<PAGE>
As filed with the Securities and Exchange Commission on December 24, 1998
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
GEN TRAK, INC.
(Exact name of registrant as specified in charter)
Pennsylvania 23-2437580 2835
- ---------------------- ------------- -----------------
(State or other juris- (IRS Employer (Primary Standard
diction of Incorporation Identification No.) Industrial Classification)
or organization) Code Number)
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462-1123
610/825-5115
Telecopier: 610/941-9498
(Address including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------------------------------------------------
Arthur V. Boyce, Jr.
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462-1123
610/825-5115
Telecopier: 610/941-9498
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------------------------------------
COPIES OF ALL COMMUNICATIONS TO:
--------------------------------
Gary A. Miller, Esquire Bert Gusrae, Esquire
Connolly Epstein Chicco David A. Carter, P.A
Foxman Oxholm & Ewing 2300 Glades Road, Suite 210
1515 Market Street - 9th Floor West Tower
Philadelphia, PA 19102 Boca Raton, FL 33431
215/851-8472 561/750-6999
215/851-8383 (fax) 561/367-0960 (fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER EFFECTIVE DATE
<PAGE>
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Proposed Maximum Proposed Amount of
Title of Each Class of Securities To be Offering Price Per Maximum Offer- Registration
to be Registered Registered Share (1) Ing Price (1) Fee
---------------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Units Consisting of Two Shares 747,500
and Two Warrants Units $ 10.00 $ 7,475,000 $ 2,078.05
Common Stock $.01 Par Value, 1,495,000(2)
Contained in Units Shares $ -0-(4) $ -0- $ -0-(4)
Warrants to Purchase Shares of 1,495,000(3)
Common Stock, Contained in Warrants $ -0-(4) $ -0- $ -0-(4)
Units
Common Stock, Underlying 1,495,000
Warrants to Purchase Shares $ 6.00 $ 8,970,000 $ 2,493.66
Common Stock (5)
Underwriter's Unit Warrants 65,000
Warrants $ -0- $ -0- $ -0-
Units Issuable Upon Exercise of 65,000
Underwriter's Warrants Units $ 14.50 $ 942,500 $ 262.02
Common Stock Underlying 130,000
Underwriter's Units Warrants Shares $ -0- $ -0-(4) $ -0-
Warrants Underlying 130,000
Underwriter's Warrant Warrants $ -0- $ -0- $ -0-
Common Stock Issuable Upon 130,000
Exercise of Warrants Issuable Shares $ 6.00 $ 780,000 $ 216.84
On Exercise of Underwriters' Unit
Warrants
TOTALS: $18,167,500 $ 5,050.57
=========== ==========
</TABLE>
- ----------------
(1) Estimated solely for calculation of the amount of the registration fee
calculated pursuant to Rule 457.
(2) Includes 195,000 shares to cover over-allotments, if any.
(3) Includes 195,000 Warrants to cover over-allotments, if any.
(4) For purposes of computing the registration fee, the Units purchase price
has been allocated 100% to the Units.
ii
<PAGE>
Pursuant to Rule 416, there are also being registered such additional shares as
may become issuable pursuant to the anti-dilution provisions of the Warrants.
The Exhibit Index appears on page II-7 of the sequentially numbered pages of
this Registration Statement. This Registration Statement, including exhibits
contains 294 pages.
iii
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. SECTIONS IN PROSPECTUS
<S> <C> <C>
1. Front of the Registration Statement and Outside
Front Cover of Prospectus................................ Cover Page
2. Inside Front and Outside Back Cover Pages
Of Prospectus............................................ Inside Front Cover Pages; Table of Contents
3. Summary Information and Risk Factors..................... Prospectus Summary, Risk Factors
4. Use of Proceeds.......................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.......................... Cover Page; Risk Factors
6. Dilution................................................. Dilution
7. Selling Security Holders................................. Not Applicable
8. Plan of Distribution..................................... Prospectus Summary; Underwriting
9. Legal Proceedings........................................ Business - Litigation
10. Directors, Executive Officers, Promoters and
Control Persons.......................................... Directors, Executive Officers, Promoters and
Control Persons
11. Security Ownership of Certain Beneficial
Owners and Management.................................... Principal Shareholders
12. Description of Securities................................ Description of Securities; Dividend Policy
13. Interest of Named Experts and Counsel.................... Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................................. Statement as to Indemnification
15. Organization within Last Five Years...................... Not Applicable
16. Description of Business.................................. Prospectus Summary; Risk Factors; The
Company
17. Management's Discussion and Analysis or
Plan of Operation........................................ Management's Discussion and Analysis
18. Description of Property................................. Business
19. Certain Relationships and Related Transactions........... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters...................................... Risk Factors
21. Executive Compensation................................... Compensation of Executive Officers
And Directors
22. Financial Statements..................................... Index to Financial Statements
23. Changes In and Disagreements With Accountants
On Accounting and Financial Disclosure................... Not Applicable
</TABLE>
iv
<PAGE>
Initial Public Offering Prospectus
GEN TRAK, INC.
650,000 Units
Each Unit Containing 2 Shares and 2 Warrants
$10.00 Per Unit
Gen Trak, Inc. develops and sells diagnostic test kits used by hospital and
other health care laboratories. These kits are used to determine compatibility
between the donor and recipient of transplanted organs, for diagnosis of disease
and for paternity testing.
The Company is offering Units of Securities. Each Unit consists of 2 Shares and
2 Warrants. The Shares and Warrants are not offered separately and cannot be
separately transferred for 180 days from the date of this Prospectus without the
permission of Barron Chase Securities, Inc., the Underwriter.
The registered holders of Warrants may purchase one share of Common Stock at a
price of $6.00 per share any time, after the separation of the Units, within
five years after the Effective Date. The Warrants may not be exercised unless,
at the time they are exercised, the Company has a current prospectus covering
the exercise of the Warrants.
The Company may redeem the Warrants at $.10 per Warrant. There are certain
conditions on the Company's right to redeem the Warrants. These conditions are
described in the Summary under the heading "The Offering."
Barron Chase Securities, Inc. will underwrite this offering on a firm commitment
basis. The offering price of the Common Stock and Warrants, as well as the
exercise price and other terms of the Warrants, were determined by negotiation
between the Company and the Underwriter and do not relate to the Company's asset
value, net worth or other established criteria of value. See "RISK FACTORS" at
page 9.
This is our initial public offering and no market currently exists for our
shares. The Company has applied for listing on the NASDAQ Small Cap (SM) Market
and the Boston Stock Exchange. These listing applications have not yet been
approved. We cannot guarantee that a trading market in the Company's Common
Stock or Warrants will develop or if it does develop, that it will be sustained.
Proposed Trading Symbols:
NASDAQ SmallCap(SM)
Common Stock -- _______
Warrants -- _______
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page 9.
1
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This table shows the price to the public, the underwriting discount and the
proceeds to the Company from the sale of each Unit and all of the Units:
- --------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount Company
- --------------------------------------------------------------------------------
Per Unit $10.00 $1.00 $9.00
- --------------------------------------------------------------------------------
Total $6,500,000 $650,000 $5,850,000
- --------------------------------------------------------------------------------
This table does not include any proceeds from the potential exercise of the
Warrants. This table does not include proceeds from the sale of an additional
97,500 Units which the Underwriter has the option to obtain from the Company
under its "Over-Allotment Option." The Company will incur expenses from the
Offering in addition to the Underwriting Discount of approximately $600,000.
BARRON CHASE SECURITIES, INC.
The date of this Prospectus is __________, 1999.
The following information appears in red on the left side of the cover page:
- --------------------------------------------------------------------------------
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
2
<PAGE>
PROSPECTUS SUMMARY
The following is only a summary of detailed information and financial
statements and notes to financial statements appearing elsewhere in this
Prospectus. As used in this Prospectus, the terms "Company" and "Gen Trak" refer
to Gen Trak, Inc., a Pennsylvania corporation.
The Company and its Products
Gen Trak, Inc. (the "Company") is engaged in the manufacture and sale
of health care test kits for cellular diagnostics, paternity and genetic
testing. The Company's test kits use highly specialized genetic markers known as
HLA (Human Leukocyte Antigen) antigens that are used to create a genetic map by
looking at the surface of human cells to ascertain and profile the immune
response system of a patient. HLA genetic mapping is accomplished using an array
of screening and confirmation assays, employing both serological and molecular
(DNA) technologies. These technologies are discussed in this Summary. The
Company sells its products primarily to hospital based laboratories and private
laboratories performing cellular diagnostics, tests for organ and bone marrow
transplantation, disease association studies and basic research.
The Company manufactures and markets a complete line of ready-to-use
serology-based typing products, and is in the process of adding a full molecular
(DNA) based typing product line and cell separation/cell preparation products to
its product line.
The Company's Current Technology. Approximately 80,000 transplant
candidates are registered on organ transplant or bone marrow waiting lists in
approximately 500 transplant centers throughout North America and Europe. Each
year, approximately 50,000 new patients receive donated organs and bone marrow.
The Company's extensive portfolio of diagnostic and monitoring products are
designed to serve the needs of transplant patients at each phase of the
transplantation process.
More specifically, the Company manufactures and sells serology-based
and molecular-based antibody screening trays primarily used to determine the
compatibility of a donor organ or bone marrow with the immune system of a
potential transplant recipient. These tests are critical to determine whether a
donor's organ or bone marrow transplant may be rejected by the receipient's
immune system or may attack the recipient's immune system. These products also
monitor the antibody status of potential transplant recipients and those persons
who have already undergone transplantation to predict the possibility of organ
or bone marrow rejection. The Company's antibody screening trays are also used
to determine the genetic profiles of patients who will undergo blood
transfusions to confirm that they do not harbor antibodies that will reject new
blood, and to conduct genetic studies with respect to diseases that destroy the
immune system.
In addition, the Company is developing cell separation/preparation
products that use magnetic beads to separate white blood cells from transplant
patient and donor blood samples prior to genetic testing. The Company believes
that this technology can increase the productivity of HLA laboratories not
presently using beads to perform this procedure, which will reduce the cost to
the laboratory. The Company believes that the increased productivity and
reduction in overall costs associated with the use of magnetic beads will help
laboratories meet the needs of their customers and create a demand for the
Company's products.
3
<PAGE>
The HLA Diagnostic Market. The Company believes that the annual HLA
diagnostics market place is approximately $90 million, with the U.S.
representing approximately 65% of the market. Most HLA testing involves
serology-based typing. In the 1990s, the market made a strong move to replace
serology-based typing with molecular-based typing. This strategy fell short of
expectations due to the higher cost of molecular-based typing. Serology-based
typing is now used to determine an individual's broad phenotype while in-depth
definition is provided by molecular-based typing.
Commercial suppliers like the Company represent about 70% of the HLA
testing product market, and approximately 30% of the market is represented by
individual testing laboratories that make their own HLA tests. Approximately 75%
of the market is in serology-based typing and 25% is in molecular-based typing.
The Company distributes its products worldwide with approximately 80%
in the U.S. In the U.S., the Company uses a small direct sales organization to
target high-volume transplant hospitals. International markets are addressed
using in-country distributors with healthcare market experience and contacts
necessary to participate in their respective healthcare systems.
Development of AMPRO Technology. In addition to its core business, the
Company is also developing a detection and measurement system that could allow a
physician to diagnose infectious disease in the physician's office during the
patient visit. When the human body is invaded by infectious or viral
microorganisms, the immune system is triggered to generate antibodies to combat
the infection. Each virus or infection triggers the generation of a unique set
of antibodies. To diagnose infectious disease, the physician or laboratory
technician seeks to confirm the presence or absence of these unique antibodies
in a sample of a patient's blood or saliva. The Company's new technology (the
"AMPRO Technology") may simplify the analysis of patient blood or saliva samples
by amplifying or increasing the signal associated with the unique antibodies and
thereby allowing the laboratory technician or physician to more quickly and
easily identify the infectious agent and diagnose and treat the illness.
The Company is currently pursuing potential development partners to
reduce this technology to practice. The Company has applied for and been granted
patent protection for this new technology in the United States. There are
currently two issued United States patents for this technology.
The Company was incorporated in Pennsylvania in November 1986. The
Company's corporate offices are located at 5100 Campus Drive, Plymouth Meeting,
PA 19462-1123. The Company's telephone number is 610/825-5115.
4
<PAGE>
The Offering
Securities Offered.......... 650,000 Units of securities, consisting of
1,300,000 Shares and 1,300,000 Warrants.
o Each Unit consists of two Shares and two
Warrants.
o The Shares and Warrants are not being
offered separately and will not be
separately transferable for a period of 180
days from the date of this Prospectus (the
"Effective Date") or sooner at the option of
Barron Chase Securities, Inc., the
Underwriter.
o Each Warrant entitles the holder to purchase
one share of Stock at a price of $6.00 per
share for a period of five years from the
Effective Date.
o After the Warrants become separately
transferable, the Warrants may be redeemed
by the Company at $.10 per Warrant on 30
days' prior written notice by the Company to
the Warrant holders, but only if the closing
bid price of the Company's Common Stock as
reported on Nasdaq or the closing sale price
of the Common Stock, if traded on a
national or regional securities exchange,
averages at least $10.00 over the 30
consecutive trading days within 10 days of
the notice of redemption. Prior to the first
anniversary of the Effective Date, the
Warrants may not be redeemed by the Company
without the written consent of the
Underwriter.
o The Company is required to maintain the
effectiveness of the Registration Statement
of which this Prospectus is a part, with
respect to the Common Stock underlying the
Warrants, at the time of redemption of the
Warrants.
Offering Price............. $10.00 per Unit
Shares of Common Stock
Outstanding:
Prior to the
Offering............. 1,300,000 shares of Common Stock
After the
Offering(1)(2)....... 2,715,000 shares of Common Stock
Use of Proceeds............ To provide for repayment of private placement
notes, stockholder and bank lines of credit,
accrued salaries and fees, working capital,
expansion of the Company's product lines and
general corporate purposes. See "USE OF
PROCEEDS".
5
<PAGE>
- ------------------------------
(1) This number does not include (a) the potential issuance of up to
1,300,000 shares of common stock which can be obtained upon exercise of
the Warrants issued in this Offering, (b) the potential issuance of up
to an additional 195,000 shares in this Offering and up to an
additional 195,000 shares upon the exercise of Warrants issued in this
Offering, if the Underwriter exercises its Over-Allotment Option, which
allows the Underwriter at its option to have the Company issue an
additional 97,500 Units in the Offering, or (c) the potential issuance
of up to 260,000 shares upon exercise of certain Warrants, exercisable
to purchase Units to be issued to the Underwriter.
(2) Includes the issuance of 115,000 shares issuable to holders of certain
Unsecured Promissory Notes (the "Private Placement Notes") upon closing
of this offering.
Common Stock Warrant
Proposed Nasdaq Symbols............ _______ ______
Common Stock Warrant
Proposed Boston Exchange Symbols...
------- ------
Summary Financial Data
The following summary financial data as of, and for the years ended,
December 31, 1997 and December 31, 1996 are derived from and should be read in
conjunction with the financial statements of the Company and notes thereto
beginning on page F-1 of this Prospectus.
The following summary financial data as of, and for the nine months
ended, September 30, 1998 and September 30, 1997, are derived from the unaudited
financial statements of the Company, which in the opinion of the Company reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of the unaudited financial statements. The unaudited
financial statements are included in the financial statements beginning on page
F-1 of this Prospectus. The results of operations for the nine months ended
September 30, 1998 and September 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
6
<PAGE>
STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
December 31, December 31, September 30, September 30,
1996 1997 1997 1998
------------ ------------ ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 2,854,536 $ 2,710,485 $ 2,050,354 $ 1,650,535
Gross Profit (Loss) $ 1,330,799 $ 1,219,557 $ 908,445 ($ 144,540)
Net Loss ($ 146,979) ($ 138,083) ($ 93,648) ($1,278,153)
Pro Forma Net Loss(1) ($ 97,007) ($ 138,083) ($ 93,648) ($1,278,153)
Basic and Diluted Loss Per Share ($ .12) ($ .11) ($ .07) ($ .98)
Pro Forma Basic and Diluted Loss Per Share (2) -- ($ .07) -- ($ .86)
Weighted Average Shares Outstanding Used in
Computing Basic and Diluted Loss Per Share 1,192,094 1,300,000 1,300,000 1,300,000
Pro Forma Weighted Average Shares
Outstanding Used in Computing Pro Forma
Basic and Diluted Loss Per Share(2) -- 1,443,000 -- 1,443,000
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30, AS ADJUSTED (3)
December 31, 1998 September 30, 1998
1997 (Unaudited) (Unaudited)
------------ ----------- -----------
<S> <C> <C> <C>
Cash $ 45,757 $ 66,623 $ 4,601,623
Current Assets $ 1,840,430 $ 962,604 $ 5,497,604
Total Assets $ 2,288,888 $ 1,343,981 $ 5,878,981
Current Liabilities $ 722,144 $ 1,104,448 $ 389,448
Long-Term Liabilities $ 980,937 $ 963,345 $ 963,345
Stockholders' Equity (Deficit) $ 585,807 ($ 723,812) $ 4,526,188
</TABLE>
- ----------
(1) The Company's status as an S Corporation under the Internal Revenue Code
terminated on September 23, 1998 and normal corporate income tax rates now
apply. Accordingly, the 1996 Statement of Operations includes a pro forma
adjustment for the income tax benefit of carrying back the federal net
operating loss incurred in 1996 to profitable years in which the Company
would have paid income taxes as a C corporation. No such carryback is
available for the 1997 or 1998 federal and state net operating losses and
therefore, since realization of a deferred tax asset is not reasonably
assured, no pro forma benefit was reflected in the 1997 or 1998 Statements
of Operations.
(2) Assumes that the Company issued 143,000 shares of Common Stock, at the
initial public offering price to retire the outstanding balances of (a) the
bank line of credit of $400,000, (b) the stockholder line of credit of
$200,000 and (c) the stockholder demand loan of $115,000, at September 30,
1998. Pro Forma basic and diluted loss per share is based upon pro forma
net loss further adjusted for the reduction in after-tax interest expense
of approximately $35,000 for the year ended December 31, 1997 and $33,000
for the nine months ended September 30, 1998 that would have taken place
had the outstanding indebtedness discussed above been retired at the
beginning of each period.
7
<PAGE>
(3) Adjusted to reflect the sale of 650,000 Units (i.e., 1,300,000 shares of
Common Stock and 1,300,000 Warrants) offered hereby and the receipt of the
net proceeds therefrom (assuming an initial public offering price of $10.00
per Unit) further adjusted for the repayment of the bank line of credit
($400,000) the stockholder line of credit ($200,000) and the stockholder
demand loan ($115,000). Does not include receipt of net proceeds from the
exercise of Warrants, the Underwriter's Unit Warrants or the Underwriter's
Over-Allotment Option.
8
<PAGE>
RISK FACTORS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933. Such forward-looking statements
may be found in this section and under "Prospectus Summary," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Actual events or results could differ materially
from those discussed in the forward-looking statements. This may occur as a
result of various factors including the risk factors set forth below and
elsewhere in this prospectus.
In addition to the other information contained in this prospectus, the
following risk factors should be considered when evaluating an investment in the
shares of common stock offered hereby.
History of Operating Losses; Future Profitability Uncertain. The
Company was incorporated in 1986 and has experienced significant operating
losses since that date. The Company's sales have declined steadily, from $6.9
million in 1992 to approximately $2.7 million for the year ended December 31,
1997. The Company has had losses from operations in the last two years, and in
three of the last five years. For the year ended December 31, 1997, the Company
had a net loss of $138,083 and, at year end, had an accumulated deficit of
$984,440. For the nine months ended September 30, 1998, the Company's sales were
$1.65 million, with a net loss of $1,278,153 after a one-time inventory
write-down of $791,378.
Management believes that its recent poor operating results were the
result of manufacturing and other operating inefficiencies which not only hurt
the bottom line, but adversely affected sales as well since, among other things,
the Company lacked the pricing flexibility to meet competition. Operating
results were harmed by the lack of competitive products, from a technical
standpoint, in a number of important areas.
The Company has taken steps to address the inefficiencies and lack of
technical competitiveness. Despite the operating changes initiated by the
Company, however, an investor cannot be certain that the Company will become
profitable.
Need for Successful Product Development. To achieve its strategic
goals, the Company, alone or with others, must successfully develop, obtain
regulatory approval for, manufacture, introduce and market its potential
products. The Company's AMPRO Technology has not yet been developed into
specific products. The Company may not be able to develop new products, or
obtain regulatory approval for any new products. Any new products which are
developed and approved may not be successfully marketed.
Extensive Government Regulation of the Company's Business; Uncertainty
of Obtaining Regulatory Approval. The Company's research and development
activities, preclinical studies, clinical trials, and the manufacturing and
marketing of its products are subject to extensive regulation by FDA and foreign
regulatory authorities. The Company's current products and product candidates
are subject to regulation by the FDA. All products manufactured or outsourced by
the Company for use in HLA laboratories are subject to FDA Good Manufacturing
9
<PAGE>
Practices (GMP), which set forth and prescribe the use of manufacturing Standard
Operating Procedures, lot controls and quality control/quality assurance
procedures. The Company is also subject to various federal, state and local laws
and regulations relating to safe working conditions, and the use and disposal of
hazardous or potentially hazardous substances used in connection with
manufacturing and research and development. These extensive regulations put a
burden on the Company's operations and make the Company less flexible.
To market the AMPRO product candidate currently under development, the
Company, or any development partners, must undergo an extensive regulatory
approval process. The regulatory process takes many years and requires the
expenditure of substantial resources. Regulatory review may not be conducted in
a timely manner and regulatory approval may not be obtained for AMPRO products
developed by the Company. Failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.
