastern Time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the public.
For the purposes of this Section 13, the Common Shares shall be deemed to have
been so released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams offering
the Common Shares for sale to securities dealers, whichever may occur first.
SECTION 14. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you and
the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become effective
as to all its provisions, and any such termination shall be without liability on
the part of the Company or the Selling Stockholders to the Underwriting Group
(except for the expenses to be paid or reimbursed by the Company, the Selling
Stockholders and the Underwriting Group pursuant to Sections 7 and 9 hereof and
except to the extent provided in Section 11 hereof) or of the Underwriting Group
to the Company or the Selling Stockholders (except to the extent provided in
Section 11 hereof).
<PAGE>
(b) This Agreement may also be terminated by you prior to the First Closing
Date by notice to the Company (i) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over-the-counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over-the-counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent as, in the judgment of the Representative, to affect adversely
the marketability of the Common Shares, (iii) if any adverse event shall have
occurred or shall exist that makes untrue or incorrect in any material respect
any statement or information contained in the Registration Statement or
Prospectus or that is not reflected in the Registration Statement or Prospectus
but should be reflected therein in order to make the statements or information
contained therein not misleading in any material respect, (iv) substantial and
material changes in the condition of the market (either generally or with
reference to the sale of the Common Shares to be offered hereby) beyond normal
fluctuations are such that it would be undesirable, impracticable or inadvisable
in the judgment of the Representative to proceed with this Agreement or with the
public offering, or (v) if there shall be any action, suit or proceeding pending
or threatened (except as disclosed in the Prospectus), or there shall have been
any development or prospective development involving particularly the business
or properties or securities of the Company or the transactions contemplated by
this Agreement, that in the judgment of the Representative, may materially and
adversely affect the Company's business or earnings and makes it impracticable
or inadvisable to offer or sell the Common Shares. Any termination pursuant to
this subsection (b) shall be without liability on the part of the Underwriting
Group to the Company or the Selling Stockholders or on the part of the Company
or the Selling Stockholders to the Underwriting Group except for expenses to be
paid or reimbursed by the Company, the Selling Stockholders and the Underwriting
Group pursuant to Sections 7 and 9 hereof and except to the extent provided in
Section 11 hereto.
(c) This Agreement may be terminated by you by notice to the Company in the
event that the Company shall have failed or been unable to comply with any of
the terms, conditions or provisions of this Agreement on the part of the Company
to be performed, complied with or fulfilled within the respective times herein
provided for, unless compliance, therewith or performance or satisfaction
thereof shall have been expressly waived by you in writing.
(d) Any termination of this Agreement pursuant to this Section shall be
without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party thereto,
except that the Company, the Selling Stockholders, and the Underwriting Group
shall remain obligated to pay the costs and expenses provided to be paid by it
or them specified in this Agreement; and the Company, the Selling Stockholders,
and the Underwriting Group shall be obligated to pay all losses, claims,
damages, or liabilities, joint or several, required to be paid by it or them by
this Agreement.
SECTION 15. Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties and other
statements of the
<PAGE>
Company, of its officers, of the Selling Stockholders and of the Representative
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the
Representative or the Company or any of its or their partners, officers or
directors or any controlling person, or the Selling Stockholders, as the case
may be, and will survive delivery of and payment for the Common Shares sold
hereunder and any termination of this Agreement.
SECTION 16 Notices. All communications hereunder shall be in writing
-------
and, if sent to the Representative shall be mailed, delivered or telegraphed and
confirmed to you at 4675 MacArthur Court, Suite 740, Newport Beach, California
92660, Attention: Joe Martinez, with a concurrent copy to Russell M. Frandsen,
of Radcliff, Frandsen, Tricker & Dongell, 777 S. Figueroa Street, 40th Floor,
Los Angeles, California 90017 and if sent to the Company or the Selling
Stockholders shall be mailed, delivered or telegraphed and confirmed to the
Company at 2882 C Walnut Avenue, Tustin, California 92780 with a concurrent copy
to Jeremy D. Glaser, Esq., Allen, Matkins, Leck, Gamble & Mallory LLP, 18400 Von
Karman Avenue, 4th Floor, Irvine, California 92715. The Company, the Selling
Stockholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 17. Successors. This Agreement will inure to the benefit of
----------
and be binding upon the parties hereto, and to the benefit of the officers and
directors and controlling persons referred to in Section 11, and in each case
their respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder. No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from the Underwriting Group
merely by reason of such purchase.
SECTION 18. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 19. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 20. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original and all of which shall
constitute one and the same document.
In this Agreement the masculine, feminine and neuter genders and the
singular and the plural include one another. The Section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This
<PAGE>
Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company, the Selling
Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney that authorizes such Attorney-in-fact to take such
action. Any action taken under this Agreement by any of the Attorneys-in-fact
will be binding on all the Selling Stockholders.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholders and
the Underwriting Group, all in accordance with its terms.
Very truly yours,
JAVELIN SYSTEMS, INC.