Additional government regulation may be established that could prevent or delay
regulatory approval of the Company's product candidates. See "BUSINESS
Government Regulation."
Dependence on Third Party Manufacturers. In September, 1998, the
Company entered into an exclusive contract manufacturing agreement, for the
manufacture of most of its products, with SFP Research Inc. of Liberty, North
Carolina ("SFP"). The Company's SSP molecular products are also outsourced under
the terms of a distribution agreement to BioSynthesis, Inc. of Lewisville,
Texas. Manufacturing of the Company's Magnetic Bead cell separation product line
also will be outsourced.
The Company is now dependent and will likely continue to depend on
third-parties to manufacture the Company's products effectively and on a timely
basis. The failure of these third parties to perform adequately could have a
material adverse effect on the Company's business.
Required Raw Materials May Become Difficult to Obtain. The raw
materials, particularly sera, required for the majority of the Company's
products and product candidates are currently available from several suppliers
in quantities sufficient to conduct the Company's business. However, the Company
cannot be certain that the raw materials necessary for the manufacture of the
Company's products and product candidates will continue to be available in
sufficient quantities or at a reasonable cost. Much of the sera used by the
Company is obtained from overseas sources who draw sera from human subjects.
Foreign regulations do not now impair the Company's ability to obtain sera, but
the foreign regulations are subject to change. Complications or delays in
obtaining raw materials or in product manufacturing could materially impair the
Company's business. See "BUSINESS - Commercialization Strategy."
Limited Marketing Ability. The Company currently employs a small direct
sales force to market its products to transplant laboratories in the United
States. In addition, the Company markets its products internationally through
distributors. The Company currently retains all commercial rights to its
products. The Company's ability to market its products is limited due to its
size and limited product line.
10
<PAGE>
The Company intends to address its limited marketing ability by
entering into strategic alliances, co-promotion agreements and licensing
arrangements. To the extent that the Company enters into co-promotion or
licensing arrangements, any revenues received by the Company will be dependent
on the efforts of third-parties and there can be no assurance that such efforts
will be successful. To the extent that the Company itself undertakes to market a
substantial portion of its products or product candidates, or is unable to enter
into co-promotion agreements or to arrange for third-party distribution of its
products, expenditures, management resources and time will be required to
develop a sales force. The Company may not be able to establish a sales force or
enter into co-promotion or distribution agreements on terms favorable to the
Company or on a timely basis. In addition, if the Company succeeds in bringing
product candidates to market, it will compete with many other companies that
currently have extensive and well-funded marketing and sales operations. The
Company's marketing and sales operations may not be able to compete successfully
against such other companies. See "BUSINESS - Commercialization Strategy."
Product Liability Exposure; Limited Insurance Coverage. If the use of
products manufactured by the Company results in adverse effects to patients or
subjects during research, clinical development or commercial use, the Company
may be exposed to significant product liability claims. The Company's product
liability insurance is currently limited to $1,000,000 per occurrence, which may
not be adequate to cover potential liability exposures. Moreover, adequate
insurance coverage may not be available at acceptable cost at any particular
time. A product liability claim could materially adversely affect the business,
financial condition, cash flows and results of operations of the Company.
Costs and Risks of Handling Hazardous Materials. In connection with its
research and development activities and operations, the Company is subject to
federal, state and local laws, rules, regulations and policies governing the
use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials, biological specimens and wastes. The
Company may incur significant costs to comply with environmental and health and
safety regulations. The Company's research and development involves the
controlled use of hazardous materials. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could have liability which exceeds the
resources of the Company.
Uncertainty of Protection for Patents and Proprietary Technology. The
Company's success will depend in part upon protecting its proprietary technology
from infringement, misappropriation, duplication and discovery. The Company
intends to rely principally on a combination of patent law, trade secrets and
contract law to protect its proprietary technology in the United States and
abroad.
The patent positions of medical products are highly uncertain and
involve complex legal and factual questions. The Company cannot be sure that
patents will issue from the patent applications filed by the Company. The
Company cannot be sure that the scope of any claims granted in any patent will
provide protection or a competitive advantage to the Company. The validity or
11
<PAGE>
enforceability of patents issued or licensed to the Company may be challenged by
others and, if challenged, a court might not find the patents to be valid and
enforceable. In addition, competitors may try to circumvent any patents issued
or licensed to the Company.
The Company's product candidates could infringe patent rights of
others. Patent litigation is costly and time consuming, and the Company may not
have sufficient resources to pursue such litigation. If the Company is found
liable for infringement, the Company may be liable for significant money
damages, may encounter significant delays in bringing products to market, or may
be precluded from participating in the manufacture, use or sale of products.
The Company also relies on trade secrets and other unpatented
proprietary information in its product development activities. Trade secret
protection does not prevent others from independently developing the same or
similar technologies. The Company seeks to protect its trade secrets and
proprietary knowledge, in part, through confidentiality agreements with its
employees, consultants, advisors and collaborators. These agreements may not
effectively prevent disclosure of the Company's confidential information and may
not provide the Company with an adequate remedy in the event of unauthorized
disclosure of such information. If the Company's employees, scientific
consultants or collaborators develop inventions or processes independently that
may be applicable to the Company's product candidates, disputes may arise about
ownership of proprietary rights to those inventions and processes. Such
inventions and processes will not necessarily become the Company's property, but
may remain the property of those persons or their employers. Protracted and
costly litigation could be necessary to enforce and determine the scope of the
Company's proprietary rights. Failure to obtain or maintain patent and trade
secret protection, for any reason, could make new product development difficult.
Dependence on Key Personnel. The Company's future success depends to a
significant extent on the efforts and abilities of its executive officers. The
loss of the services of certain of these individuals could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that its future success also will depend
significantly upon its ability to attract, motivate and retain additional highly
skilled managerial personnel. Competition for such personnel is intense, and the
Company cannot be sure it will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably. The Company
will have insurance on the lives of its President and Chairman, but that
insurance may not be sufficient compensation for the loss of either of these
officers.
Competition. The Company encounters significant competition in each
area of the its business. Certain of the Company's competitors have
significantly greater financial and other resources than the Company.
Competition may result in price reductions, decreased gross margins and loss of
market share. See "BUSINESS - Competition."
Discretion in Use of Proceeds. A substantial portion of the proceeds of
this Offering will be available for working capital or other general corporate
purposes. This means management will have broad discretion in determining how
the Company uses proceeds from this Offering, and prospective investors will not
know exactly how all of their investment will be spent.
12
<PAGE>
Some Offering Proceeds to be Paid to Officers and Existing
Shareholders. A substantial amount of proceeds from this Offering, $300,000 will
be used to repay a debt owed to a shareholder of the Company. In addition,
approximately $80,000 will be used to repay salaries and other amounts owed to
officers of the Company.
Need for Additional Financing; Dependence on Collaborative
Relationships. Although management believes the net proceeds of this Offering
will be sufficient to meet the Company's working capital requirements for the
next 24 months, it is possible that additional cash liquidity may be required.
Additional financing may not be available on commercially reasonable terms. If
future financing is not available when needed, the Company may be forced to
curtail or discontinue its expansion strategy.
The Company currently does not possess the resources necessary to
develop, complete the FDA approval process for, or commercialize any of its
potential AMPRO products. The Company's ability to develop AMPRO Technology will
depend upon its ability to establish and maintain collaborative arrangements.
The Company may not be able to enter into such collaborations.
Control by Officers and Directors. After completion of this Offering,
the Company's Officers and Directors will continue to own approximately 20% of
the Company's Common Stock. As a result, the Company's Officers and Directors
will continue to have a significant impact on all shareholder votes. See
"PRINCIPAL SHAREHOLDERS."
No Dividends. The Company has no present intention of paying cash
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain all earnings to provide for the growth of the Company.
Payment of dividends is currently restricted by the Company's bank lending
agreements. See "DIVIDENDS."
Substantial Dilution to Investors. There will be an immediate and
substantial dilution to the investors who purchase Shares in this offering, as
the net tangible book value per share of the Common Stock after the offering
will be substantially less than the price paid by the investors. See "DILUTION."
Arbitrary Determination of Offering Price. No public market for the
shares of the Company's Common Stock has existed prior to this Offering. The
price at which the Shares and Warrants are being offered have been arbitrarily
determined by negotiation between the Company and the Underwriter and does not
bear any relationship to such established valuation criteria as assets, book
value or prospective earnings.
No Prior Public Market and Possible Volatility of Price of Shares of
Common Stock and Warrants. If and when trading commences in the Company's Common
Stock and Warrants, there may be wide fluctuations in price. There has been no
prior public market for the Company's Common Stock or Warrants and, despite the
potential listing of the Common Stock and Warrants on Nasdaq, there is no
assurance that a market will develop or be sustained.
13
<PAGE>
Nasdaq Maintenance Requirements and Effects of Possible Delisting;
Risks Related to Low-Priced Stocks. The Company has applied for initial listing
on the Nasdaq Small-Cap Market upon the Effective Date of this Prospectus. The
Company cannot guarantee that its listing application will be approved. Even if
the Company is approved for initial listing, the Company must continue to meet
certain maintenance requirements in order for its securities to continue to be
listed on Nasdaq. The Company may not be able to continue to meet such
requirements. If the Company's securities are delisted from Nasdaq, investors'
interest in the Company's securities could be reduced and this could materially
and adversely affect any trading market and the prices for such securities. In
addition, if the Company's securities are delisted from Nasdaq, and if certain
other conditions apply, the Company's Common Stock and Warrants would each be
considered a "penny stock" under federal securities law. Additional regulatory
requirements apply to trading by broker-dealers of penny stocks which could
result in the loss of effective trading markets for the Company's Common Stock
and Warrants.
Restrictions on Exercise of Warrants; Possible Redemption of Warrants.
Investors purchasing Warrants in this Offering will not be able to exercise the
Warrants unless at the time of exercise this Registration Statement is current,
or a new registration statement registering the Common Stock issuable upon
exercise of the Warrants is effective, and such shares have been registered
and/or qualified or deemed to be exempt from registration and/or qualification
under the securities laws of the Warrant holder's state of residence. The value
of the Warrants may be greatly reduced if a current registration statement
covering the shares of Common Stock underlying the Warrants is not effective or
if such Common Stock is not registered or exempt from registration in the states
in which the holders of the Warrants reside. After the Warrants become
separately transferable, the Warrants are subject to redemption by the Company
on 30 days prior written notice provided that the daily trading price for the
shares is above $10.00 for at least 30 consecutive trading days ending within
ten days prior to the date of the notice of redemption. If the Warrants are
redeemed, Warrant holders will lose their right to exercise the Warrants except
during the 30 day notice period. The Company cannot redeem the Warrants during
the one-year period commencing on the Effective Date of the Prospectus without
the written consent of the Underwriter. See "DESCRIPTION OF SECURITIES -
Warrants."
Failure to Register Shares Underlying the Warrants in Some States.
Although the Warrants will not knowingly be sold to purchasers in jurisdictions
in which the Warrants are not registered or otherwise qualified for sale,
purchasers may buy Warrants in the after-market or may move to jurisdictions in
which the shares underlying the Warrants are not so registered or qualified
during the period that the Warrants are exercisable. In this event, the Company
would be unable to issue shares of Common Stock to those persons desiring to
exercise their Warrants (whether in response to a redemption notice or
otherwise), unless and until the shares could be qualified for sale in the
jurisdictions in which such purchasers reside, or exemptions exist in such
jurisdictions from such qualification. Warrant holders would have no choice but
to attempt to sell the Warrants or allow them to expire unexercised. See
"DESCRIPTION OF SECURITIES - Warrants".
14
<PAGE>
Possible Negative Effect of Underwriter's Warrants on Market for
Company's Stock and Ability to Obtain Additional Financing. The Company will
issue to the Underwriter, for nominal consideration, Underwriter's Unit Warrants
to purchase 65,000 Units, at $14.50 per Unit. These Underwriter Unit Warrants
may have adverse effects on the Company. They may be exercised at a time when
the exercise is not advantageous for the Company. Exercise of the Underwriter's
Unit Warrants and subsequent sale of the Common Stock and Warrants could
adversely affect the market price of the Common Stock and Warrants. The
potential for exercise of these Underwriter's Unit Warrants may adversely affect
the terms the Company can negotiate for new financings.
15
<PAGE>
DILUTION
The Company's net tangible book value (deficiency) at September 30,
1998, was ($1,000,551) or ($.77) per share. "Net tangible book value
(deficiency) per share" represents the Company's total tangible assets less its
total liabilities, divided by the number of shares of Common Stock outstanding.
Giving effect to the sale of the Units offered by this Prospectus and
the issuance of 115,000 shares to the holders of the Private Placement Notes at
the closing of this Offering (See "Use of Proceeds"), retroactive to September
30, 1998, the adjusted net tangible book value of the Company at September 30,
1998, would have been approximately $4,249,449 or $1.57 per share. This
represents an immediate increase in net tangible book value per share of $2.34
to existing shareholders and an immediate decrease of $3.43 per share to the
investors purchasing the Units offered hereby at the price to the public. The
following table illustrates the per share dilution in net tangible book value to
investors in this offering:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share(1)............................ $5.00
Net tangible book value (deficiency) per share before
Offering................................................. ($ .77)
Increase per share attributable to sale of shares........ $2.34
-----
Adjusted net tangible book value per share after
Offering................................................. $1.57
-----
Dilution per share to investors in this Offering.............. $3.43
=====
</TABLE>
(1) Attributes 100% of the price to the public for the Units to the Shares
included within the Units.
The following table compares the number of shares of Common Stock acquired by
current shareholders from the Company as of September 30, 1998, the total
consideration paid for such shares of Common Stock and the average price per
share paid by the current shareholders and to be paid by the prospective
purchasers of the Shares (based upon the initial offering price of $5.00).
<TABLE>
<CAPTION>
Shares of Consideration
Common Stock ------------- Average Price
Acquired Amount Percent Per Share
-------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Existing Shareholders 1,300,000 $1,538,781 19% $ 1.18
Private Placement Note Holders(3) 115,000 $ 0 0% $ 0
Investors in this Offering(1)(2) 1,300,000(1) $6,500,000(2) 81% $ 5.00
Totals 2,715,000 $8,038,781 100% $ 2.96
</TABLE>
- ----------
16
<PAGE>
(1) Does not include shares in any Units which may be issued pursuant to the
Underwriter's over-allotment option, up to an additional 1,300,000 shares
of Common Stock which may be purchased on the exercise of Warrants included
in the Units or the 260,000 shares that may be issued pursuant to the
Underwriter's Unit Warrants and the Warrants contained in the Underwriter's
Unit Warrants.
(2) Attributes 100% of the price to the public for the Units to the Shares
included in the Units.
(3) No consideration has been attributed to the issuance of these shares. See
"Use of Proceeds."
USE OF PROCEEDS
Based on an assumed offering price of $10.00 per Unit, the net proceeds
from the sale of the 650,000 Units offered hereby will be approximately
$5,250,000 after deducting the Underwriter's discounts and expenses together
with all of the expenses of the offering, and without giving effect to any
shares the Underwriter may obtain if it exercises its Underwriter's
over-allotment option. The Company intends to utilize the proceeds from this
offering substantially as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT OF
PROCEEDS
----------------------- ------ ----------
<S> <C> <C>
Repayment of Private Placement Notes (1) $ 575,000 11.0%
Repayment of Stockholder Line of Credit (2) $ 300,000 5.7%
Repayment of Bank Line of Credit (3) $ 400,000 7.6%
Strategic Product Line Expansion (4) $2,000,000 38.1%
Repayment of Accrued Salary and Fees (5) $ 80,000 1.5%
Working Capital (6) $1,895,000 36.1%
---------- -----
Total $5,250,000 100.0%
========== =====
</TABLE>
(1) These funds will be used by the Company to repay the outstanding balance of
$575,000 of Unsecured Promissory Notes (the "Private Placement Notes")
issued in a November 1998 Private Placement. The proceeds of these Private
Placement Notes were used for working capital and to defray legal,
accounting, printing and other expenses incurred in connection with this
Offering. The Private Placement Notes by their terms are payable in full at
closing of this Offering. In addition, the Private Placement Note Holders
are entitled to receive at closing of this offering, for no additional
cost, 115,000 shares of Common Stock. If this Offering closes and the
Private Placement Note holders receive their shares, no cash interest will
be payable on the Private Placement Notes.
(2) These funds will be used by the Company to repay the outstanding balance of
$300,000 on its unsecured line of credit with Susquehana Holdings Corp. See
"CERTAIN TRANSACTIONS."
(3) These funds will be used by the Company to repay the outstanding balance of
$400,000 on its bank line of credit. The line of credit is subject to a
fluctuating interest rate per annum equal to the bank's "national
commercial rate" (8.5% at September 30, 1998) plus 2.5%. This line of
17
<PAGE>
credit is secured by substantially all the Company's assets and life
insurance policies on the Chairman of the Board and the President. In
addition, the line of credit is personally guaranteed by the Chairman of
the Board of the Company.
(4) These funds will be used by the Company for strategic expansion of its
product line by development or acquisition. From time to time in the
ordinary course of business, the Company evaluates the potential
acquisition of businesses and technologies that compliment the Company's
business. Currently, the Company does not have any commitments with respect
to any such acquisitions.
(5) Represents salary and consulting payments owed to the Company's President
and its Chairman. See "Executive Compensation - Employment Arrangements."
(6) These funds will be used by the Company for general corporate purposes and
to support expansion into other strategically compatible product lines.
The amounts in the above table are estimates developed by management
based upon the Company's current plans and prevailing economic and industry
conditions. The Company's proposed use of proceeds is subject to changes in
general, economic and competitive conditions, timing and management discretion,
each of which may change the amount of proceeds expended for the purposes
intended. The proposed use of proceeds is also subject to changes in market
conditions and the Company's financial condition in general.
While the Company cannot be certain, the Company believes the net
proceeds from the offering and internally generated funds will be adequate to
satisfy the Company's working capital needs for the next twenty-four months. The
Company may require additional debt or equity financing in order to finance
future internal growth or acquisitions. The Company cannot be certain that
additional financing on acceptable terms will be available to the Company when
needed, if at all.
Pending use of the net proceeds of this Offering, the Company may make
temporary investments in bank certificates of deposit, interest bearing, insured
savings accounts, United States government obligations and insured money market
funds. Any income derived from these short-term investments will be used for
working capital. Any additional proceeds received from the exercise of the
Underwriter's over-allotment option will be used for working capital.
DIVIDEND POLICY
The Board of Directors does not anticipate paying cash dividends in the
foreseeable future as it intends to retain future earnings to finance the growth
of the business. Currently, the terms of the Company's bank line of credit and
term loan restrict the payment of dividends without the consent of the lending
bank. The Pennsylvania Business Corporation Law provides that dividends may be
paid unless, after the dividend, a corporation would be unable to pay its debts
as they become due in the usual course of its business, or the total assets of a
corporation would be less than the sum of its total liabilities. The payment of
18
<PAGE>
future cash dividends will depend on such factors as earnings levels,
anticipated capital requirements, the operating and financial conditions of the
Company and other factors deemed relevant by the Board of Directors.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of September
30, 1998 and as adjusted after the public offering to reflect the net proceeds
from the sale of 650,000 Units at a price of $10.00 per Unit, and to reflect the
estimated use of proceeds from the Offering and to reflect the issuance of
115,000 Shares of Common Stock to the Private Placement Noteholders and a charge
to interest expense for the value of such shares at the proposed initial public
offering price. Unless otherwise indicated, all shares and per share information
in this Prospectus give effect to a one for 17.184035 reverse split of the
Common Stock implemented in September 1998. Unless otherwise indicated,
information in this prospectus assumes all the shares offered will be sold.
<TABLE>
<CAPTION>
September 30, 1998
--------------------------------
Actual As adjusted(1)
------------ --------------
<S> <C> <C>
Short-term debt:
Bank line of credit $ 400,000 $ 0
Stockholder line of credit 200,000 0
Stockholder demand loan 115,000 0
Current portion of long-term debt 26,919 26,919
----------- -----------
Total short-term debt $ 741,919 $ 26,919
=========== ===========
Long-term debt:
Long-term debt $ 892,832 $ 892,832
Notes payable to shareholders 58,737 58,737
Obligations under capital leases 11,776 11,776
----------- -----------
Total long term debt $ 963,345 $ 963,345
----------- -----------
Stockholders equity (1):
Common stock, $.01 par value, 25,000,000 shares
authorized, 1,300,000 and 2,715,000 shares issued
and outstanding $ 13,000 $ 27,150
Additional paid-in capital 1,525,781 7,336,631
Retained deficit (2,262,593) (2,837,593)
----------- -----------
Total stockholders equity $ (723,812) $ 4,526,188
----------- -----------
Total capitalization $ 239,533 $ 5,489,533
=========== ===========
</TABLE>
- ----------------
(1) Includes the receipt of net proceeds from the public offering of
approximately $5,250,000 after the payment of commissions, expenses and
the Underwriter's consulting fee as if such proceeds were received on
September 30, 1998. See "USE OF PROCEEDS." Also includes the issuance
of 115,000 shares of Common Stock to the Private Placement Noteholders
and a charge to interest expense for the value of such shares at the
proposed initial public offering price. Does not give effect to (a) the
issuance of up to 1,300,000 shares of Common Stock in the event of
exercise of Warrants issued in this Offering, (b) the issuance of up to
390,000 shares of Common Stock upon exercise of the Underwriter's
Over-allotment Option and exercise of the underlying Warrants, or (c)
the issuance of up to 260,000 shares of Common Stock upon exercise of
the Underwriter's Warrants and the underlying Warrants. See
"UNDERWRITING."
20
<PAGE>
SELECTED FINANCIAL DATA
The following summary financial data should be read in conjunction with
the financial statements and notes thereto included elsewhere in this
Prospectus. The summary financial data as of, and for the years ended, December
31, 1997 and December 31, 1996, are derived from and should be read in
conjunction with the financial statements of the Company and notes thereto
audited by Ernst & Young LLP, independent auditors.
The summary financial data as of, and for the nine months ended September 30,
1998 and September 30, 1997, are derived from the unaudited financial statements
of the Company, which in the opinion of the Company reflect all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the unaudited financial statements. The results of operations
for the nine months ended September 30, 1998 and September 30, 1997 are not
necessarily indicative of the results to be expected for the full year. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Statement of Operations Data
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
---------------------------- -------------------------------
December 31, December 31, September 30, September 30,
1996 1997 1997 1998
------------ ------------ ------------- -------------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Net sales $ 2,854,536 $ 2,710,485 $ 2,050,354 $ 1,650,535
Cost of sales $ 1,523,737 $ 1,490,928 $ 1,141,909 $ 1,003,697
Write-down of inventory -- -- -- $ 791,378
Gross profit (loss) $ 1,330,799 $ 1,219,557 $ 908,445 ($ 144,540)
Marketing and selling $ 780,809 $ 864,144 $ 650,870 $ 696,481
General and administrative $ 286,080 $ 313,888 $ 219,926 $ 274,236
Research and development $ 226,270 $ 56,746 $ 40,816 $ 48,048
Total operating expenses $ 1,293,159 $ 1,234,778 $ 911,612 $ 1,018,765
Interest expense $ 184,619 $ 122,862 $ 90,481 $ 114,848
Net loss ($ 146,979) ($ 138,083) ($ 93,648) ($1,278,153)
Basic and diluted loss per share ($ .12) ($ .11) ($ .07) ($ .98)
Weighted average shares outstanding 1,192,094 1,300,000 1,300,000 1,300,000
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following review concerns the Company's interim periods ended
September 30, 1998 and 1997 and the years ended December 31, 1997 and December
31, 1996 and should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus. When used in this
Prospectus, the words "anticipate," "estimate," "expect," "project," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions including the
Company failing to generate projected revenues. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected.
Introduction
Since its formation in November of 1986, the Company has been engaged in the
development, manufacture and sale of cellular diagnostic tools for paternity and
identity testing, disease association studies and for the genetic profiling of
patients and donor organs in connection with transplant procedures. Since its
peak of $6.9 million in net sales in 1992, the Company's sales have declined
steadily to $2.7 million in the year ended December 31, 1997. The Company has
had losses from operations in the last two years, and in three of the last five
years. In December of 1996, the Company hired a new CEO to identify, develop and
implement a turn-around program. The central components of that program are
focused around a move of manufacturing from its facility in Pennsylvania to an
exclusive contract manufacturer in North Carolina to improve the quality and
cost base of its core business and to add strategically compatible business
lines to broaden the Company's strategic horizons. The Company also intends to
reduce costs by subleasing the portion of its Pennsylvania headquarters
previously devoted to manufacturing, or subleasing the entire facility and
moving to more appropriate space. The Company also intends to reduce costs by
eliminating some of its manufacturing workforce at the beginning of 1999, in
connection with the out-sourcing of manufacturing.
Results of Operations
The following table presents selected financial information for the periods
indicated expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended 9 Months Ended
--------------------- ----------------------
12/31/96 12/31/97 09/30/97 09/30/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 53.4 55.0 55.7 60.8
Inventory write-down 0.0 0.0 0.0 48.0
----- ----- ----- -----
Gross profit (loss) 46.6 45.0 44.3 (8.8)
Operating Expenses:
Marketing and selling 27.4 31.9 31.8 42.2
General and administrative 10.0 11.6 10.7 16.6
Research and development 7.9 2.1 2.0 2.9
----- ----- ----- -----
Total operating expenses 45.3 45.6 44.5 61.7
</TABLE>
22
<PAGE>
-continued-
<TABLE>
<CAPTION>
Year Ended 9 Months Ended
--------------------- ----------------------
12/31/96 12/31/97 09/30/97 09/30/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income (loss) from operations 1.3% (0.6)% (0.2)% (70.5)%
Interest expense 6.4 4.5 4.4 6.9
--- --- --- ----
Net loss (5.1)% (5.1)% (4.6)% (77.4)%
=== === === ====
</TABLE>
Sales Overview
The Company's net sales are primarily derived from its serology-based
pheno-typing products, monoclonal antibodies and molecular-based typing
products. Net sales decreased in 1996 and 1997 from the prior year by 20% and
5%, respectively, and for the first nine months of 1998, net sales have
decreased 19% from the same period in 1997. The decline is attributed to lower
unit sales volume and lower average unit prices.
The following table presents sales, by product, expressed in dollars:
<TABLE>
<CAPTION>
Year Ended 9 Months Ended
--------------------- ----------------------
12/31/96 12/31/97 09/30/97 09/30/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Serology products ................. $1,846,000 $1,685,000 $1,268,000 $ 836,000
SeraScreen antibody screening trays 398,000 530,000 384,000 499,000
Monoclonal antibodies ............. 349,000 267,000 217,000 174,000
DNA products ...................... 114,000 116,000 88,000 40,000
Other ............................. 148,000 112,000 93,000 102,000
---------- ---------- ---------- ----------
Total .................... $2,855,000 $2,710,000 $2,050,000 $1,651,000
========== ========== ========== ==========
</TABLE>
First nine months of 1998 compared to the first nine months of 1997
Net Sales and Gross Profit
The following table compares net sales and gross profit for the nine months
ended September 30, 1998 and September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
September 30, September 30, Percentage Decrease
1997 1998 from 1997 to 1998
-------------- --------------- -----------------
<S> <C> <C> <C>
Net Sales $ 2,050,354 $ 1,650,535 (19.5%)
Gross Profit Before Inventory Write Down $ 908,445 $ 646,838 (28.8%)
Gross Profit (Loss), After Inventory Write
Down $ 908,445 $ (144,540) (115.9%)
</TABLE>
23
<PAGE>
Net sales decreased by $399,819 or 19.5% from $2,050,354 for the first nine
months in 1997 to $1,650,535 for the first nine months in 1998. Most of this
decrease is attributable to net sales of serology products which declined
$432,000. DNA products also decreased $48,000, and monoclonal antibodies
declined $43,000. This was partially offset by an increase in the sales of
SeraScreen antibody screening trays of $115,000. Unit sales volume decreased in
all product lines (except SeraScreen) primarily due to the lack of technically
competitive products. The Company introduced new contract manufactured serology
products late in the third quarter of 1998 to improve product performance and
competitiveness, and reduce costs.
Expressed as a percentage of sales, gross profit (loss) decreased from 44.3% for
the first nine months in 1997 to 39.2% for the first nine months in 1998 before
an inventory write-down, and to (8.8%) after the inventory write-down for the
first nine months in 1998. The inventory write-down occurred in connection with
the Company's decision to subcontract its manufacturing operations to SFP. The
agreement with SFP increased the Company's access to unique immunogenetic
products and reagents that allow the Company to improve the quality and breadth
of its product offerings. As a result of the release of these new products, the
Company determined that approximately $791,000 of inventory on hand at September
30, 1998 was unusable. The drop in gross margin prior to the inventory
write-down is a result of lower unit sales volume and a change in the sales mix,
as serology products, which average a higher gross profit than the other product
lines, declined. Before the inventory write-down, gross profit (loss) decreased
$261,607 from $908,445 for the first nine months in 1997 to $646,838 for the
first nine months in 1998, and after the inventory write-down gross profit
(loss) decreased $1,052,985 to ($144,540) for the first nine months in 1998. As
discussed above, this decline in gross profit is the result of lower sales, the
change in the sales mix and the inventory write down.
Operating Expenses
The following table compares operating expenses for the nine months ended
September 30, 1998 and September 30, 1997.
24
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
September 30, September 30,
1997 1998
---- ---- Percentage Increase
Amount % of Sales Amount % of Sales from 1997 to 1998
------ ---------- ------ --------- -----------------
<S> <C> <C> <C> <C> <C>
Marketing & Selling Expense $650,870 31.8% $ 696,481 42.2% 7.0%
General & Administrative Expense $219,926 10.7% $ 274,236 16.6% 24.7%
Research & Development Expense $ 40,816 2.0% $ 48,048 2.9% 17.7%
-------- ---- ---------- ---- ----
Total Operating Expenses $911,612 44.5% $1,018,765 61.7% 11.8%
======== ==== ========== ==== ====
</TABLE>
Operating expenses increased $107,153 or 11.8% from $911,612 for the first nine
months in 1997 to $1,018,765 for the first nine months in 1998, and increased as
a percentage of sales from 44.5% for the first nine months in 1997 to 61.7% in
1998.
Marketing and selling expense increased $45,611 or 7% from $650,870 for the
first nine months in 1997 to $696,481 for the first nine months in 1998, and
increased as a percentage of sales from 31.8% for the first nine months in 1997
to 42.2% for the first nine months in 1998. The aggregate increase in marketing
and selling expense is primarily attributed to an increase in samples shipped,
salaries, wages and benefits and supplies for the first nine months in 1998. The
cost of samples shipped increased $14,814 or 91.2% from $16,246 for the first
nine months in 1997 to $31,060 for the first nine months in 1998. The aggregate
increase in samples shipped is attributed to the new SSP DNA line introduced at
the end of 1997 and the sampling of the new manufactured product in the third
quarter of 1998. Salaries, wages and benefits expense increased $14,244 or 4.4%
from $324,230 for the first nine months in 1997 to $338,474 for the first nine
months in 1998. The aggregate increase in salaries, wages and benefits expense
is primarily related to normal annual salary increases. Supplies expense
increased $13,069 from $4,137 for the first nine months in 1997 to $17,206 for
the first nine months in 1998, due primarily to the cost and redesign of new
sales brochures and product literature. These expenses were partially offset by
a decrease in commission expense of $16,196 from $16,721 for the first nine
months in 1997 to $525 for the first nine months in 1998, due primarily to the
expiration of an international sales commission contract.
General and administrative expense increased $54,310 or 24.7% from $219,926 for
the first nine months in 1997 to $274,236 for the first nine months in 1998 and
increased as a percentage of sales from 10.7% for the first nine months in 1997
to 16.6% for the first nine months in 1998. The aggregate increase is largely
attributed to higher salaries, wages and benefits, bad debt write-offs and legal
fees. Salaries, wages and benefits increased $34,099 or 36.7% from $92,846 for
the first nine months in 1997 to $126,945 for the first nine months in 1998. The
aggregate increase in salaries, wages and benefits expense is attributed to the
hiring of a new controller at the end of June, 1997, replacing the one that left
at the end of February, 1997. Bad debt expense of $24,591 for the first nine
months in 1998 represented the entire increase and related to the small
likelihood to collect $21,000 of an international account and a $3,591 account
which filed for bankruptcy. Legal fees increased $4,969 or 16.7% from $29,675
for the first nine months in 1997 to $34,644 for the first nine months in 1998.
The increase is attributable to the bank's legal fees incurred in refinancing
the bank debt, which the Company was required to reimburse. These were partially
25
<PAGE>
offset by lower consulting costs of $8,088 or 23.9% from $33,816 for the first
nine months in 1997 to $25,728 for the first nine months in 1998, and are
primarily due to the consulting provided during the transition of controllers in
1997.
Research and development expense increased $7,232 or 17.7% from $40,816 for the
first nine months in 1997 to $48,048 for the first nine months in 1998 and
increased as a percentage of sales from 2% for the first nine months in 1997 to
2.9% for the first nine months in 1998. The aggregate increase in research and
development expense is attributable to expenses to test and assess cell
separation/preparation products for the first nine months in 1998, partially
offset by lower amortization costs of 510K submissions.
Loss from Operations
Before an inventory write-down, the Company's loss from operations increased
$368,760 from ($3,167) for the first nine months in 1997 to ($371,927) for the
first nine months in 1998. After the inventory write-down, the loss from
operations increased $1,160,138 to ($1,163,305) for the first nine months in
1998. The increased loss is primarily attributable to the factors discussed
above under "Net Sales and Gross Profit" and "Operating Expenses".
Interest Expense
Interest expense increased $24,367 or 26.9% from $90,481 for the first nine
months in 1997 to $114,848 for the first nine months in 1998 as a result of
higher interest rates on bank debt due to the amended business loan agreements.
See "Liquidity and Capital Resources".
26
<PAGE>
1997 compared to 1996
Net Sales and Gross Profit
The following table compares net sales and gross profits for the year ended
December 31, 1997 and December 31, 1996.
YEAR ENDED
----------
December 31, December 31, Percentage Decrease
1996 1997 from 1996 to 1997
------------ ------------ -------------------
Net Sales $2,854,536 $2,710,485 (5.0%)
Gross Profit $1,330,799 $1,219,557 (8.4%)
Net sales decreased by $144,051 or 5% from $2,854,536 in 1996 to $2,710,485 in
1997. A substantial portion of this decrease is attributable to net sales of
serology products, which declined $161,000, and monoclonal antibodies, which
declined $82,000. This was partially offset by an increase in the SeraScreen
antibody screening trays of $132,000. All four major product lines reflected
increased pricing pressure as average selling prices declined due primarily to
efforts to improve the international business. Unit sales volume increased in
all product lines except monoclonal antibodies. The Company believes the factors
causing the unit decrease in monoclonal antibody products have changed and the
Company's monoclonal antibodies products are becoming competitive in 1998 and
will be competitive in 1999.
Expressed as a percentage of sales, gross profit in 1997 decreased slightly from
46.6% in 1996 to 45% in 1997 as a result of a change in the sales mix and the
pricing pressure discussed above, offset by higher manufacturing activity
absorptions. Gross profit decreased $111,242 to $1,219,557 from $1,330,799 in
1996 commensurate with the decline in sales.
Operating Expenses
The following table compares operating expenses for the years ended December 31,
1997 and December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED
----------
Percentage Increase
December 31 December 31 (Decrease) from 1996
1996 1997 to 1997
----------- ----------- -------------------
% %
Amount of Sales Amount of Sales
<S> <C> <C> <C> <C> <C>
Marketing & Selling Expense $ 780,809 27.4% $ 864,144 31.9% 10.7%
General & Administrative Expense $ 286,080 10.0% $ 313,888 11.6% 9.7%
Research & Development Expense $ 226,270 7.9% $ 56,746 2.1% (74.9%)
---------- ---- ---------- ---- ----
Total Operating Expenses $1,293,159 45.3% $1,234,778 45.6% (4.5%)
========== ==== ========== ==== ====
</TABLE>
27
<PAGE>
Operating expenses decreased $58,381 or 4.5% from $1,293,159 in 1996 to
$1,234,778 in 1997, but were up slightly as a percentage of sales from 45.3% in
1996 to 45.6% in 1997 due to the smaller sales base.
Marketing and selling expense increased $83,335 or 10.7% from $780,809 in 1996
to $864,144 in 1997, and increased as a percentage of sales from 27.4% in 1996
to 31.9% in 1997. The aggregate increase in marketing and selling expense is
primarily attributed to the hiring of the new president, a sales consultant and
additional travel expense incurred in researching the domestic market and
reestablishing the international market in 1997. These expenses were partially
offset by reductions in 1997 for product outdates and the suspension of the
customer training program in 1996.
General and administrative expense increased $27,808 or 9.7% from $286,080 in
1996 to $313,888 in 1997 and increased as a percentage of sales from 10% in 1996
to 11.6% in 1997. The aggregate increase is largely attributed to consulting
fees for the transition period between controllers in 1997, and the write-off in
1997 of accounts receivable to the allowance reserve.
Research and development expense decreased $169,524 or 74.9% from $226,270 in
1996 to $56,746 in 1997 and decreased as a percentage of sales from 7.9% in 1996
to 2.1% in 1997. The aggregate decrease in research and development expense can
be attributed to a shift in the Company's focus to its core serology business
from research and development, in an effort to improve the Company's operating
results.
Income (loss) from Operations
The Company's income (loss) from operations decreased $52,861 or 140% from
$37,640 in 1996 to ($15,221) in 1997. Expressed as a percentage of sales,
income (loss) from operations was 1.3% in 1996 compared to (0.6%) in 1997. These
decreases are primarily attributable to the factors discussed above under "Net
Sales and Gross Profit" and "Operating Expenses".
Interest Expense
Interest expense decreased $61,757 or 33.5% from $184,619 in 1996 to $122,862 in
1997 as a result of the conversion to common stock of a significant portion of
the notes payable to stockholders.
28
<PAGE>
Liquidity and Capital Resources
From inception, the Company has financed its operations primarily from bank
debt, private equity financings and cash flow generated from operations. Most
recently, the Company has obtained a line of credit from a private investor and
obtained financing from a private placement of unsecured promissory notes.
At September 30, 1998, the Company had a working capital deficit of $141,844.
The September 30, 1998 balance reflects an inventory write-down of $791,378,
which represented a one-time charge as a result of a decision to subcontract the
Company's manufacturing operation. After the initial application of the proceeds
from this Offering, the Company expects to have working capital of approximately
$5,100,000. In addition, liquidity will be greatly improved due to the reduction
in debt. The reduction in debt service will increase cash flow by approximately
$50,000 per year.
In the fourth quarter of 1998, the Company sold $575,000 principal amount of
unsecured promissory notes to a limited number of "accredited investors" under a
private placement memorandum. The proceeds of that private offering are being
used for working capital and to defray legal, accounting, printing and other
expenses which the Company expects to incur in connection with this Offering.
These notes are due and payable at the face amount thereof, without cash
interest, at the closing of this Offering. Purchasers of these notes will
receive at that time a number of shares of the Company's Common Stock which are
valued at the Offering price equal to the purchaser's investment in these notes.
The Company entered into a $300,000 unsecured line of credit agreement with a
shareholder in September, 1998. See "Certain Transactions." The line of credit
bears interest on the outstanding amount of all advances at 10% per annum,
payable quarterly in arrears, commencing in December, 1998, and is subordinate
to the bank debt. Advances under the line of credit are due upon the earlier to
occur of the sale of any debt or equity securities from which the Company shall
have received at least $1,000,000 of net proceeds or September 30, 1999. As of
the date of this Prospectus, $300,000 was outstanding under this line of credit.
The line of credit will be paid in full from the proceeds of this Offering.
In August, 1998, the Company borrowed $115,000 from a shareholder, due on
demand, with interest on the unpaid principal balance at the rate of 11% per
annum.
On July 14, 1995, the Company's bank extended a revolving line of credit loan of
up to $500,000 to the Company at a fluctuating rate per annum equal to the
bank's "national commercial rate" (8.5% at September 30, 1998) plus 0.5%. This
line of credit is secured by substantially all the Company's assets and a life
insurance policy on the Chairman of the Board of the Company, and is personally
guaranteed by the Chairman of the Board of the Company. On March 25, 1997, the
line of credit was reduced to $400,000. On January 7, 1998, the bank amended the
business loan agreements with the Company which included, among other things,
that the fluctuating rate per annum increase to the bank's "national commercial
rate" plus 2.5%, and additional security including patents, trademarks and a
life insurance policy on the Company's President.
29
<PAGE>
The Company intends to repay the outstanding balance of its line of credit with
the bank, from the proceeds of this Offering.
On July 14, 1995, the Company's bank extended a term loan of $1,300,000 to the
Company at a fluctuating rate per annum equal to the bank's "national commercial
rate" (8.5% at September 30, 1998) plus 0.75%, with the payment of principal and
interest due over a period of approximately 4.5 years. This term loan is secured
by substantially all the Company's assets and life insurance policy on the
Chairman of the Board of the Company, and is personally guaranteed by the
Chairman of the Board of the Company. During 1997, a temporary moratorium on the
payment of principal was extended by the bank to the Company. On January 7,
1998, the bank amended the business loan agreements with the Company which
required, among other things, that payment of principal and interest at 11% be
made to the bank on a 15 year amortization schedule during the amendment period
(after which the original terms would be fully reinstated except that the
payment of principal and interest would continue to be based on a 15 year
amortization schedule), and additional security including patents, trademarks
and a life insurance policy on the President.
The Company began to outsource its manufacturing operations in September 1998
and expects this change will improve the quality and reduce the cost of its
products. The Company also anticipates improved cash flow as a result of the
ability to better manage inventory levels. The Company believes the anticipated
improved operations resulting from outsourcing manufacturing operations together
with the proceeds from the stockholder demand loan, the stockholder line of
credit and the unsecured promissory notes issued in the fourth quarter of 1998
will enable Company to continue to meet its working capital obligations through
September 1999. Further, the Company believes that the net proceeds of this
Offering, together with cash from operations, will be adequate to fund its
current and anticipated levels of operations for approximately 24 months. There
can be no assurance, however, that events in the Company's operations will not
result in accelerated or unexpected expenditures. The Company is pursuing
additional research and development of AMPRO technology to allow a physician to
diagnose and treat infectious disease in the physician's office during a
patient's visit. The Company will require additional financing to expand and
complete that research and development. To the extent that the Company raises
additional capital by issuing equity securities, ownership dilution to existing
stockholders will result and future investors may be granted rights superior to
those of existing stockholders. There can be no assurance, however, that
additional financing will be available from any source or, if available, will be
available on acceptable terms. See "Risk Factors Need for Additional Financing;
Dependence on Collaborative Relationships".
Impact of the Year 2000 Issue
The Company's State of Readiness
The Company has reviewed its critical information systems for Year 2000
compliance. The compliance review revealed that the Company's critical
accounting information systems are Year 2000 compliant due to the fact that the
Company's network hardware and operating system are "off-the-shelf" products
from third parties with Year 2000 compliant versions. The Company has not yet
fully addressed the Year 2000 compliance with all of its critical product
databases.
30
<PAGE>
The Company is currently engaged in addressing the appropriate modifications to
three date-sensitive analysis programs contained in some of its serology
products. All of the Company's inventory and product in the hands of customers
expires prior to December 31, 1999, and therefore there are no Year 2000 issues
with respect to current inventory or products in the hands of customers.