By:
-------------------------
President
Selling Stockholders
By:
-------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in Newport Beach, California, as
of the date first above written.
MERIDIAN CAPITAL GROUP, INC.
As Representative of the Underwriting Group
By: Meridian Capital Group, Inc.
By:
----------------------------
Partner
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Optional Common Shares
Name of Selling to be Sold by
Stockholders Selling Stockholders
- ----------------------------------------- -------------------------------
<S> <C>
Herbert R. and Janice N. Donica, as joint 6,250
tenants by the entireties
Teresa M. McRae 10,000
</TABLE>
TOTALS
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OF
JAVELIN SYSTEMS, INC.,
a Delaware corporation
JAVELIN SYSTEMS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "DGCL")
(hereinafter, the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That pursuant to an action by unanimous written consent of the Board
of Directors of the Corporation, resolutions were duly adopted setting forth a
proposed amendment to the Amended and Restated Certificate of Incorporation of
the Corporation, declaring said amendment to be advisable and authorizing the
officers of the Corporation to present the proposed amendment to the
stockholders of the Corporation for their consideration. The resolution setting
forth the proposed amendment is set forth below:
"RESOLVED, that Article SIXTH of the Amended and Restated Certificate of
Incorporation of the Corporation is amended and restated in its entirety to read
as follows:
'SIXTH. Directors of the Corporation may be removed,
-----
with or without cause, by stockholders by the affirmative
vote of the holders of a majority of the outstanding shares
of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as
a single class.'"
SECOND: That, thereafter, the proposed amendment was approved by written
consent of stockholders, who as a group own more than sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, in accordance with the provisions of Section 228(a) of the DGCL and
the Amended and Restated Certificate of Incorporation of the Corporation, and
written notice has been given to the stockholders of the Corporation in
accordance with the provisions of Section 228(d) of the DGCL.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by Richard P. Stack, its President, and attested by Lawrence W.
McCorkle, its Secretary, this 2nd day of October, 1996.
/s/ Richard P. Stack
--------------------
Richard P. Stack, President
ATTEST:
/s/ Lawrence W. McCorkle
- ------------------------
Lawrence W. McCorkle, Secretary
<PAGE>
JAVELIN SYSTEMS, INC.
---------------------
SECRETARY'S CERTIFICATE
-----------------------
The undersigned, LAWRENCE W. McCORKLE, does hereby certify that (i) he is
the duly elected and acting Secretary of JAVELIN SYSTEMS, INC., a Delaware
corporation (the "Corporation"), and (ii) in accordance with the provisions of
Section 7.7 of Article VII of the Amended and Restated Bylaws of the
Corporation, the following resolution was adopted on October 2, 1996 by written
consent by the affirmative vote of more than sixty-six and two-thirds percent
(66-2/3%) of the outstanding shares of voting stock of the Corporation:
"RESOLVED, that Section 2.3 of Article II of the Amended and Restated
Bylaws of the Corporation is amended and restated in its entirety to read as
follows:
'Section 2.3 Removal. At any meeting of stockholders
-------
properly called for such purpose and with prior notice
thereof, all the directors, or all the directors of a
particular class, or any individual director, may be
removed, with or without cause, by the affirmative vote of
a majority of the issued and outstanding shares of the
capital stock of the corporation entitled to vote generally
in the election of directors, voting together as a single
class.'"
The remainder of the Corporation's Bylaws remain in full force and effect
as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of October,
1996.
/s/ Lawrence W. McCorkle
------------------------
Lawrence W. McCorkle, Secretary
JAVELIN SYSTEMS, INC.
<PAGE>
EXHIBIT 4.2
[JAVELIN SYSTEMS, INC. STOCK CERTIFICATE]
Number Shares
LU
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE AND INFORMATION CONCERNING THE
RIGHTS, PREFERENCES, PRIVILEGES AND
RESTRICTIONS OF SHARES
CUSIP 471896 10 0
- --------------------------------------------------------------------------------
This Certifies that
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,$.01 PAR VALUE PER SHARE, OF
=============================JAVELIN SYSTEMS, INC.==============================
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate shall not be valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED:
/s/ LAWRENCE W. MCCORKLE [JAVELIN SYSTEMS, INC. /s/ RICHARD P. STACK
--------------------- CORPORATE SEAL] -----------------
Lawrence W. McCorkle Richard P. Stack
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ----------- -----------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-----------------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age )
-------- -----
(Cust)
under Uniform Transfers
-----------
(Minor)
to Minors Act
---------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------
Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
------------------
X
----------------------------------
X
----------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS, NATIONAL SECURITIES
EXCHANGES AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated August 15, 1996,
except as to Note 8, as to which the date is August 29, 1996, in Amendment No. 1
to the Registration Statement (Form SB-2 No. 333-11217) and related Prospectus
of Javelin Systems, Inc. for the registration of 977,500 shares of its common
stock .
/s/ ERNST & YOUNG LLP
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Ernst & Young LLP
Orange County, California
October 3, 1996