As part of the Company's Year 2000 compliance review, the Company is in the
process of contacting its primary vendors and large customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their Year 2000 compliance issues. However, there can be no guarantee
that the systems of other companies on which the Company's business relies will
be timely converted or that failure to convert by another company would not have
a material adverse effect on the Company and its operations.
The Cost to Address the Company's Year 2000 Issues
The Company estimates that the cost of its Year 2000 compliance issues will be
less than $10,000 and is not expected to be material to the Company's financial
position, cash flow or results of operations.
The Risks Associated with the Company's Year 2000 Issues
The Company believes that the risks associated with Year 2000 issues primarily
relate to the failure of third parties upon whom the Company's business relies
to timely remediate their Year 2000 issues. Failure by third parties to timely
remediate their Year 2000 issues could result in disruptions in the Company's
supply of parts and materials, late, missed, or unapplied payments, temporary
disruptions in order processing and other general problems related to the
Company's daily operations. While the Company believes its Year 2000 compliance
review procedures will adequately address the Company's internal Year 2000
issues, until the Company receives responses from its significant vendors and
customers, the overall risks associated with the Year 2000 issue will remain
difficult to accurately describe and quantify, and there can be no guarantee
that the Year 2000 issue will not have a material adverse effect on the
Company's business, operating results and financial position.
31
<PAGE>
The Company's Contingency Plan
The Company has not, to date, implemented a Year 2000 contingency plan. It is
the Company's intention to devote whatever resources are necessary to assure
Year 2000 compliance issues are resolved. However, the Company will develop and
implement a contingency plan by the end of the first half of 1999 in the event
the Company's Year 2000 compliance initiatives, particularly those that relate
to third parties, fall behind schedule.
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131, which will be
adopted by the Company at December 31, 1998, establishes standards for annual
and interim disclosures of operating segments, products and services, geographic
areas and major customers. The Company is in the process of evaluating the
disclosure requirement of the new standard, the adoption of which will have no
impact on the Company's results of operations or financial condition.
32
<PAGE>
THE COMPANY'S BUSINESS
Background
Since the Company's formation in November 1986, the Company has been
principally engaged in the design, development and manufacture of cellular
diagnostic tools. These tools are used to develop a genetic profile of patients
and donor organs. They are also used for transplant procedures, paternity and
identity testing and diagnostic assessment of an individual's susceptibility to
disease. The Company's products use highly specialized genetic markers known as
HLA (Human Leukocyte Antigen) to create a genetic map by looking at the surface
of human cells to ascertain and profile the immune system of a patient. The
Company's current products are subject to regulation by the FDA, and it has
received 510(k) pre-market approvals for its serology-based typing trays.
See "BUSINESS - "Government Regulation."
The Company's strategy is to continue to develop a family of diagnostic
products to address the needs of the transplant and other markets requiring HLA
technology. In addition, the Company intends to exploit its new AMPRO
Technology. AMPRO Technology is a detection and measurement system that could
allow a physician to diagnose and treat infectious disease in the physician's
office during the patient visit. The Company plans to use this technology to
develop new diagnostic products that may help physicians detect and treat
infectious disease and monitor patient compliance with drug regimens within the
hospital, clinic or office setting during patient visits. The Company plans to
develop this broad product line by establishing relationships with collaborative
partners.
The Company has applied for and been granted patent protection for this
new technology in the United States. There are currently two issued United
States patents for this technology: Patent Numbers 5,573,914 and 5,723,297. The
Company has also filed a divisional application covering nucleic acid-antibody
constructs and their use in antigen detection, for which the claims have been
allowed, but the patent has not yet issued.
Industry overview
Overview of HLA Diagnostics Industry. The HLA diagnostics industry is
comprised of the assays, reagents, equipment and supplies necessary to determine
the compatibility between patients and donor organs. These tests are critical to
determine whether a donor's organ or bone marrow transplant may be rejected by
the recipient's immune system or may attack the recipient's immune system. In
addition, the system is used for identity testing, family studies for disease
association and cases of disputed parentage. The major portion of this industry
is comprised of the assays and reagents used to activate them. Global
manufacturers' revenue from the sale of these assays and reagents is estimated
to be $90 million, with the U.S. representing approximately 65% of the market.
The two major markets for transplant testing worldwide are (i)
pre-transplant screening of potential donors, which consists of high volume
testing to classify and record each potential donor's human leukocyte antigens
associated with organ rejection and (ii) clinical testing at transplant centers
33
<PAGE>
to confirm donor/recipient compatibility and to diagnose and manage organ
rejection and other health issues faced by transplant recipients.
Currently there are approximately 80,000 transplant candidates
registered on waiting lists in approximately 500 transplant centers throughout
North America and Europe. At any given time, approximately 70% of these patients
are waiting for kidney transplants. The others are waiting for liver, heart,
heart-lung, bowel or pancreas transplants. In the United States alone, more than
4,000 people die each year waiting for a transplant. Each year, approximately
50,000 new patients receive donated organs. In order to prevent rejection of
transplanted organs, recipients must begin a life-long regimen of
immunosuppressive therapy immediately upon receiving a donated organ. They also
begin an on-going program of assays to monitor for the formation of new
antibodies which could indicate the beginning of graft rejection.
A more recent addition to the transplant industry is bone marrow
transplant procedures, which are used in cases of autoimmune disease, leukemia
and certain cancers. Bone marrow transplants require physicians to manage not
only the risk of donated bone marrow being rejected, but also the risk that
donated bone marrow may attack the immune system of the recipient. Nearly 30,000
such transplants are performed annually in the U.S. alone. However, because the
sensitivity requirements for matching are even more rigorous than for solid
organs, a National Marrow Donor Program (NMDP) has been developed to build an
extensive database of prospective donors. Each year NMDP registers between
200,000 and 250,000 new potential donors into the database. A similar program
exists in Europe.
Clinical Diagnostics Industry. The clinical diagnostics industry is
composed of both the in vitro diagnostic (IVD) and the electromedical diagnostic
markets; global revenues for these two sectors were $16 billion and $20 billion
respectively in 1995. Each diagnostic sector utilizes a different diagnostic
method. Electromedical diagnostic products include equipment, such as electro
cardiograms, thermometers and X-rays. This equipment is typically manipulated
directly by the physician or technician on the patient during a patient visit
and requires physician or technician analysis of test results. By contrast, the
IVD sector performs diagnostic procedures with patient blood and saliva by
manual methods and is heavily dependent upon the use of laboratories and
technicians to manipulate specimen preparation and develop reactions with a
variety of reagents and measurement devices. Thus, while electromedical
diagnostic products deliver quick test results, IVD diagnostic products are
considered more labor intensive and normally deliver test results only after a
patient has left the hospital, clinic, physician's office or laboratory. The
Company's current products are used by laboratories in the IVD process.
As diagnostic technology advances, there has been increasing automation
in the IVD sector, and, as a result, there is now a similar emphasis on the use
of diagnostic equipment within the IVD sector. As the technologies and
methodologies employed by these two sectors converge and physicians begin to
utilize diagnostic equipment more frequently, the industry has shifted its focus
towards developing diagnostic technology for the emerging near-to-patient
("NTP") market. The Company anticipates developing its new AMPRO Technology into
products useful in the NTP market.
The NTP market is characterized by diagnostic technologies that allow
physicians to take and analyze patient specimens of blood or saliva, detect the
presence or absence of infectious disease, and prescribe appropriate drug
34
<PAGE>
regimens within the hospital, clinic or physician office setting during a
patient visit, rather than in the laboratory. As described above, traditional
diagnostic methodology with respect to infectious disease required that a
medical laboratory or physician draw a patient specimen, and that the laboratory
batch and test the specimen and generate a diagnostic report; this report was
typically generated only after the patient departed from the physician's office
or the laboratory. The NTP technology renders certain medical laboratory
technology obsolete by bringing diagnostic tools closer to the patient, i.e., to
the hospital, clinic or physician's office.
The diagnostics industry traditionally marketed the bulk of IVD
diagnostic products to laboratory directors. In the NTP market, laboratory
directors are no longer considered the customer base; rather, those who request
the diagnostic tests, physicians and patients, are the new customer base. This
emerging customer base is comprised of physicians motivated to maintain control
over their medical practices and discontinue outsourcing diagnostic functions,
and patients demanding quick and accurate test results at a reduced cost. The
NTP market is further fueled by pharmaceutical companies desiring to both
increase their control of clinical practices and improve drug product cost
effectiveness by forming collaborative relationships with companies developing
NTP technology. As this new customer base flourishes, the diagnostics industry
has been forced to review its current marketing strategy, shift its focus
towards the new customer base and develop diagnostic products to be marketed to
the IVD and electromedical sectors and the NTP market.
The Company's Current Technology
Gen Trak, Inc. (the "Company") is engaged in the manufacture and sale
of health care test kits for cellular diagnostics, paternity and genetic
testing. The Company's test kits use highly specialized genetic markers known as
HLA (Human Leukocyte Antigen) antigens that are used to create a genetic map by
looking at the surface of human cells to ascertain the immune system profile of
a patient. HLA genetic mapping is accomplished using an array of screening and
confirmation measurement procedures, employing both serological and molecular
(DNA) technologies.
The Company manufactures and markets a complete line of ready-to-use
serology-based typing products, and is in the process of adding a full molecular
(DNA) based typing product line and cell separation/cell preparation products to
its product line.
Organ Transplantation. Organ transplantation can save or improve the
lives of patients with organ failures for whom there are few alternative
treatments. Transplantation involves surgically replacing the failed organ of a
transplant recipient with a viable organ from a donor. Because the success of a
transplant depends on the degree of compatibility between the organ donor and
the recipient, a typical transplant candidate must wait on a national
computerized waiting list until a compatible organ can be found. HLA testing is
used in the transplant market to match potential bone marrow and organ donors to
recipients. Transplantation fails when the recipient's immune system does not
recognize the donated bone marrow or organ and rejects it. The immune system
recognizes HLA proteins on the surface of cells as part of its defense
mechanism. These HLA protein differences can be tested to see whether the donor
matches the recipient. Currently, there are approximately 80,000 transplant
candidates registered on waiting lists in approximately 500 transplant centers
35
<PAGE>
throughout North America and Europe. At any given time, approximately 70% of
these patients are waiting for kidney transplants. The other patients are
waiting for liver, heart, heart-lung, bowel or pancreas transplants. Each year
approximately 50,000 new patients receive donated organs. In order to prevent
rejection of implanted organs, recipients must begin a life-long regimen of
immunosuppressive therapy immediately upon receiving a donated organ. There are
more than 200,000 patients in North America and Europe that need daily
immunosuppressive therapy to prevent organ rejection and organ loss.
In addition to being a life-saving and life-enhancing procedure,
transplantation can be cost-effective as well. For example, the cost over a
10-year period of a kidney transplant is generally less than the cost of
dialysis. However, transplantation is still very costly, due in substantial part
to the costs of lifetime immunosuppressive therapy and associated side effects
as well as the costs of treating rejection and infection episodes. Use of HLA
testing may result in substantial cost savings to hospitals and insurance plans
by increasing the chance of a proper transplant match and therefore reducing the
probability of the need for additional transplants or expensive drug therapies
to prevent rejection.
The Transplant Immune System Response. The immune system functions to
defend the body from invading microorganisms or other foreign matter, including
donor organs or bone marrow. When the body is invaded by foreign matter, the
humoral (B-cell) and cell-mediated (T-cell) components of the immune system
interact and generate antibodies that provide a coordinated immune response to
identify, target and eliminate the foreign matter. In the case of
transplantation, antibodies recognize and attack the donor organ or bone marrow
as a pathogen, thereby resulting in organ rejection. More specifically, the
immune system of the transplant recipient identifies antigens (HLA molecules)
present on the surface of the white blood cells contained in the donor organ or
bone marrow, recognizing them as pathogens that must be destroyed.
The immune response to the transplanted organ or bone marrow is largely
dependent upon the degree of compatibility between the transplant recipient and
donor antigens. Antigen compatibility can be determined by examination and
comparison of genetic markers contained in the antigens of both the transplant
recipient and donor. It is extremely difficult to get a perfect antigen match
except in identical twins and rejection episodes occur frequently. Current
therapies used to reduce the occurrence of rejection episodes involve the
chronic use of immunosuppressants that impair the entire immune system of the
transplant recipient. Even with the use of immunosuppressants, organ or bone
marrow rejection occurs quite frequently, and the chronic use of these drugs can
lead to serious side effects, including life-threatening infections, kidney or
liver toxicity and cancers. To increase the likelihood of successful organ or
bone marrow transplantation, it is critical to conduct accurate genetic testing
and create an antigen profile of the potential transplant recipient and donor
prior to transplantation to confirm antigen compatibility.
It is also necessary to continuously monitor transplant patients for
newly-formed antibodies that make attack donor antigens and cause organ or bone
marrow rejection. Humans continuously generate new antibodies as their immune
systems are confronted by new microorganisms. This may prove particularly
problematic when a patient is awaiting transplantation, and the success of the
transplantation procedure is dependent upon confirmation of antigen
compatibility. It is necessary to continuously monitor patients for newly-formed
antibodies as they wait for identification and availability of an organ or bone
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marrow match to predict the patient's immune system response to that donated
organ or bone marrow. It is also important to monitor the antibody status of
patients who have already undergone transplantation to ensure that the patient
has not generated antibodies that will attack the donor's antigens and force
rejection of the new organ or bone marrow.
The Company manufactures and sells antibody screening trays primarily
used to determine the antigen compatibility of a potential transplant recipient
and donor, and to monitor the antibody status of potential transplant recipients
and those persons who have already undergone transplantation. The Company's
antibody screening trays are also used to determine the antigen profiles of
patients who will undergo blood transfusions to confirm that they do not harbor
antibodies that will reject new blood, and to conduct genetic studies with
respect to diseases that destroy the immune system.
Serology-based typing products. Serology-based genetic or antigen
typing involves the use of antibodies (anti-sera) derived from human blood to
create a fundamental genetic map, or phenotype, of the antigens present on the
surface of immune response cells (white blood cells or lymphocytes) of a
potential transplant recipient and donor. The Company sells a broad line of
serology-based genetic typing trays. Laboratories equipped to conduct HLA
testing use these trays to conduct initial screening and then confirmation of a
patient's antigen profile. The phenotype is developed by using the trays in
sequence, with each successive tray providing an ever-deepening degree of
definition of the patient's genetic markers; thus, multiple trays are required
to accurately develop an antigen profile. A similar process is followed with
each potential organ transplant donor and/or donor organ. The phenotypes are
then used by laboratories to identify matching candidates for organ
transplantation or bone marrow donation.
More specifically, each serology-based genetic typing tray contains
anti-sera placed in small quantities (approximately one microliter) in separate
wells, each tray holding from 60 to 72 different antibodies. To create a
phenotype, a small sample of a patient's blood is drawn and sent to an HLA
laboratory. An HLA laboratory technician extracts white blood cells from the
patient's blood sample, and places the cells in each well. A catalyst is then
added to this mixture, and the reaction created by the interaction of the
individual's blood and the anti-sera already contained in the wells is then
analyzed by the technician to determine the phenotype of the individual.
Molecular-based typing products. Molecular-based typing trays are used
when further confirmation of a patient's antigen profile is necessary. While
serology-based genetic typing involves the examination of antigens present on
the surface of white blood cells to confirm the genetic profile of a patient,
molecular genetic typing trays involve the examination of DNA or genes found
within white blood cells to further confirm the presence of genetic markers and
resolve ambiguities in phenotyping left by serology-based typing procedures.
Each of the Company's molecular-based typing trays is made of plastic,
with a varying number of wells based upon the technician's needs. The HLA
laboratory technician first extracts DNA from white blood cells found in a
sample of a patient's blood and places a portion of the DNA sample in each of
the wells. The wells are preloaded with, among other materials, a DNA control
and an agent that causes the patient's DNA sample to rapidly multiply. The HLA
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<PAGE>
laboratory technician compares the patient's DNA sample to the DNA control to
confirm the patient's genetic profile.
The DNA sample is analyzed using either ELISA (enzyme-linked
immunosorbent assay) formats or Sequence-Specific Primers (SSP). The Company
manufactures a tray compatible with the ELISA (SSO) format under the CQuentials
brand name. However, since the majority of HLA laboratories prefer the economics
and lot sizes attendant with the SSP format, the Company has outsourced the
manufacturing of an SSP product line and launched the line this year under the
GenYsys name. The Company markets the SSP line in conjunction with and to
complement its serology line of products. The Company is also re-examining and
refining ways to exploit its SSO technology. As described in more detail above,
the serology line is used to determine an individual's broad phenotype while the
more defined DNA molecular tests are used for confirmation of genetic markers
and resolution of ambiguities in phenotyping.
Cell separation/preparation products. White cells carrying HLA antigens
must first be separated from whole blood before the phenotyping process can
begin. The Company is developing magnetic beads that would allow for a quicker
separation process. These magnetic beads consist of paramagnetic polystyrene
particles coated with certain antibodies on the surface. These magnetic beads
would be used to isolate Class I and II white blood cells. The monoclonal
antibody is specific for Class I or Class II cells, and the magnetic property of
the beads allows harvest of the cells, while unwanted components are washed
away.
Use of these magnetic beads is a fairly recent innovation over older,
more tedious separation techniques, particularly with respect to Class II white
blood cells. Many HLA labs, however, continue to use the older separation
techniques due to perceived cost savings. The Company believes, however, that
there is significant opportunity to further its strategic approach to the market
by having magnetic beads in its line, and expects to be able to offer this
product by the end of the year. The use of magnetic beads can increase the
productivity of HLA laboratories not currently using beads to perform this
procedure. The Company believes that the increased productivity and reduction in
overall costs associated with the use of magnetic beads will help laboratories
meet the needs of their customers, and create a demand for the Company's
product.
The HLA Diagnostic Market. The Company believes that the annual HLA
diagnostics market place is approximately $90 million, with the U.S.
representing approximately 65% of the market. Most HLA testing currently
involves serum-based typing. In the 1990s, the market made a strong move to
replace the antibody-based testing (serotyping) with gene-based testing
(genotyping). This strategy fell short of expectations due to the higher cost of
gene-based testing, and a certain degree of imprecision associated with
molecular-based testing. Serotyping is now used to determine an individual's
broad phenotype, while in-depth definition is provided by molecular based
typing. Approximately 75% of the market is in serotyping and 25% is in
molecular-based typing.
Commercial suppliers like the Company represent about 70% of the HLA
testing product market, and approximately 30% of the market is represented by
individual testing laboratories that make their own HLA tests. The Company
believes that there are growth opportunities in the U.S. and European markets.
Despite some cultural biases against transplants in some Asian continent and
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Pacific Rim countries, the Company believes these markets have not been fully
penetrated and should experience some growth.
The Company distributes its products worldwide with approximately 80%
in the U.S. In the U.S., the Company uses a small direct sales organization to
target high-volume transplant hospitals. International markets are addressed
using in-country distributors with healthcare market experience and contacts
necessary to participate in their respective healthcare systems.
Development of AMPRO Technology
In addition to its core business, the Company is seeking partners to
develop a detection and measurement system that could allow a physician to
diagnose infectious disease in the physician's office during the patient visit.
When the human body is invaded by infectious or viral microorganisms, the immune
system is triggered to generate antibodies to combat the infection. Each virus
or infection triggers the generation of a unique set of antibodies. To diagnose
infectious disease, the physician or laboratory technician seeks to confirm the
presence or absence of these unique antibodies in a sample of a patient's blood
or saliva. The Company's new technology (the "AMPRO Technology") may simplify
the analysis of patient blood or saliva samples by amplifying or increasing the
signal associated with the unique antibodies and thereby allowing the laboratory
technician or physician to more quickly and easily identify the infectious agent
and diagnose and treat the illness.
It is expected that a sample of a patient's saliva or blood could be
placed on a miniaturized "chip." Within this chip, an oligonucleotide sequence
is then bound to the nucleic acid sequence to be detected or, through a
connector molecule, to an antibody to be detected, and that oligonucleotide is
used to form a double-stranded nucleic acid sequence which is used to synthesize
relatively large quantities of RNA transcripts. These results are then analyzed
by a physician to determine the presence or absence of infectious agents, make a
diagnosis and prescribe a drug regimen. The Company anticipates that the chip
will contain a menu of infectious diseases that will consist of a series of
antibodies to discriminate between bacterial, viral or fungal infections
accompanied by a disk that will detect infectious agents relating to pulmonary,
gastrointestinal, blood and sexually transmitted diseases. This menu will be
tailored to various medical specialties; thus, for example, chips manufactured
for oncologists will contain a menu of hematological or solid state cancer
antibodies that could confirm the organs affected or the cell types involved.
With respect to cancer, the Company's new technology could identify the organ in
which the tumor originated, but more sophisticated testing is necessary to
ascertain the extent to which the cancer cells have spread throughout the body.
The Company is currently pursuing potential development partners to
reduce this technology to practice. The Company expects that AMPRO Technology
could reduce costs and produce accurate and quantifiable results by isolating
patient samples immediately after initial capture, utilizing pure and
uncontaminated reagents in amplification, detecting as few as ten molecules in a
sample, and applying a background reduction technique with respect to several
analytes to reduce interference. The Company anticipates that AMPRO Technology
will allow physicians to identify infectious agents, detect metabolic imbalances
and diagnose auto-immune disorders and drug resistant mutations of disease, and
monitor the progress of drug performance and patient compliance with drug
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<PAGE>
therapy within the physician's office. The new technology is expected to offer
greater specificity, simplicity and speed than other currently available target
and signal amplification techniques.
Commercialization Strategy
The Company evaluates on an ongoing basis potential collaborative
relationships with corporate and other partners where such relationships may
complement and expand the Company's research, development, sales and marketing
capabilities. The Company's business strategy includes the formation of
marketing alliances to market the Company's products. The Company also plans to
maintain a long-term contract manufacturing agreement for its product supply
with SFP Research Inc., and possibly enter into other contract manufacturing
agreements as it nears completion of its development of other product
candidates. There can be no assurance that the Company will be interested in or
able to negotiate any additional collaborative arrangements or contract
manufacturing agreements, or that, if established, such relationships and
agreements will be successful.
Marketing. The Company currently retains all commercial rights to its
products and distributes its products worldwide. In the United States, the
Company uses a small direct sales organization to target high-volume transplant
hospitals. International markets are addressed using in-country distributors
with healthcare market experiences and contacts necessary to participate in
their respective health systems.
The Company's marketing strategy for AMPRO Technology will include
dividing the pertinent diagnostic market into the users of technology defined
diagnostic menus, such as chemistry, microbiology, immunology and cytology, and
the users of individual medically defined menus, such as hematology, respiratory
infections, STDs, gastrointestinal infections, diseases of aging, genetics and
cancer. The Company's marketing efforts for this technology will focus on
obtaining marketing partners with market presence in various testing areas.
Manufacturing. Historically, the Company's manufacturing for serology
products was carried out in its Plymouth Meeting, Pennsylvania facility. In
September, 1998, the Company entered into an exclusive contract manufacturing
agreement with SFP Research Inc. of Liberty, North Carolina for its
serology-based products. The SSP molecular products are outsourced to
BioSynthesis, Inc. of Lewisville, Texas. The Company's Magnetic Bead cell
separation product line also will be outsourced. The agreement with SFP will
provide opportunities to broaden access to unique raw materials (immunogenetic
products and reagents), reduce costs and enhance product development efforts.
The raw materials required for the majority of the Company's products and
product candidates are currently available from several suppliers in quantities
sufficient to conduct the Company's research, development and clinical
development activities.
Unless the Company markets new products in conjunction with development
partners, the Company will likely be required to enter into third-party
contracts for the manufacture of any new products. The Company is now dependent
on and will depend upon third-parties to perform their obligations effectively
and on a timely basis. There can be no assurance that such parties will perform
and any such failure may delay clinical development or submission of products
for regulatory approval, or otherwise impair the Company's competitive position
which could have a material adverse effect on the Company's business, financial
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condition, cash flows and results of operations. In addition, the manufacturing
of product candidates involves a number of technical steps and requires meeting
stringent quality control specifications imposed by government regulatory bodies
and by the Company itself. Additionally, such products can only be manufactured
in facilities approved by the applicable regulatory authorities. Because of
these and other factors, the Company may not be able to quickly and efficiently
replace its manufacturing capacity in the event that its manufacturers are
unable to manufacture their products at one or more of their facilities.
Competition
The principal market sectors in which the Company's products and
services will compete are very broad and competitive, and the Company is in
direct competition with many companies having far greater financial and other
resources. Among the Company's major competitors are One Lambda, Inc., PelFreez,
Inc., Dynal, Inc., BioTest Diagnostics Corp., Murex Diagnostics, Inc. and
Sangstadt Medical Corp. Of the competitiors listed, all are privately-held with
the exception of Sangstadt Medical Corp. Further, Murex Diagnostics, Inc. became
a subsidiary of Abbott Laboratories in March, 1998.
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Government Regulation
The Company's research and development activities, preclinical studies
and clinical trials, and ultimately the manufacturing, marketing and labeling of
its products, are subject to extensive regulation by the FDA and other
regulatory authorities of the United States and other countries. The United
States Federal Food, Drug and Cosmetic Act (the "Act") and the regulations
promulgated under the Act and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising, promotion, import and
export of the Company's products. Preclinical study and clinical trial
requirements and the regulatory approval process typically take years and
require the expenditure of substantial resources. Additional government
regulation may be established that could prevent or delay regulatory approval of
the Company's product candidates. Delays or rejections in obtaining regulatory
approvals would adversely affect the Company's ability to receive product
revenues or royalties. If regulatory approval of a product candidate is granted,
the approval may include significant limitations on the indicated uses for which
the product may be marketed.
FDA and other regulatory authorities require that the safety and
efficacy of certain of the Company's product candidates be supported through
adequate and well-controlled clinical trials. If the results of pivotal clinical
trials do not establish the safety and efficacy of the Company's produce
candidates to the satisfaction of FDA and other regulatory authorities, the
Company will not receive the approvals necessary to market its product
candidates, which would have a material adverse effect on the Company.
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The Company has received 510(k) pre-market approvals, as described more
fully below, for its serology-based and molecular-based typing products. All
products manufactured or outsourced by the Company for use in HLA laboratories
are subject to FDA Good Manufacturing Practices (GMP), which set forth and
prescribe the use of manufacturing Standard Operating Procedures, lot controls
and quality control/quality assurance procedures. On July 2, 1998, the United
States Department of Health and Human Services issued a renewal Certificate to
Foreign Government that allows the Company to export certain of its serology and
DNA products to foreign countries. Pursuant to the Certificate to Foreign
Government, the FDA certified that the Company manufacturers various serology
and DNA products, that these products may be freely marketed in the United
States, and that the Company's manufacturing plant that produces these products
is subject to periodic inspections and that such inspections showed that, at the
time the Certificate was issued, the Company was in compliance with then current
GMPs as required by the Federal Food, Drug and Cosmetic Act. The Company is also
subject to various federal, state and local laws and regulations relating to
safe working conditions, and the use and disposal of hazardous or potentially
hazardous substances used in connection with manufacturing and research and
development.
FDA Regulation -- Approval of Diagnostic and Monitoring Products. The
Company's diagnostic and monitoring products and product candidates are
regulated as medical devices by the FDA and as such require regulatory clearance
prior to commercial distribution. New medical devices are generally introduced
to the market based on a pre-market notification or "510(k)"submission to the
FDA in which the sponsor establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device or to a
Class III medical device for which the FDA has not required pre-market approval.
The claim of substantial equivalence will generally have to be supported by
various types of data and materials including, in some instances, preclinical
and/or clinical test results.
Following submission of the 510(k), the sponsor may not place the
device into U.S. commercial distribution until a substantial equivalence order
is issued by the FDA. The order may be sent within 90 days of submission but
could take significantly longer. The order may declare the FDA's determination
that the device is "substantially equivalent" to another legally marketed device
and allow the proposed device to be marketed in the United States. The FDA may,
however, determine that the proposed device is not substantially equivalent, or
may require further information, such as additional test data, before the FDA is
able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the Company's
market introduction of its products and product candidates by several quarters
or more and could have a material adverse effect on the Company's business,
financial condition and results of operations. There is no assurance that a
510(k) marketing clearance will be granted for these products or product
candidates. Additional regulatory barriers may be encountered by not meeting
performance requirements of the American Society of Histocompatability and
Immunogenetics ("ASHI") and the labeling requirements of Clinical Laboratory
Improvements Amendment ("CLIA").
If the sponsor of a 510(k) cannot obtain an FDA order declaring
substantial equivalence, the sponsor will have to submit a pre-market approval
application ("PMA"). A PMA will generally have to be supported by extensive
data, including preclinical and clinical trial data, to prove the safety and
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efficacy of the device. Although, by statute, the FDA has 180 days to review a
PMA once it has been accepted for filing, PMA reviews more often involve a
significantly longer time period, usually 12 to 24 months or longer from the
date of filing. There can also be no assurance that the data collected by the
sponsor would support a PMA marketing approval.
The sponsor may be required to obtain an Investigational Device
Exemption ("IDE") before it commences clinical testing to support a 510(k)
submission or PMA. Each clinical trial must be approved and conducted under the
auspices of an IRB and with patient informed consent. The IRB will consider,
among other things, ethical factors, the safety of human subjects, and the
possible liability of the institution conducting the clinical trials. For some
products, the sponsor must also submit the protocol to the FDA. The sponsor of
the IDE may be able to distribute limited amounts of these products for research
use only if certain FDA requirements are met. Some of these requirements may
also apply to distribution for clinical investigational use only. The FDA
monitors and oversees the use and distribution of all "research use only" and
"investigational use only" devices. There can be no assurances that the FDA will
determine that the Company's product candidates are substantially equivalent to
other legally marketed devices. The FDA may require the submission of a PMA,
which would delay the Company's market introduction of its products and could
have a material adverse effect on the Company's business, financial condition
and results of operations. The testing and approval process will require
substantial time and effort, and there can be no assurance that any approval
will be granted for any product or product candidate, or that approval will be
granted according to any schedule. The FDA may refuse to approve a PMA if its
believes that applicable regulatory criteria are not satisfied. The FDA may also
require additional testing for safety and efficacy of the device. Moreover, if
the PMA is approved, the approval will be limited to specific indications or
uses. There can be no assurance that any of the Company's product candidates
will receive regulatory approvals for commercial distribution, or if approved
that approval will be for the indications requested by the Company.
Prior to any approval of the Company's products for marketing, all
manufacturing facilities must pass the FDA preapproval inspections.
FDA Regulation - Post-Approval Requirements. Even if regulatory
approvals for the Company's product candidates are obtained, the Company, its
products and the facilities manufacturing the Company's products are subject to
continual review and periodic inspection. Each U.S. device manufacturing
establishment must be registered with the FDA. Domestic manufacturing
establishments are subject to biennial inspections by the FDA and must comply
with the FDA's GMP regulations. To supply device products for use in the United
States, foreign manufacturing establishments must comply with the FDA's GMP
regulations and are subject to period inspection by the FDA or by regulatory
authorities in those countries under reciprocal agreements with the FDA. In
complying with GMP regulations, manufacturers must expend funds, time and effort
in the area of product and quality control to ensure full technical compliance.
The FDA stringently applies regulatory standards and manufacturing.
Labeling and promotional activities are regulated by the FDA and, in
certain instances, by the Federal Trade Commission. The Company must also report
certain adverse events involving its drugs and devices to the agency under
regulations issued by the FDA. The FDA can impose other post-marketing controls
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on the Company and its products, and has expanded authority in this regard for
certain products, such as devices approved under PMAs.
Failure to comply with applicable regulatory requirements can result
in, among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the government to grant approvals, pre-market clearance or pre-market
approval, withdrawal of approvals and criminal prosecution of the Company and
its employees.
Environmental Regulation
The Company's activities and products are subject to federal, state and
local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens, and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations in the future. The Company's research and development involves the
controlled use of hazardous materials, including certain hazardous chemicals and
infectious biological specimens. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
Patents and Proprietary Technology
The Company's ability to profitably commercialize its product
candidates will depend, in part, upon its ability to obtain patents, enforce
those patents, preserve trade secrets, and operate without infringing upon the
proprietary rights of third parties. The Company has been granted three patents
and one Divisional Application that has been approved but not issued as follows:
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<TABLE>
<CAPTION>
Patent No. Issued Name
---------- ------ ----
<S> <C> <C> <C>
a. 5,573,914 11/12/96 DNA/RNA target and signal Amplification
b. 5,645,990 07/08/97 Identification and Paternity Determination by
Detecting Presence or Absence of Multiple
Nucleic Acid Sequences
c. 5,723,297 03/03/98 Process for Determining an Antibody Using a
Nucleic Acid Amplification Probe
Divisional Application
d. 08/654,243 Nucleic Acid-Antibody Constructs and Their Use
in Antigen Detection
</TABLE>
Until the Company's AMPRO Technology has been fully developed, there
can be no assurance that the Company can manufacture, or have manufactured,
formulate or commercialize its AMPRO Technology product without infringing
patent or other proprietary rights of third parties.
Patent applications in the United States are maintained in secrecy
until patents issue. Since publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries by several months, the
Company cannot be certain that it was the first to discover technology covered
by its pending patent application or the first to file a patent application on
such technology. There can be no assurance that the Company's pending patent
application will result in an issued patent or that any of its issued patents
will afford protection against a competitor.
There can be no assurance that any patent issued to, or licensed by,
the Company will provide protection that has commercial significance. The
Company's patent involve specific claims and thus does not provide broad
coverage. There can be no assurance that the Company's patent applications or
any claims of these patent applications will be allowed, valid or enforceable,
that any patents or any claims of these patents will provide the Company with
competitive advantages for its products or that they will not be successfully
challenged or circumvented by the Company's competitors.
The Company also relies on trade secrets and proprietary know-how which
its seeks to protect, in part, by confidentiality agreements with its employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or independently
developed by competitors. The Company intends to register the names of most of
its products under development or commercialized for research and development
use. However, there can be no assurance that any trademark registration will be
granted or not challenged by competitors.
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Employees
As of October 1, 1998, the Company has twelve full-time employees and
three part-time employees. Of these, five are employed in executive and
administrative positions, four are employed in marketing and sales and six are
employed in manufacturing.
The Company intends to reduce its manufacturing staff in the beginning of 1999.
Facilities
The Company headquarters are located in Plymouth Meeting, Pennsylvania.
Floor space in Pennsylvania is approximately 12,832 square feet, including
offices, manufacturing space, storage areas and laboratories. The Plymouth
Meeting facility serves as the principal site for process development, quality
assurance and control, and regulatory affairs. The lease for this building space
expires on March 1, 2000 and may be renewed for subsequent years. Since the
Company has out-sourced its manufacturing, the Company intends to reduce costs
by either subletting the manufacturing space at the current facility or
subletting the entire facility and moving to more appropriate space. The Company
does not anticipate any difficulty in finding appropriate space now or as it
expands.
Additional Information about the Company
The Company has filed a Registration Statement under the Securities Act
of 1933, as amended, with respect to the securities offered by this Prospectus,
with the United States Securities and Exchange Commission (SEC), 450 Fifth
Street, N.W., Washington, D.C. 20549. This Prospectus, which is a part of the
Registration Statement, does not contain all of the information contained in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement.
After the Effective Date, the Company is required to file periodic
reports with the Securities and Exchange Commission. Copies of materials filed
by the Company with the SEC may be read and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0300. The SEC maintains an Internet Site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The address of the SEC's Internet Site is
http://www.sec.gov. The Company expects to file its required reports and other
information electronically with the SEC.
After the completion of this Offering, the Company will provide its
stockholders with annual reports containing financial statements audited and
reported on by independent auditors and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal year.
Stockholders can obtain the most recent copies of these reports by sending a
written request to the Company's shareholder relations officer at the Company's
principal executive offices located at 5100 Campus Drive, Plymouth Meeting,
Pennsylvania 19462.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the names and positions of the
Directors, Executive Officers and key employees of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Arthur V. Boyce, Jr. 50 President, Chief Executive Officer and Director
George L. Bird, Jr. 68 Chairman of the Board of Directors, Acting Secretary and
Director
Harry A. Arena 49 Treasurer and Director
Gerald Hamburg 62 Director
Donald O. Nichols 43 Vice President and Controller
Patricia C. McGrath 48 Director of Marketing ad Technical Services
</TABLE>
All Directors hold office until the next annual meeting of shareholders
or until their successors have been duly elected and qualified. Executive
officers of the Company are appointed by and serve at the discretion of the
Board of Directors. The Company has agreed with the Underwriter that, for at
least three years after the date of this Prospectus, the Company's Board will
consist of at least five (5) directors, at least two (2) of whom shall be
"independent." The Underwriter will also be entitled to have an observer at all
Board meetings.
The following sets forth biographical information concerning the
Company's Directors and Executive Officers for at least the past five years. The
President, Controller and Director of Marketing are full time employees of the
Company:
Arthur V. Boyce, Jr. has served as President, Chief Executive Officer
and director of the Company since December, 1996. Previously, he was Vice
President of Marketing and Sales for ActiMed Laboratories, Inc. in Burlington,
New Jersey. ActiMed is a privately held start-up medical products company with
venture capital backing. Prior to that, Mr. Boyce was Vice President of
Marketing for Kendall-Futuro Company in Cincinnati, Ohio, a consumer home health
care product manufacturing and marketing company owned by Colgate Palmolive. Mr.
Boyce earned a Bachelor of Arts from the University of Connecticut in 1970.
George L. Bird, Jr. has served as Chairman of the Board and director
since November, 1986. He has served as Acting Secretary since December, 1996.
Previously, he was Chief Executive Officer from November, 1986 until July, 1992
and President from November, 1986 until June, 1990. He has been actively
involved in the AMPRO project from 1992 through the present. Prior to the
founding of the Company, he was a division president at Smith Kline Beacham
Corporation. Mr. Bird earned a Bachelor of Science in Electrical Engineering
from the Milwaukee School of Engineering in 1957.
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Harry A. Arena has served as Treasurer and director since November,
1986. He is currently the Managing Partner of Arena, Snyder, Rothschild and
Theis, an accounting and financial consulting firm in Exton, Pennsylvania. Mr.
Arena earned a Bachelor of Arts from Holy Cross College in 1971 and an MBA from
Stanford University Graduate School of Business in 1974.
Gerald Hamburg has served as director since March, 1992. He is
currently the Senior Attorney of Hamburg, Rubin, Mullin, Maxwell & Lupin, a law
firm in Lansdale, Pennsylvania. Mr. Hamburg earned a Bachelor of Science from
the Wharton School of the University of Pennsylvania in 1957 and his J.D. from
Stanford University Law School in 1960.
Donald O. Nichols has been Controller of the Company since June, 1997
and Vice President since September, 1998. Previously, he was Controller of
MEECO, Inc., a privately held instrument manufacturer in Warrington,
Pennsylvania from February 1995 to June 1997. Prior to that, he was the
Accounting Manager for Phoenix Technologies, Inc. a privately held
multi-subsidiary manufacturing, sales and service company in Valley Forge,
Pennsylvania. Mr. Nichols is a CPA and earned a Bachelor of Arts from Glassboro
State College in 1978.
Patricia C. McGrath has been with the Company since November, 1990 and
has served as HLA Product manager, Director of Marketing and Technical Services
and Director of DNA Operations prior to her current position as Director of
Marketing and Technical Services with the Company. Ms. McGrath earned an AAS
from Maria College in 1965 and a Bachelors of Arts in Biology from the College
of Saint Rose in 1972.
Limited Liability and Indemnification of Directors
In accordance with the Pennsylvania Business Corporation Act, the
Company has included a provision in its By-Laws to limit the personal liability
of its directors for violations of their fiduciary duty. The provision
eliminates directors liability to the Company or its stockholders for monetary
damages, except (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit.
Additionally, in accordance with the Pennsylvania Business Corporation
Act, the Company's By-Laws indemnify its directors against liability which they
may incur in their capacity as a director against judgments, penalties, fines,
settlements and reasonable expenses incurred in connection with threatened,
pending or completed civil, criminal, administrative, or investigative
proceedings by reason of the fact that he is or was a director, officer,
employee, fiduciary or agent of the Company if such director acted in good faith
and in a manner reasonably believed to be in the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
49
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Executive Officers and Consultants
The following table sets forth all compensation paid or accrued by the
Company for services of George L. Bird, Jr., the Company's Chairman of the
Board, Arthur V. Boyce, Jr., the Company's President and Chief Executive
Officer, and Donald O. Nichols, the Company's Vice President and Controller for
the fiscal year ended December 31, 1997. Mr. Nichols began his employment with
the Company in June, 1997, and the table presents his actual compensation for
the portion of the year for which he was with the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- -----------------------------------------------
Awards Payouts
---------------------- ----------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Compensation Award(s) Options/ Payouts Compensation
Position Year Salary ($) Bonus ($) ($) ($) SARS (#) ($) ($)
------------------ ---- ---------- --------- ------------ -------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George L. Bird, Jr.
Chairman of the Board 1997 (1) -0- -0- -0- -0- -0- -0-
Arthur Boyce, Jr.
President and CEO 1997 $130,000 -0- -0- -0- -0- -0- -0-
Donald O. Nichols,
Vice President and
Controller 1997 $ 33,758 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Mr. Bird receives a $2,000 monthly consulting fee from the Company. In
1997 and in 1998 through the date of this Prospectus, the fee was not
paid but was accrued. On the date of this Prospectus approximately
$60,000 was owed to Mr. Bird for consulting fees.
Compensation of Directors
Directors are reimbursed for expenses incurred in connection with each
board meeting attended.
Employment Arrangements
The Company entered into an employment agreement with Arthur V. Boyce,
Jr., its President and Chief Executive Officer, on November 26, 1996. The
Agreement originally provided that Mr. Boyce would receive initial base
compensation of $130,000, to be reviewed annually by the Board of Directors
which may make appropriate adjustments. Mr. Boyce was entitled to a first year
bonus in the amount of up to 30% of his base compensation if certain performance
milestones were achieved. These milestones were not achieved in 1997. Under an
addendum to Mr. Boyce's Employment Agreement, his salary was increased to
$166,000 as of January 1, 1998 of which $24,000 may be deferred (and has been
50
<PAGE>
deferred through the date of this Prospectus). These amounts may be deferred
until the earlier of (1) December 31, 1999, (2) Mr. Boyce's termination of
employment with the Company for any reason, (3) the Company becoming "public."
The Company intends to pay Mr. Boyce all deferred salary upon closing of this
Offering.
The addendum also provides that Mr. Boyce will be entitled to a success
fee in the event that Mr. Boyce, during the term of his employment or for 18
months after the term of his employment, introduces the Company or its
stockholders to any entity which acquires all or a material part of the
Company's assets or more than 50% of the Company's stock, or whose assets or
stock the Company acquires. The success fee will be equal to a percentage of the
consideration paid in the transaction. Each member of the Company's Board of
Directors has a similar right to a success fee in connection with introductions
made by him.
1998 Stock Option Plan
On September 30, 1998, the Company's Board of Directors approved the
1998 Stock Option Plan (the "Plan"), and reserved 100,000 shares of Common Stock
for issuance upon exercise of options granted under the Plan. In the fourth
quarter of 1998, the Board issued options for a total of 70,000 shares to ten
people. This total included options for 10,000 shares issued to Mr. Nichols, the
Company's Vice President and Controller. The exercise price of these options is
$3.00 per share.
The purposes of the Plan are to provide incentives and rewards to those
employees who are in a position to contribute to the long-term growth and
profitability of the Company; to assist the Company to attract, retain and
motivate personnel with experience and ability; and to make the Company's
compensation program more competitive with those of other employers. The Company
anticipates it will benefit from the added interest which such personnel will
have in the success of the Company as a result of their proprietary interest.
The Plan presently is administered by the Board of Directors, but the
Board may establish a Stock Option Committee (the "Committee"), which consists
of at least two directors, to administer the Plan. References to the "Committee"
herein include the Board of Directors so long as it continues to administer the
Plan directly.
The Committee is authorized to select from among eligible employees,
directors, advisors and consultants those individuals to whom options are to be
granted and to determine the number of shares to be subject to, and the terms
and conditions of, the options. The Committee also is authorized to prescribe,
amend and rescind terms relating to options granted under the Plan and the
interpretation of options. Generally, the interpretation and construction of any
provision of the Plan or any options granted thereunder is within the discretion
of the Committee.
The Plan provides that options may or may not be Incentive Stock
Options within the meaning of Section 422 of the Internal Revenue Code ("ISOs").
Only employees of the Company are eligible to receive ISOs, while employees and
non-employee directors, advisors and consultants are eligible to receive options
which are not ISOs, i.e. "Non-Qualified Options." The options granted by the
Board in connection with its adoption of the Plan are Non-Qualified Options.
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<PAGE>
ISOs granted under the Plan are intended to qualify as "incentive stock
options" under Section 422 of the Code. The acquisition of shares upon exercise
of an ISO will not result in recognition of income at the time. However, the
excess of the fair market value of the shares acquired over the exercise price
will constitute an item of tax preference, to be included in the optionee's
computation of his "alternative minimum tax" for federal income tax purposes. If
the optionee does not dispose of the shares issued to him upon the exercise of
an ISO within one year of such issuance or within two years from the date of the
grant of the ISO, whichever is later, any gain or loss realized by the optionee
on a later sale or exchange of such shares generally will be a long-term capital
gain or long-term capital loss. If the optionee sells the shares during such
period, the optionee will recognize ordinary income for the year in which
disposition occurs equal to the amount, if any, by which the lesser of the fair
market value of such shares on the date of exercise of such ISO or the amount
realized from such sale exceeded the amount paid for such shares.
The terms of options granted under the Plan are determined by the
Committee at the time the option is granted. Each option will be evidenced by a
written option document, which, together with the provisions of the Plan itself
determines such terms as: when options under the Plan become exercisable; the
exercise price of options granted under the Plan, which may not be less than
100% of the fair market value of the Common Stock on the date of the grant in
the case of ISOs (110% in the case of optionees who own 10% or more of the
Company's Common Stock on the date of grant); the term of the option; vesting
provisions; and special termination provisions.
An option is not transferable by the optionee, other than by will or
the laws of descent and distribution, and is exercisable only by the optionee
during his lifetime or, in the event of his death, by a person who acquires the
right to exercise the option by bequest or inheritance or by reason of the
optionee's death.
Generally, an optionee receiving an option will not have taxable income
upon the grant of the option. In the case of Non-Qualified Options, the optionee
will recognize ordinary income upon exercise of the Non-Qualified Option in an
amount equal to the difference between the option price and the fair market
value of the shares on the date of exercise. When the shares are sold, the
grantee will generally recognize capital gain or loss equal to the difference
between (i) the selling price of the shares, and (ii) the sum of the option
price and the amount included in his income when the option is exercised.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of the date of this Prospectus certain
information regarding the current beneficial ownership of shares of the
Company's Common Stock, and as adjusted to reflect the sale of the Common Stock
offered hereby (including the Underwriter's over-allotment option), and to
reflect the issuance of 115,000 shares to the holders of the Company's Private
Placement Notes, by (i) each person known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, and (iii) each current officer of the Company (iv) all directors
and officers as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Ownership Beneficial Ownership
Beneficial Owner Before Offering(1) After Offering
---------------- ------------------ --------------
Ownership
Assuming the Sale
of All Shares
-------------
Number of Shares Percent No. of
(1) Of Class Shares(1) Percentage
---------------- -------- --------- ----------
<S> <C> <C> <C> <C>
(i) Directors and
Executive Officers
George L. Bird, Jr.
13 Crestview Road
Phoenixville, PA 19460 174,482 13.42% 174,482 6.00%
Arthur V. Boyce, Jr. (2)
1763 Ashbourne Drive
Yardley, PA 19067 122,987 9.46% 122,987 4.23%
Harry A. Arena
1 Jorrocks Lane
Malvern, PA 19355 105,641 8.13% 105,641 3.63%
Deborah M. Hamburg Irrevocable
Trust III (3)
204 Wood Spring Road (P.O. Box
325)
Gwynedd Valley, PA 19437 165,928 12.76% 165,928 5.70%
Donald O. Nichols(4)
335 Willowbrooke Avenue
Harleysville, PA 19438 25,000 * 25,000 *
All Officers and Directors as
a Group 584,038 44.93% 584,038 20.07%
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Beneficial Ownership Beneficial Ownership
Beneficial Owner Before Offering(1) After Offering
---------------- ------------------ --------------
<S> <C> <C> <C> <C>
(ii) Other Beneficial Owners
Mathers Associates (5)
230 Mathers Road
Ambler, PA 19002 190,000 14.62% 190,000 6.53%
Susquehana Holdings Corp. (5)
230 Mathers Road
Ambler, PA 19002 113,526 8.73% 113,526 3.90%
Skippack Partners (5)
230 Mathers Road
Ambler, PA 19002 10,000 * 10,000 *
Edward and Judith Rubin
1201 Evans Road
Lower Gwynedd, PA 19002-1702 98,436 7.57% 98,436 3.38%
J. Edmund and Bernadette A. Mullin
110 Brittany Way
Blue Bell, PA 19422 88,392 6.80% 88,392 3.04%
J. Scott Maxwell
Talamore at Oak Terrace
1008 Glendevon Court
Ambler, PA 19002-1859 75,334 5.79% 75,334 2.59%
Michele L. LeGear
23 Lawrencia Drive
Lawrenceville, NJ 08648 69,832 5.37% 69,832 2.40%
</TABLE>
- -------------------------------
* Less than 5%
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the number
and percentage owned by each other person listed.
(2) Includes 60,000 shares held by Mr. Boyce's wife as custodian for their two
minor children.
(3) Deborah M. Hamburg is the wife of the Company's director, Gerald Hamburg.
These shares have been included in the holdings of "All Officers and
Directors as a Group."
(4) Includes 10,000 shares which Mr. Nichols could receive upon exercise of
options.
(5) Norbert Zeelander is the President of Susquehana Holdings Corp. and the
General Partner of Mathers Associates. Mr. Zeelander is also the General
Partner of Skippack Partners.
54
<PAGE>
There is no arrangement or understanding known to the Company,
including any pledge by any person of securities of the Company, the operation
of which may at a subsequent date result in a change in control of the Company.
Under an agreement among the Company, Susquehana Holdings, Corp. ("Susquehana")
and certain shareholders of the Company, if the Company defaults under its line
of credit with Susquehana, Susquehana will have the right to elect at least 75%
of the Company's directors. The Company intends to repay the line of credit in
full with the proceeds of this offering.
55
<PAGE>
CERTAIN TRANSACTIONS
In September, 1998, the Company obtained a line of credit from
Susquehana Holdings Corp. ("Susquehana") in the maximum amount of $300,000. The
line of credit bears interest at 10% per annum, with interest payable quarterly.
The outstanding principal is due upon the earlier of (i) the Company's sale of
debt or equity securities, from which the Company receives net proceeds of
$1,000,000 in the aggregate or (ii) September 30, 1999. The principal balance of
the line of credit will be repaid in full with the proceeds of this Offering. At
the same time, Susquehana purchased 390,000 shares of the Company's Common Stock
from existing shareholders for an aggregate $2,500. The Company at that time
also entered into a Consulting Agreement with Norbert Zeelander, the President
of Susquehana.
The consulting agreement provides that Mr. Zeelander will provide
services to the Company as a non-exclusive consultant in connection with the
Company's business activities, marketing, strategic planning and corporate
development, and other specified activities, at a fee of $7,500 per month, for
three years. The fee shall accrue and is not payable until the principal of the
line of credit becomes due. In addition, in the event that Mr. Zeelander
introduces the Company or its stockholders to any entity which acquires all or
any material part of the Company's assets, or more than 50% of the Company's
outstanding stock, or whose assets or stock the Company acquires, the Company
shall pay a success fee upon closing of said transaction equal to a percentage
of the consideration paid in the transaction. Each member of the Company's board
of directors has a similar right to a success fee in connection with
introductions made by him.
In August 1998, the Company borrowed $115,000 from Gerald Hamburg
pursuant to a demand note bearing interest at 11% per annum. As of October 31,
1998, the outstanding balance of this loan was $30,000 and the Company
anticipates this loan will be completely repaid before closing of this Offering.
The Company has additional notes outstanding to two of its shareholders
and its former President, in the aggregate amount of $58,737. The notes bear
interest at a rate equal to the Company's primary bank's "national commercial
rate" plus 1%. These notes are due June 29, 2002.
Affiliates of Mr. Hamburg and Mr. Arena, directors of the Company,
perform legal and accounting services for the Company. Fees related to these
services in 1997 were approximately $12,000.
Advances of $30,000 to certain stockholders were converted to
distributions in September, 1998.
56
<PAGE>
DESCRIPTION OF SECURITIES
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock, $.01 par value per share,
of which 1,300,000 shares are outstanding.
Common Stock
All outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and nonassessable. Holders of Common Stock are entitled to
receive dividends, when and if declared by the Board of Directors, out of funds
legally available therefore and to share ratably in the net assets of the
Company upon liquidation. Holders of Common Stock do not have preemptive or
other rights to subscribe for additional shares, nor are there any redemption or
sinking fund provisions associated with the Common Stock.
Holders of Common Stock are entitled to one vote per share on all
matters requiring a vote of shareholders. Since the Common Stock does not have
cumulative voting rights in electing directors, the holders of more than a
majority of the outstanding shares of Common Stock voting for the election of
directors can elect all of the directors whose terms expire that year, if they
choose to do so.
There is no public market for the Company's Common Stock at the present
time.
Voting Requirements
The Company's By-Laws require the approval of the holders of a majority
of the Company's voting securities for the election of directors and for certain
fundamental corporate actions, such as mergers and sales of substantial assets,
or for an amendment of the Articles of Incorporation. There exists no provision
in the Company's Articles of Incorporation or Bylaws that would delay, defer or
prevent a change in control of the Company.
Transfer Agent
The transfer agent and registrar for the Company's Common Stock and the
Warrant Agent is Stocktrans, Inc., 7 East Lancaster Avenue, Ardmore PA 19003.
The telephone number of Stocktrans is 610-649-7300.
Warrants
The following is a brief summary of certain provisions of the Warrants
and is qualified in all respects by reference to the actual text of the Warrants
and the Warrant Agreement between the Company and Stocktrans, Inc. (the "Warrant
Agent").
57
<PAGE>
Exercise Price and Terms. Each Warrant entitles the holder thereof to
purchase, at any time after the separation of the Warrants from the Units
through the fifth anniversary of the Effective Date of this Prospectus, one
share of Common Stock at a price of $6.00 per share, subject to adjustment in
accordance with the anti-dilution and other provisions referred to below. The
Warrants will be separated from the Units 180 days after the date of this
Prospectus, unless the Underwriter permits earlier separation.
The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Warrant Agent, with the subscription
form on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price. The Warrants may be exercised at
any time in whole or in part at the applicable exercise price until expiration
of the Warrants five years from the Effective Date of this Prospectus. No
fractional shares will be issued upon the exercise of the Warrants.
Commencing after the Warrants become separately transferable, the
Warrants are subject to redemption by the Company at $.10 per Warrant on 30
days' written notice if the closing bid or trading price of the Company's Common
Stock, as applicable, over 30 consecutive days ending within 10 days of the
notice of redemption averages at least $10.00. The Company is required to
maintain an effective registration statement with respect to the Common Stock
underlying the Warrants at the time of redemption of the Warrants. In the event
the Company exercises the right to redeem the Warrants, such Warrants will be
exercisable until the close of business on the date for redemption fixed in such
notice. If any Warrant called for redemption is not exercised by such time, it
will cease to be exercisable and the holder will be entitled only to the
redemption price. Redemption of the Warrants could force Warrant holders either
to (i) exercise the Warrants and pay the exercise price thereof at a time when
it may be less advantageous economically to do so, or (ii) accept the redemption
price in consideration for cancellation of the Warrant, which could be
substantially less than the market value thereof at the time of redemption
redeemed without consent. Prior to the first anniversary of the Effective Date,
the Warrants will not be redeemable by the Company without the written consent
of the Underwriter.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the Securities offered hereby.
The Company has authorized and reserved for issuance a sufficient
number of shares of Common Stock to accommodate the exercise of all Warrants to
be issued in this offering. All shares of Common Stock to be issued upon
exercise of the Warrants, if exercised in accordance with their terms, will be
validly issued, fully paid and non-assessable.
Adjustments. The exercise price and the number of shares of Common
Stock purchasable upon exercise of the Warrants are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation,
or sale of all or substantially all of the assets of the Company, in order to
enable Warrant holders to acquire the kind and number of shares of stock or
other securities or property receivable in such event by a holder of that number
58
<PAGE>
of shares of Common Stock that would have been issued upon exercise of the
Warrant immediately prior to such event. No adjustment to the exercise price of
the shares subject to the Warrants will be made for dividends (other than stock
dividends), if any, paid on the Common Stock.
Transfer, Exchange and Exercise. The Warrants are in registered form
and may be presented to the Warrant Agent for transfer, exchange or exercise at
any time prior to their expiration date five years from the Effective Date of
this Prospectus, at which time the Warrants become wholly void and of no value.
If a market for the Warrants develops, the holder may sell the Warrants instead
of exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue. If the Company is unable to qualify for sale
in particular states the Common Stock underlying the Warrants, holders of the
Warrants residing in such states and desiring to exercise the Warrants will have
no choice but to sell such Warrants or allow them to expire.
Warrant Holder Not a Shareholder. The Warrants do not confer upon
holders any voting or any other rights as shareholders of the Company.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
Barron Chase Securities, Inc. (the "Underwriter") has agreed to purchase from
the Company an aggregate of 650,000 Units (the "Securities"). The Securities are
offered by the Underwriter, subject to prior sale, when, as and if delivered to
and accepted by the Underwriter, and subject to approval of certain legal
matters by counsel and certain other conditions. The Underwriter is committed to
purchase all Securities offered by this Prospectus, if any are purchased (other
than those covered by the Over-Allotment Option described below).
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Securities to the public at the offering price set forth
on the cover page of this Prospectus. The Underwriter has advised the Company
that the Underwriter may also offer the Securities through members of the
National Association of Securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members of
the NASD and who agree to sell the Securities in conformity with the NASD's
Conduct Rules. Such concessions will not exceed the amount of the underwriting
discount that the Underwriter is to receive.
The Company has granted to the Underwriter an Over-Allotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
97,500 Units at the public offering price less the Underwriting Discount set
forth on the cover page of this Prospectus. The Underwriter may exercise this
option to cover overallotments in the sale of the Securities being offered by
this Prospectus.
Officers and directors of the Company may introduce the Underwriter to
persons to consider this Offering and to purchase Securities either through the
Underwriter or through participating dealers. In this connection, no Securities
have been reserved for those purchases and officers and directors will not
receive any commissions or any other compensation.
The Company has agreed to pay to the Underwriter a commission of ten
percent (10%) of the gross proceeds of this Offering (the "Underwriting
Discount"), including the gross proceeds from the sale of the Over-Allotment
Option, if exercised. In addition, the Company has agreed to pay to the
Underwriter the Non-Accountable Expense Allowance of three percent (3%) of the
gross proceeds of this Offering, including proceeds from any Securities
purchased pursuant to the Over-Allotment Option. The Company has paid to the
Underwriter a $50,000 advance with respect of the Non-Accountable Expense
Allowance. The Underwriter's expenses in excess of the Non-Accountable Expense
Allowance will be paid by the Underwriter. To the extent that the expenses of
the Underwriter are less than the amount of the Non-Accountable Expense
Allowance received, such excess shall be deemed to be additional compensation to
the Underwriter. The Underwriter has informed the Company that it does not
expect sales to discretionary accounts to exceed five percent (5%) of the total
number of Securities offered by the Company hereby.
The Company has agreed to engage the Underwriter as a financial advisor
at a fee of $108,000, which is payable to the Underwriter on the Closing Date.
Pursuant to the terms of a financial advisory agreement, the Underwriter has
agreed to provide, at the Company's request, advice to the Company concerning
potential merger and acquisition and financing proposals, whether by public
60
<PAGE>
financing or otherwise. The Company has also agreed that if the Company
participates in any transaction which the Underwriter has introduced to the
Company during a period of five years after the Closing (including mergers,
acquisitions, joint ventures and any other business transaction for the Company
introduced by the Underwriter), and which is consummated after the Closing
(including an acquisition of assets or stock for which it pays, in whole or in
part, with shares or other securities of the Company), or if the Company retains
the services of the Underwriter in connection with any such transaction (an
"Introduced Consummated Transaction"), then the Company will pay for the
Underwriter's services an amount equal to 5% of up to one million dollars of
value paid or received in the transaction, 4% of the next million of such value,
3% of the next million of such value, 2% of the next million of such value, and
1% of the next million dollars of such value and of all such value above
$4,000,000.
Prior to this Offering, there has been no public market for the Units,
shares of Common Stock or the Warrants. Consequently, the initial public
offering prices for the Securities, and the terms of the Warrants (including the
exercise price of the Warrants), have been determined by negotiation between the
Company and the Underwriter. Among the factors considered in determining the
public offering prices were the history of, and the prospects for, the Company's
business, an assessment of the Company's management, the Company's past and
present operations, its development and the general condition of the securities
market at the time of this Offering. The initial public offering prices do not
necessarily bear any relationship to the Company's assets, book value, earnings,
or other established criteria of value. Such prices are subject to change as a
result of market conditions and other factors, and no assurance can be given
that a public market for the Units, the Shares or the Warrants will develop
after the Closing, or if a public market in fact develops, that such public
market will be sustained, or that the Units, the Shares or the Warrants can be
resold at any time at the offering or any other price. See "Risk Factors."
At the Closing, the Company will issue to the Underwriter and/or
persons related to the Underwriter (the "holder"), for nominal consideration,
Underwriter Warrants to purchase up to 65,000 Units (the "Underwriter
Warrants"). The Underwriter Warrants and the underlying securities are
registered pursuant to this Registration Statement. The Underwriter Warrants
will be exercisable for a five-year period commencing on the Effective Date. The
initial exercise price of each Underwriter Warrant shall be $14.50 per
Underwriter Warrant (145% of the public offering price). The Underwriter
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of twelve months from the Effective Date by the holder, except (i) to
officers of the Underwriter and members of the selling group and officers and
partners thereof; (ii) by will; or (iii) by operation of law.
The Underwriter Warrants contain provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Underwriter Warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the Underwriter Warrants in whole or in part and
instruct the Company to withhold from the securities issuable upon exercise, a
number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the effect
of requiring the Company to issue shares of Common Stock without a corresponding
increase in capital. A net exercise of the Underwriter Warrants will have the
same dilutive effect on the interests of the Company's shareholders as will a
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<PAGE>
cash exercise. The Underwriter Warrants do not entitle the holders thereof to
any rights as a shareholder of the Company until such Underwriter Warrants are
exercised and shares of Common Stock are purchased thereunder.
The Underwriter Warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven (7) years
from the Effective Date, to include in such registration statement or offering
statement the Underwriter Warrants and/or the securities issuable upon their
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request by the holders of 50% or more of the Underwriter Warrants
during the period commencing one year from the Effective Date and expiring four
years thereafter, the Company will, under certain circumstances, register the
Underwriter Warrants and/or any of the securities issuable upon their exercise.
In order to facilitate the offering of the Units, the Underwriter may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Units. Specifically, the Underwriter may overallot in connection with the
Offering, creating a short position in the Units for its own account. In
addition, to cover overallotments or to stabilize the price of the Units, Common
Stock and/or Warrants, the Underwriter may bid for, and purchase, Units, shares
of Common Stock and/or Warrants in the open market. Finally, the Underwriter may
reclaim selling concessions allowed to a dealer for distributing the Units in
the Offering, if the Underwriter repurchases previously distributed Units in
transactions to cover the Underwriter's short position, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Common Stock and Warrants above independent market levels.
The Underwriter is not required to engage in these activities, and may terminate
any of these activities at any time.
The Company has agreed to indemnify the Underwriter against any costs
or liabilities incurred by the Underwriter by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement filed by the Company with the Commission under the
Securities Act (together with all amendments and exhibits thereto, the
"Registration Statement") and this Prospectus. The Underwriter has in turn
agreed to indemnify the Company against any costs or liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in the Registration Statement and this Prospectus, based on
information relating to the Underwriter and furnished in writing by the
Underwriter. To the extent that these provisions may purport to provide
exculpation from possible liabilities arising under the federal securities laws,
in the opinion of the Commission, such indemnification is contrary to public
policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 2,715,000
shares of Common Stock outstanding, assuming the Underwriter's over-allotment
option is not exercised. The holders of all shares outstanding prior to this
offering (1,300,000 shares) have agreed not to sell, transfer, or otherwise
dispose of any shares or options beneficially held by them for twenty four
months (24) from the Effective Date of this Prospectus without the prior written
consent of the Underwriter. The 115,000 shares of the Company's common stock to
be issued to the holders of the private placement notes upon Closing of this
Offering will be "restricted securities" and are subject to a two year lock-up
agreement under the terms of the purchase of the private placement notes. All
shares of Common Stock purchased in this offering will be freely transferable
without restriction or registration under the Securities Act, except to the
extent purchased or owned by "affiliates" of the Company as defined for purposes
of the Securities Act.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned "restricted" securities for at least one year, including
persons who may be deemed to be "affiliates" of the Company, may sell publicly
without registration under the Securities Act, within any three-month period,
assuming compliance with other provisions of the Rule, a number of shares that
does not exceed the greater of (i) one percent of the Common Stock then
outstanding, or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale. A person who is not deemed
an "affiliate" of the Company and who has beneficially owned shares for at least
two years would be entitled to sell such shares under Rule 144 without regard to
the volume and other limitations described above. Approximately 775,000 of the
Company's outstanding shares of common stock would be transferable under Rule
144 on the date hereof but for the agreement with the Underwriter not to sell
for a 24 month period. Therefore, if the holders of these shares obtained the
consent of the Underwriter, these shares could be sold.
Prior to this offering, there has been no market for the Common Stock,
and no prediction can be made of the effect, if any, of future public sales of
"restricted" shares or the availability of "restricted" shares for sale in the
public market at the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Company's "restricted" shares in any public
market that may develop could adversely affect prevailing market prices.
LEGAL PROCEEDINGS
The Company is not a party to, nor is it aware of, any threatened
litigation of a material nature.
63
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for
the Company by Connolly Epstein Chicco Foxman Oxholm & Ewing, 1515 Market
Street, 9th Floor, Philadelphia, PA 19102. Certain legal matters will be passed
upon for the Underwriter by David A. Carter, P.A., 2300 Glades Road, Suite 210,
West Tower, Boca Raton, Florida 33431.
64
<PAGE>
EXPERTS
The financial statements of the Company at December 31, 1997 and for
each of the two years in the period ended December 31, 1997 appearing in this
Prospectus and the 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.
65
<PAGE>
Gen Trak, Inc.
Financial Statements
Index to Financial Statements
Report of Independent Auditors.............................................F-2
Audited Financial Statements
Balance Sheets.............................................................F-3
Statements of Operations...................................................F-4
Statements of Stockholders' Equity (Deficit)...............................F-5
Statements of Cash Flows...................................................F-6
Notes to Financial Statements..............................................F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Gen Trak, Inc.
We have audited the accompanying balance sheet of Gen Trak, Inc. as of December
31, 1997, and the related statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audits provide 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 Gen Trak, Inc. at December 31,
1997, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 13, 1998, except as
to Note 17, for which the
date is September 30, 1998
F-2
<PAGE>
Gen Trak, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31 September 30
1997 1998
------------ -------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash $ 45,757 $ 66,623
Accounts receivable, less allowance of $6,600 in 1997
and $31,200 in 1998 355,231 278,613
Inventory 1,358,568 548,724
Prepaid expenses 80,874 68,644
----------- -----------
Total current assets 1,840,430 962,604
Property and equipment, net 119,073 92,018
Advances to stockholders 31,466 --
Other assets 297,919 289,359
----------- -----------
Total assets $ 2,288,888 $ 1,343,981
=========== ===========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Bank line of credit $ 375,000 $ 400,000
Stockholder line of credit -- 200,000
Stockholder demand loan -- 115,000
Accounts payable 208,854 223,196
Accrued expenses 70,908 83,345
Accrued expenses - stockholders 37,492 55,988
Current portion of long-term debt and capital lease 29,890 26,919
----------- -----------
Total current liabilities 722,144 1,104,448
Long-term debt and capital lease, less current portion 922,200 904,608
Notes payable to stockholders 58,737 58,737
Stockholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares - 25,000,000
Issued and outstanding shares - 1,300,000 13,000 13,000
Additional paid-in capital 1,557,247 1,525,781
Accumulated deficit (984,440) (2,262,593)
----------- -----------
Total stockholders' equity (deficit) 585,807 (723,812)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 2,288,888 $ 1,343,981
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
Gen Trak, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31 Nine months ended
September 30
1996 1997 1997 1998
------------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 2,854,536 $ 2,710,485 $ 2,050,354 $ 1,650,535
Cost of sales 1,523,737 1,490,928 1,141,909 1,003,697
Write-down of inventory -- -- -- 791,378
----------- ----------- ----------- -----------
1,330,799 1,219,557 908,445 (144,540)
Operating expenses:
Marketing and selling 780,809 864,144 650,870 696,481
General and administrative 286,080 313,888 219,926 274,236
Research and development 226,270 56,746 40,816 48,048
----------- ----------- ----------- -----------
1,293,159 1,234,778 911,612 1,018,765
----------- ----------- ----------- -----------
Income (loss) from operations 37,640 (15,221) (3,167) (1,163,305)
Interest expense 184,619 122,862 90,481 114,848
----------- ----------- ----------- -----------
Net loss $ (146,979) $ (138,083) $ (93,648) $(1,278,153)
Pro forma adjustment (unaudited):
Income tax benefit as a
C Corporation (49,972) -- -- --
----------- ----------- ----------- -----------
Pro forma net loss $ (97,007) $ (138,083) $ (93,648) $(1,278,153)
=========== =========== =========== ===========
Basic and diluted loss per share $ (.12) $ (.11) $ (.07) $ (.98)
=========== =========== =========== ===========
Weighted average shares outstanding 1,192,094 1,300,000 1,300,000 1,300,000
=========== =========== =========== ===========
Pro forma basic and diluted loss per
share $ (.07) $ (.86)
=========== ===========
Pro forma weighted average shares
outstanding 1,443,000 1,443,000
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
Gen Trak, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 10,824 $ 437,649 $ (699,378) $ (250,905)
Stockholders' notes converted
to common stock 2,176 1,119,598 -- 1,121,774
Net loss -- -- (146,979) (146,979)
----------- ----------- ----------- -----------
Balance, December 31, 1996 13,000 1,557,247 (846,357) 723,890
Net loss -- -- (138,083) (138,083)
----------- ----------- ----------- -----------
Balance, December 31, 1997 13,000 1,557,247 (984,440) 585,807
Distributions to stockholders
(Unaudited) (31,466) (31,466)
Net loss (Unaudited) -- -- (1,278,153) (1,278,153)
----------- ----------- ----------- -----------
Balance, September 30, 1998
(Unaudited) $ 13,000 $ 1,525,781 $(2,262,593) $ (723,812)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
Gen Trak, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31 Nine months ended
September 30
1996 1997 1997 1998
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss $ (146,979) $ (138,083) $ (93,648) $(1,278,153)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 90,547 71,966 51,897 33,421
Amortization 25,439 25,105 21,522 12,597
Loss on sale of property and equipment 246 -- -- --
Patent allowance reduction (10,000) -- -- --
Write-down of inventory -- -- -- 791,378
Changes in operating assets and liabilities:
Accounts receivable 148,579 (45,312) (170,354) 76,618
Inventory 169,718 100,716 144,053 18,466
Prepaid expenses (11,100) 9,297 95 12,230
Accounts payable (35,193) 52,820 67,328 14,342
Accrued expenses 2,304 (35,191) (26,526) 30,933
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 233,561 41,318 (5,633) (288,168)
----------- ----------- ----------- -----------
Investing activities
Refund of lease deposit -- 13,682 13,682 --
Proceeds from disposal of property and equipment 5,000 -- -- --
Purchases of property and equipment (25,706) (43,941) (5,030) (6,366)
Additions to other assets (23,835) (9,665) (6,878) (4,037)
----------- ----------- ----------- -----------
Net cash (used in) provided by investing activities (44,541) (39,924) 1,774 (10,403)
----------- ----------- ----------- -----------
Financing activities
Borrowings (payments) on bank line of credit 70,000 (5,000) (43,000) 25,000
Borrowings on stockholder line of credit -- -- -- 200,000
Proceeds from stockholder demand loan -- -- -- 115,000
Payments on term loan (239,802) -- -- (17,591)
Payments on capital lease -- (2,283) -- (2,972)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities (169,802) (7,283) (43,000) 319,437
----------- ----------- ----------- -----------
Increase (decrease) in cash 19,218 (5,889) (46,859) 20,866
Cash at beginning of year 32,428 51,646 51,646 45,757
----------- ----------- ----------- -----------
Cash at end of period $ 51,646 $ 45,757 $ 4,787 $ 66,623
=========== =========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest $ 207,496 $ 123,732 $ 90,758 $ 112,779
=========== =========== =========== ===========
Lease obligation incurred $ -- $ 17,951 $ 17,951 $ --
=========== =========== =========== ===========
Conversion of stockholders' notes to common stock $ 1,121,774 $ -- $ -- $ --
=========== =========== =========== ===========
Distribution of stockholder advances $ -- $ -- $ -- $ 31,466
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements
December 31, 1997
1. Business
Gen Trak, Inc. is engaged in the manufacture and sale of health care test kits
for cellular diagnostics, paternity and genetic testing.
The Company sells its products to companies in the healthcare industry,
primarily hospital based and private laboratories performing cellular
diagnostics, organ and bone marrow transplantation, disease association studies,
basic research and flow cytometry.
2. Accounting Policies
Interim Financial Information
The financial statements and disclosures included herein for the nine months
ended September 30, 1998 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a fiscal year.
At September 30, 1998, the Company had an accumulated deficit of $2,262,593
(unaudited) and a working capital deficit of $141,844 (unaudited). As discussed
in Note 18, the Company began to outsource the manufacturing of its core
products in September 1998. The Company believes this change will improve the
quality and reduce the cost of its products. The Company also anticipates
improved cash flow as a result of the ability to better manage inventory. The
Company believes the anticipated improved operations resulting from the
outsourcing of the manufacturing operations together with the proceeds from the
stockholder demand loan, the stockholder line of credit and the unsecured
promissory notes issued in the fourth quarter of 1998 (Note 18), will enable the
Company to continue to meet its working capital obligations through September
1999.
Revenue Recognition
Sales revenue is recognized upon shipment of products.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Fair Values of Financial Instruments
The carrying amounts of accounts receivable and accounts payable approximate
fair value because of their short-term nature. The carrying amounts of long-term
debt, the bank line of credit, the stockholder line of credit and the
stockholder demand loan approximate fair value because the interest rates are
reflective of rates that the Company would be able to obtain on debt with
similar terms and conditions.
Inventory
Inventory is valued at the lower of cost, determined by the first-in, first-out
method, or market.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated over the
estimated useful lives of the assets, which range from three to ten years, using
the straight-line method. Leasehold improvements are being amortized over the
term of the lease.
Patent Costs
The Company amortizes patent costs using the straight-line method over the
patent's estimated useful life of 17 years. In 1997, the U.S. Patent Office
granted the Company its "Identification and Paternity Determination by Detecting
Presence or Absence of Multiple Nucleic Acid Sequences" patent and, therefore,
the Company began amortizing this patent.
Long-Lived Assets
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," requires recording impairment losses
on long-lived assets when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. The Company's
estimate of undiscounted cash flows related to its capitalized patent costs
indicate that such costs are expected to be recovered through product sales and
licensing revenue. Cash flows from product sales utilizing the patented
technologies are dependent upon the Company generating the estimated financial
resources necessary to further develop the patented technologies into marketable
products. Should the Company be unable to generate such financing or locate
suitable licensees, it is reasonably possible that the estimate of undiscounted
cash flows may change, resulting in the need to write down these assets to fair
value.
F-8
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Clinical Trial Costs
The Company has received approval of applications filed with the United States
Food and Drug Administration (FDA) upgrading certain products of its monoclonal
product line to an in-vitro diagnostic classification. The costs incurred in
filing such applications are being amortized by the straight-line method over
the estimated useful lives of the products.
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," effective for 1996, provides companies with a choice to follow
the provisions of Statement No. 123 in determination of stock-based compensation
expenses or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company continues to follow APB 25. Pro forma
disclosures as required by Statement No. 123 were not made in 1996, 1997 or 1998
as the pro forma effects were considered to be immaterial to the financial
statements.
Income Taxes
The Company, with the consent of its stockholders, had elected S Corporation
status for federal and state purposes for all periods prior to September 23,
1998. As of that date, the Company terminated its status as an S Corporation and
normal federal and state income tax rates will apply to all taxable years
beginning after that date.
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131, which will be
adopted by the Company at December 31, 1998, establishes standards for annual
and interim disclosures of operating segments, products and services, geographic
areas and major customers. The Company is in the process of evaluating the
disclosure requirement of the new standard, the adoption of which will have no
impact on the Company's results of operations or financial condition.
F-9
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
3. Inventory
Inventory consisted of the following:
December 31 September 30
1997 1998
-------------- -------------
(Unaudited)
Work-in-process $ 783,440 $ 797,345
Finished product 627,283 532,395
Dry stores 68,309 80,185
Allowance for excess and obsolete
inventory (120,464) (861,201)
----------- ----------
$ 1,358,568 $ 548,724
=========== ==========
4. Property and Equipment
Property and equipment consisted of the following:
December 31 September 30
1997 1998
-------------- -------------
(Unaudited)
Laboratory and manufacturing equipment $ 904,248 $ 910,615
Furniture and fixtures 93,517 93,517
Leasehold improvements 116,393 116,393
---------- ----------
1,114,158 1,120,525
Accumulated depreciation and amortization 995,085 1,028,507
---------- ----------
$ 119,073 $ 92,018
========== ==========
Laboratory and manufacturing equipment include approximately $18,000 under
capital leases as of December 31, 1997. Accumulated depreciation related to
these assets was approximately $3,000 as of December 31, 1997.
F-10
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
5. Other Assets
Other assets consisted of the following:
December 31 September 30
1997 1998
------------ -----------
(Unaudited)
Patent costs, net of accumulated amortization of $17,357
in 1997 and $28,553 in 1998 (unaudited) $282,033 $274,517
Clinical trial costs, net of accumulated amortization of
$111,085 in 1997 and $112,129 in 1998 (unaudited) 3,266 2,222
Deposits and other assets 12,620 12,620
-------- --------
$297,919 $289,359
======== ========
6. Accrued Expenses
Accrued expenses consisted of the following:
December 31 September 30
1997 1998
------------ -----------
(Unaudited)
Accrued compensation $ 17,904 $ 22,649
Accrued interest 10,194 12,263
Other accrued expenses 42,810 48,433
-------- --------
$ 70,908 $ 83,345
======== ========
7. Bank Line of Credit
The Company has a $400,000 revolving line of credit with a bank which is payable
on demand and bears interest at the bank's "national commercial rate," as
defined (8.5% at December 31, 1997) plus 2.5%. The line of credit commitment is
renewable on an annual basis. The line of credit is secured by substantially all
the Company's assets and life insurance policies on a stockholder and the
Company's president. In addition, the line of credit is personally guaranteed by
a stockholder of the Company.
F-11
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
8. Long-Term Debt
Long-term debt consisted of the following:
December 31 September 30
1997 1998
----------- ------------
(Unaudited)
Term loan payable to a bank; interest is at the
bank's "national commercial rate" (8.5% at
December 31, 1997) plus 2.5%, secured by
substantially all the assets of the Company;
the loan is personally guaranteed by a
stockholder of the Company; due in monthly
installments of principal and
interest of $11,000 through December 2012 $936,422 $918,831
Capital lease obligation 15,668 12,696
-------- --------
952,090 931,527
Less current portion 29,890 26,919
-------- --------
$922,200 $904,608
======== ========
The term loan was originally to be repaid over five years, however, the loan was
amended in 1997 to provide for interest only during 1997 and the loan was
further amended in January 1998 providing for a fifteen-year repayment period
commencing in January 1998. Aggregate maturities of long-term debt for each of
the five years subsequent to December 31, 1997 based on the fifteen-year
repayment period are as follows:
1998 $ 29,890
1999 33,544
2000 37,653
2001 38,060
2002 40,287
Thereafter 772,656
--------
$952,090
========
9. Notes Payable to Stockholders
Certain stockholders converted notes payable of $1,121,774 effective July 1,
1996 into 217,600 shares of the Company's common stock. The amount of notes
payable to stockholders which remain outstanding is $58,737. The principal on
these notes is due on June 29, 2002. Interest accrues at a rate equivalent to
the primary bank's "national commercial rate" (8.5% at December 31, 1997) plus
1%.
F-12
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
10. Leases
The Company leases certain personal property and its operating facility under
noncancelable operating leases with terms expiring over the next three years.
Rental expense under operating leases for the years ended December 31, 1996 and
1997 was approximately $170,000 and $177,000, respectively. Rental expense under
operating leases for the nine months ended September 30, 1997 and 1998 was
approximately $133,000 and $129,000, respectively (unaudited).
Future minimum lease payments under noncancelable operating leases at December
31, 1997 are $133,000 in 1998, $128,000 in 1999, and $21,000 in 2000.
11. Income Taxes
The termination of the Company's S Corporation status on September 23, 1998 had
no impact on the Company's financial condition or results of operations.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance
equal to the net deferred tax asset has been recorded on the basis of the
uncertainty with respect to the ultimate realization of the net deferred tax
assets. Significant components of the Company's deferred tax assets and
liabilities at September 30, 1998 (unaudited) are as follows:
Deferred tax asset
Reserves on accounts receivable $ 12,479
Inventory reserves and capitalization 350,708
Book over tax depreciation 36,145
Other non-deductible accruals 22,395
---------
Total deferred tax assets 421,727
Deferred tax liability
Capitalized clinical trial and patent costs (110,696)
---------
Total deferred tax liabilities (110,696)
---------
311,031
Valuation allowance for net deferred tax assets (311,031)
---------
Net deferred tax assets $ --
=========
F-13
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
12. Related Party Transactions
Certain stockholders of the Company also perform accounting, legal and
consulting services on behalf of the Company. Fees incurred related to these
services were approximately $41,000 and $33,000, for the years ended December
31, 1996 and 1997, respectively, and $25,000 for each of the nine-month periods
ended September 30, 1997 and 1998 (unaudited). Amounts due for these services
are included in accrued expenses - stockholders.
13. Profit-Sharing Plan
The Company has a 401(k) profit-sharing plan which is available to all employees
who have completed one year of service. The Plan permits employee contributions
up to 15% of compensation. The Company is required to contribute the lesser of
3% of compensation or 50% of the first 6% of compensation contributed by the
employee. Company contributions were approximately $15,300 and $7,800 for the
years ended December 31, 1996 and 1997 and $4,600 and $12,000 for the nine
months ended September 30, 1997 and 1998, respectively (unaudited).
14. Stock Option Plans
At December 31, 1997, the Company had stock option plans for certain key
employees and members of the Company's Scientific Advisory Board ("SAB"). The
stock option plans were administered by the Board of Directors and stock options
were granted at the fair market value of the underlying stock as determined by
the Board of Directors. The Company granted 1,746 options to members of the SAB
in July 1996 at an exercise price of $6.01 per share. The options vested ratably
over the member's two-year term on the SAB and were to expire 5 years from the
grant date. During 1998, prior to the exercise of any options, the SAB was
eliminated and, in accordance with stock option plan, all outstanding options
were canceled. No options were outstanding under the employee plan. The stock
option plans were terminated in 1998.
15. Employment Agreement
The Company has an employment agreement with its President and Chief Executive
Officer. In addition to an annual salary, the agreement provides for a success
fee in the event that the President and Chief Executive Officer, during the term
of his employment or for 18 months thereafter, introduces the Company or its
stockholders to any entity which acquires all or a material part of the
Company's assets or more than 50% of the Company's stock, or whose assets or
stock the Company acquires. The success fee will be equal to a percentage of the
consideration paid in the transaction. Each member of the Company's Board of
Directors has a similar right to a success fee in connection with introductions
they may make.
F-14
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
16. Geographic Information
The following is a summary of sales by geographic region:
Year ended Nine months ended
December 31 September 30
1996 1997 1997 1998
------ -------- -------- --------
(Unaudited)
North America 85% 80% 85% 85%
Europe 11 16 11 8
Other 4 4 4 7
=== === === ===
100% 100% 100% 100%
=== === === ===
17. Subsequent Events
The Board of Directors declared a 1 for 17.184035 reverse stock split in
September 1998. Further, the authorized shares of the Company were reduced from
100,000,000 to 25,000,000. All references to common stock in the accompanying
financial statements have been retroactively restated to reflect these actions.
18. Events (Unaudited) Subsequent to Date of Auditor's Report
In June 1998, the Company entered into an exclusive distribution agreement with
BioSynthesis, Inc. (BSI). Pursuant to the agreement, the Company has been named
the exclusive distributor in the United States and Canada for certain molecular
products manufactured by BSI. The agreement has an initial term of three years
and may be extended by the Company for three additional consecutive one-year
periods. The Company has agreed to certain minimum annual purchase requirements.
The Company borrowed $115,000 from a stockholder in August 1998. The loan bears
interest at 11% and is due on demand.
The Company entered into a $300,000 line of credit agreement with a stockholder
in September 1998. The line of credit bears interest at 10% and is subordinate
to the bank debt. Advances under the line of credit are due upon the earlier to
occur of the sale of any debt or equity securities from which the Company shall
have received at least $1,000,000 of net proceeds or September 30, 1999. At
September 30, 1998, borrowings of $200,000 were outstanding under the line of
credit. Concurrent with the line of credit agreement, the Company entered into a
consulting agreement with the same stockholder. Pursuant to the consulting
agreement, the stockholder will provide general business consulting for a term
of three years, commencing October 1, 1998 at a monthly fee of $7,500. Monthly
consulting fees shall accrue and will not be payable until the principal on the
line of credit becomes due.
F-15
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
18. Events (Unaudited) Subsequent to Date of Auditor's Report (continued)
The Company entered into a Contract Manufacturing Agreement (the Agreement) with
SFP Research, Inc. (SFP) in September 1998. Pursuant to the Agreement, SFP will
manufacture the Company's products. The price paid by the Company will be SFP's
direct manufacturing cost plus a monthly fee of $7,500. The Company has also
been granted the option, at its sole discretion, to acquire SFP for an amount
not to exceed $700,000 during the term of the Agreement subject to appropriate
due diligence. The Agreement has an original term of two years and may be
extended by the Company for three additional consecutive one-year periods.
The Agreement with SFP increased the Company's access to unique immunogenetic
products and reagents which allowed the Company to improve the quality and
breadth of its product offerings. As a result of the release of these new
products, the Company determined that approximately $791,000 of inventory on
hand at September 30, 1998 (unaudited) was unusable and as such, a charge for
that amount has been reflected in the September 30, 1998 Statement of
Operations.
In September 1998, the Board of Directors authorized the filing of a
Registration Statement on Form SB-2 with the Securities and Exchange Commission
for a proposed initial public offering of the Company's common stock.
In September 1998, the Company's Board of Directors approved the 1998 Stock
Option Plan (the "Plan"). Pursuant to the Plan, 100,000 shares of common stock
were reserved for issuance upon exercise of options to be granted under the
Plan. The Company issued options to purchase 70,000 shares of common stock in
the fourth quarter of 1998 at an exercise price of $3.00 per share. The options
vested at the grant date. The Company will record a charge in October 1998 for
the difference between the fair value of the common stock based on the initial
public offering price and the exercise price of the options.
In the fourth quarter of 1998, the Company issued $575,000 of unsecured
promissory notes (the "Notes") to certain unaffiliated investors. The Notes are
due and payable at the closing of the proposed initial public offering. At the
closing of the proposed initial public offering, the holders of the Notes will
also receive the number of shares of common stock which, valued at the proposed
initial public offering price, equal the holders' investment in the Notes
(115,000 shares). The value of such shares will be reflected as interest
expense. If the proposed initial public offering is not completed on or prior to
September 28, 1999, the Notes will be due and payable at that time with interest
from the date of the issuance of the Notes at 12% per year.
F-16
<PAGE>
Gen Trak, Inc.
Notes to Financial Statements (continued)
19. Pro Forma Adjustments (Unaudited)
The Company's status as an S Corporation under the Internal Revenue Code
terminated on September 23, 1998 and normal corporate income tax rates now
apply. Accordingly, the 1996 Statement of Operations includes a pro forma
adjustment for the income tax benefit of carrying back the federal net operating
loss incurred in 1996 to profitable years in which the Company would have paid
income taxes as a C corporation. No such carryback is available for the 1997 or
1998 federal and state net operating losses and therefore, since realization of
a deferred tax asset is not reasonably assured, no pro forma benefit was
reflected in the 1997 or 1998 Statements of Operations.
Pro forma basic and diluted loss per share is calculated based upon pro forma
net loss further adjusted for the reduction in interest expense (approximately
$35,000 for the year ended December 31, 1997 and $33,000 for the nine months
ended September 30, 1998) that would have taken place had the outstanding
indebtedness discussed below been retired at the beginning of each period and
1,300,000 shares outstanding plus the estimated number of shares (143,000) which
would have to be sold by the Company at the initial offering price of $5.00 per
share to retire the outstanding balances of the bank line of credit ($400,000),
the stockholder line of credit ($200,000) and the stockholder demand loan
($115,000) at September 30, 1998.
F-17
<PAGE>
--------------------
TABLE OF CONTENTS
--------------------
Page
----
PROSPECTUS SUMMARY....................................................3
The Company and its Products.................................3
The Offering.................................................5
Summary Financial Data.......................................6
STATEMENTS OF OPERATIONS DATA.........................................7
RISK FACTORS..........................................................9
DILUTION.............................................................16
USE OF PROCEEDS......................................................17
DIVIDEND POLICY......................................................18
CAPITALIZATION.......................................................20
SELECTED FINANCIAL DATA..............................................21
Statement of Operations Data................................21
MANAGEMENT'S DISCUSSION AND ANALYSIS.................................22
THE COMPANY'S BUSINESS...............................................33
MANAGEMENT...........................................................48
EXECUTIVE COMPENSATION...............................................50
PRINCIPAL SHAREHOLDERS...............................................53
CERTAIN TRANSACTIONS.................................................56
DESCRIPTION OF SECURITIES............................................57
UNDERWRITING.........................................................60
SHARES ELIGIBLE FOR FUTURE SALE......................................63
LEGAL PROCEEDINGS....................................................63
LEGAL MATTERS........................................................64
EXPERTS..............................................................65
<PAGE>
================================================================================
A prospective investor should rely only on the information contained in this
Prospectus or in the Company's registration statement filed with the SEC. The
Company and the Underwriter have not authorized any other person to provide you
with any other information. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities by any person in any
jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date after the date of this Prospectus.
Until ________, 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
offering, may be required to deliver a Prospectus. This is in addition to the of
dealers' obligation to deliver a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
================================================================================
<PAGE>
650,000 Units
Each Unit Consisting of
Two Shares of Common Stock
Two Redeemable Common Stock Purchase Warrants
GEN TRAK, INC.
---------------------------
PROSPECTUS
---------------------------
BARRON CHASE
SECURITIES
7700 W. Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Beverly Hills, California
Boston, Massachusetts
Buffalo, New York
Chicago, Illinois
Clearwater, Florida
Duluth, Georgia
Edison New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrook Heights, New Jersey
La Jolla, California
Naples, Florida
New York, New York
Orlando, Florida
Sarasota Florida
Tampa, Florida
Tulsa, Oklahoma
______________ , 1998
================================================================================
<PAGE>
PART II
----------------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws provide that the Company shall indemnify each person who
is or was a director, officer or employee of the Company to the fullest extent
permitted under Section 1741 of the Pennsylvania Business Corporation Act (the
"PBCA"). Section1741 of the PBCA empowers a Pennsylvania corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding 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, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including attorneys'
fees) incurred by any officer or director in defending such action, provided
that the director or officer undertakes to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
A Pennsylvania corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's bylaw, agreement, vote or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933, as amended, and is therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred in connection with the
issuance and distribution of securities being registered, all of which are being
paid exclusively by the Company, other than underwriting discounts and
commissions are as follows:
Securities and Exchange Commission filing fee............... $ 5,050
National Association of Securities Dealers filing fee....... 2,317
Nasdaq and Exchange filing fees............................. 12,000
Underwriter's Non-Accountable Expense Allowance............. 195,000
Underwriter's Financial Advisory Fee........................ 108,000
State Securities Laws (Blue Sky) fees and expenses.......... 20,000*
Printing and mailing costs and fees......................... 35,000*
Legal fees and costs........................................ 100,000
Accounting fees and costs................................... 75,000*
Transfer Agent fees......................................... 5,000*
Miscellaneous expenses...................................... 42,633
--------
TOTAL....................................................... $600,000
- ----------------
* Estimated
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
1. On September 23, 1998, the Company issued its 10% Promissory Note to
Susquehana Holdings Corp. in the principal amount of $300,000. Simultaneously,
stockholders of the Company sold 390,000 shares of its Common Stock to
Susquehana Holdings Corp., for aggregate consideration of $2,500. No underwriter
participated in this transaction. This transaction was exempt from registration
pursuant to Section 4(2) of the Act. The Company relied on Section 4(2) based
upon its knowledge of the sophistication of the single purchaser. No public
solicitation was employed, and the purchaser provided the Company and
stockholders with representations regarding its investment intent.
2. In the fourth quarter of 1998, the Company issued options
exercisable for a total of 70,000 shares of common stock to ten people. The
options are exercisable at a price of $3.00 per share. These issuances were
exempt from registration pursuant to Rule 701.
3. In November, 1998, the Company issued $575,000 in principal amount
of its unsecured Promissory Notes due September 28, 1999 to sixteen purchasers.
These notes were sold for 100% of their face value. Barron Chase Securities,
Inc. acted as Selling Agent for the Company in the Offering and Barron Chase
received a selling commission equal to 10% of the purchase price of the Notes
sold, and a non-accountable expense allowance equal to 3% of the purchase price
of the Notes. This transaction was exempt from registration pursuant to Rule 506
of Regulation D. The Company relied on Rule 506 based upon the written
representations of the purchasers, that among other things, they were
"accredited investors" as defined in Regulation D.
II-3
<PAGE>
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement between the Company and Barron
Chase Securities, Inc.
1.2 Form of Selected Dealers Agreement
1.3 Form of Underwriter's Warrant Agreement and Form of Warrant
Certificate
3.1 Articles of Incorporation and Amendments thereto
3.2 Bylaws
3.3 Form of Specimen Common Stock Certificate*
3.4 Form of Specimen Warrant Certificate
3.5 1998 Stock Option Plan
4.0 Agreement between the Company and Stocktrans, Inc. (Warrant Agent)*
5.0 Form of Opinion of Connolly Epstein Chicco Foxman Oxholm & Ewing*
10.1 Addendum to Employment Agreement between the Company and Arthur
Boyce
10.2 Form of Financial Advisory Agreement with Underwriter
10.3 Form of Merger and Acquisition Agreement with Underwriter
10.4 Consulting Agreement between the Company and George Bird
10.5 Promissory Note from the Company to Susquehana Holdings Corp.
10.6 Purchase Agreement between the Company and Susquehana Holdings
Corp.
10.7 Consulting Agreement between the Company and Norbert Zeelander
10.8 Manufacturing Agreement between the Company and SFP Research, Inc.
10.9 Distribution Agreement between the Company and Biosynthesis, Inc.
24.1 Consent of Ernst & Young LLP
27.0 Financial Data Schedule (Electronic Filing only)
* To be filed by Amendment
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(a)(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 event which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(a)(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.
(a)(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(d) Will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "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 Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(f)(2) For determining any liability under the Securities Act, 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.
II-5
<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 has authorized this Registration
Statement to be signed on its behalf by the undersigned, in Plymouth Meeting,
Pennsylvania, on December 23, 1998.
GEN TRAK, INC.
By: /s/ Arthur V. Boyce, Jr
---------------------------------------
Arthur V. Boyce, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Arthur V. Boyce, Jr. President, Director and Chief Executive December 23, 1998
- ------------------------------------ Officer
Arthur V. Boyce, Jr.
/s/ George L. Bird, Jr. Chairman of the Board, Secretary and
- ------------------------------------ Director December 23, 1998
George L. Bird, Jr.
/s/ Harry A. Arena Treasurer, Principal Financial Officer and
- ------------------------------------ Director December 23, 1998
Harry A. Arena
/s/ Gerald Hamburg Director December 23, 1998
- ------------------------------------
Gerald Hamburg
/s/ Donald O. Nichols Vice-President, Controller and Principal
- ------------------------------------ Accounting Officer December 23, 1998
Donald O. Nichols
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement between the Company and Barron
Chase Securities, Inc.
1.2 Form of Selected Dealers Agreement
1.3 Form of Underwriter's Warrant Agreement and Form of Warrant
Certificate
3.1 Articles of Incorporation and Amendments thereto
3.2 Bylaws
3.3 Form of Specimen Common Stock Certificate*
3.4 Form of Specimen Warrant Certificate
3.5 1998 Stock Option Plan
4.0 Agreement between the Company and Stocktrans, Inc. (Warrant Agent)*
5.0 Form of Opinion of Connolly Epstein Chicco Foxman Oxholm & Ewing*
10.1 Addendum to Employment Agreement between the Company and Arthur
Boyce
10.2 Form of Financial Advisory Agreement with Underwriter
10.3 Form of Merger and Acquisition Agreement with Underwriter
10.4 Consulting Agreement between the Company and George Bird
10.5 Promissory Note from the Company to Susquehana Holdings Corp.
10.6 Purchase Agreement between the Company and Susquehana Holdings
Corp.
10.7 Consulting Agreement between the Company and Norbert Zeelander
10.8 Manufacturing Agreement between the Company and SFP Research, Inc.
10.9 Distribution Agreement between the Company and Biosynthesis, Inc.
24.1 Consent of Ernst & Young LLP
27.0 Financial Data Schedule (Electronic Filing only)
* To be filed by Amendment
II-7
<PAGE>
GEN TRAK, INC.
650,000 UNITS
(Each Unit consisting of two shares of Common Stock and two Common Stock
Purchase Warrants, each Common Stock Purchase Warrant exercisable to purchase
one share of Common Stock at a price of $6.00 per share at any time during the
period between the Effective Date and five years from the Effective Date)
UNDERWRITING AGREEMENT
Boca Raton, Florida
____________, 1999
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
Gen Trak, Inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby proposes to issue
and sell to Barron Chase Securities, Inc. (the "Underwriter") for sale in a
proposed public offering pursuant to the terms of this Underwriting Agreement
(the "Agreement"), on a "firm commitment" basis, an aggregate of 650,000 Units
(the "Units"), at $10.00 per Unit (the "Offering"). Each Unit consists of two
shares of Common Stock (the "Shares") and two Common Stock Purchase Warrants
(the "Warrants") exercisable to purchase one share of Common Stock at a price of
$6.00 per share at any time during the period between the Effective Date and
five years from the Effective Date. The Units are also referred to as the
"Securities". The date upon which the Securities and Exchange Commission
("Commission") shall declare the Registration Statement of the Company effective
shall be the "Effective Date". The Warrants are subject to redemption under
certain circumstances. In addition, the Company proposes to grant to the
Underwriter the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 97,500 additional Units (the "Option Securities").
You have advised the Company that you desire to purchase the
Securities, and that you are authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the
Securities by the Underwriter, as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with the Underwriter
as of the Effective Date (as defined above), the Closing Date (as hereinafter
defined) and the Option Closing Date (as hereinafter defined) that:
1
<PAGE>
(a) A registration statement (File No. ________) on Form SB-2 relating
to the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriter or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, under the heading "Underwriting" and regarding the identity of
counsel to the Underwriter under the heading "Legal Matters" constitute the only
information furnished in writing by the Underwriter for inclusion in the
Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as
of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respect with, or were
exempt from, applicable Federal and state securities laws; the holders thereof
have no rights of rescission against the Company with respect thereto, and are
not subject to personal liability by reason of being such holders; none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company; except as set forth in the Prospectus, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any securities of the Company have
been granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
2
<PAGE>
(e) The Units and the Shares are duly authorized, and when issued,
delivered and paid for pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any securities of the Company,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, validly
issued and delivered and will constitute valid and legally binding obligations
of the Company entitling the holders to the benefits provided by the warrant
agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance and when issued in accordance with the
terms of the Warrants and Warrant Agreement will be duly and validly authorized,
validly issued, fully paid and non-assessable, free of pre-emptive rights, and
no personal liability will attach to the ownership thereof. The Warrant exercise
period and the Warrant exercise price may not be changed or revised by the
Company without the prior written consent of the Underwriter. The Warrant
Agreement has been duly authorized and, when executed and delivered pursuant to
this Agreement, will have been duly executed and delivered and will constitute
the valid and legally binding obligation of the Company enforceable in
accordance with its terms.
The Underwriter Warrants, the shares of Common Stock issuable upon
exercise of the Underwriter Warrants, the Underlying Warrants, and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (all as defined
in the Underwriter's Warrant Agreement described in Section 11 herein), have
been duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Underwriter's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Underwriter's Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company, and assuming due execution of this Agreement by
the other party hereto, constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the rights of creditors generally. The Company has full power and authority to
authorize, issue and sell the Securities to be sold by it hereunder on the terms
and conditions set forth herein, and no consent, approval, authorization or
other order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and sale
of the Securities or the securities to be issued pursuant to the Underwriter's
Warrant Agreement, except such as may be required under the Act or state
securities laws, or as otherwise have been obtained.
3
<PAGE>
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any material lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary or any of the terms or provisions of any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any subsidiary is a party or by which the
Company or any subsidiary may be bound or to which any of the property or assets
of the Company or any subsidiary is subject, nor will such action result in any
material violation of the provisions of the Articles of Incorporation or By-Laws
of the Company or any subsidiary, as amended, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not material to
its business, financial condition or results of operation; all of the material
leases and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or any subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Ernst & Young LLP, who has given its report on certain financial
statements filed and to be filed with the Commission as part of the Registration
Statement, and which are included in the Prospectus, is with respect to the
Company, independent public accountants as required by the Act and the Rules and
Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present fairly
the financial condition, results of operations and cash flows of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Said financial statements and
related notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. The Company's internal accounting controls and procedures are
sufficient to cause the Company and each subsidiary to prepare financial
statements which comply in all material respects with generally accepted
accounting principles applied on a basis which is consistent during the periods
involved. During the preceding five (5) year period, nothing has been brought to
the attention of the Company's management that would result in any material
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
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(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly,
at any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public of quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the Underwriter hereunder will
have been fully paid or provided for by the Company and all laws imposing such
taxes will have been fully complied with.
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(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter against any losses, claims, damages
or liabilities, which shall include, but not be limited to, all costs to defend
against any such claim, so long as such claim arises out of agreements made or
allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or beneficial owner of five percent (5%) or more of the
securities of the Company or any subsidiary has any direct or indirect
affiliation or association with any member of the National Association of
Securities Dealers, Inc. ("NASD"), except as disclosed to the Underwriter in
writing, and no beneficial owner of the Company's unregistered securities has
any direct or indirect affiliation or association with any NASD member except as
disclosed to the Underwriter in writing. The Company will advise the Underwriter
and the NASD if any beneficial owner of the securities of the Company or any
subsidiary is or becomes an affiliate or associated person of an NASD member
participating in the distribution.
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(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. To the Company's knowledge,
there are no pending investigations involving the Company or any subsidiary by
the U.S. Department of Labor, or any other governmental agency responsible for
the enforcement of such federal, state or local laws and regulations. To the
Company's knowledge, there is no unfair labor practice charge or complaint
against the Company or any subsidiary pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or to the knowledge of the Company, threatened against or involving the
Company or any subsidiary or any predecessor entity. No question concerning
representation exists respecting the employees of the Company or any subsidiary
and no collective bargaining agreement or modification thereof is currently
being negotiated by the Company or any subsidiary. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or any subsidiary, if any.
(aa) Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintains, sponsors nor contributes to, nor is it required to
contribute to, any program or arrangement that is an "employee pension benefit
plan", an "employee welfare benefit plan", or a "multi-employer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Except as disclosed in the Prospectus, neither the Company nor any
subsidiary maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or against
them, or by a receiver, fiscal agent or similar officer appointed
by a court for their business or property, or any partnership in
which any of them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which any of them was an executive officer at or
within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any
of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
7
<PAGE>
(ii) engaging in any type of business practice;
or
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or
in connection with any violation of federal or state
securities law or federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for more
than sixty (60) days their right to engage in any activity
described in paragraph (3)(i) above, or be associated with persons
engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and based
upon the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriter an aggregate of
650,000 Units at $9.00 per Unit (the public offering price less ten percent
(10%)) at the place and time hereinafter specified. The price at which the
Underwriter shall sell the Securities to the public shall be $10.00 per Unit.
Delivery of the Securities against payment therefor shall take place at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433 (or at such other place as may be designated by the Underwriter)
at 10:00 a.m., Eastern Time, on such date after the Registration Statement has
become effective as the Underwriter shall designate, but not later than ten (10)
business days (holidays excepted) following the first date that any of the
Securities are released to you, such time and date of payment and delivery for
the Securities being herein called the "Closing Date".
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<PAGE>
(b) In addition, subject to the terms and conditions of this Agreement,
and based upon the representations, warranties and agreements herein contained,
the Company hereby grants an option to the Underwriter to purchase all or any
part of an aggregate of an additional 75,000 Units at the same price per Unit as
the Underwriter shall pay for the Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities being
referred to herein as the "Option Securities"). This option may be exercised
within forty-five (45) days after the Effective Date of the Registration
Statement upon notice by the Underwriter to the Company advising as to the
amount of Option Securities as to which the option is being exercised, the names
and denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be later
than ten (10) full business days after the exercise of said option, nor in any
event prior to the Closing Date, and such time and date is referred to herein as
the "Option Closing Date". Delivery of the Option Securities against payment
therefor shall take place at the offices of the Underwriter. The Option granted
hereunder may be exercised only to cover overallotments in the sale by the
Underwriter of the Securities referred to in subsection (a) above. In the event
the Company declares or pays a dividend or distribution on its Common Stock,
whether in the form of cash, shares of Common Stock or any other consideration,
prior to the Option Closing Date, such dividend or distribution shall also be
paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date at the offices of the Underwriter, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to you
for the account of the Underwriter against payment of the purchase prices by the
Underwriter by certified or bank cashier's checks in New York Clearing House
funds payable to the order of the Company or by wire transfer in New York
Clearing House funds to the account of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made payable in New York Clearing House funds at the offices of the Underwriter,
or by wire transfer, at the time and date of delivery of such Securities as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Securities by the Underwriter for the account of the
Underwriter registered in such names and in such denominations as the
Underwriter may request.
It is understood that the Underwriter proposes to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement is declared
effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriter of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Underwriter.
9
<PAGE>
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriter and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriter the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriter or
Selected Dealers, of any event of which the Company has knowledge and which in
the opinion of counsel for the Company or counsel for the Underwriter should be
set forth in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Securities, or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with the Act and the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter.
The Company will comply with the Act, the Rules and Regulations
thereunder, and the provisions of the Securities Exchange Act of 1934 (the "1934
Act"), and the rules and regulations thereunder in connection with the offering
and issuance of the Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriter may reasonably
request.
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(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and either (i)
the out-of-pocket expenses of the Underwriter, not to exceed the $50,000
previously paid if the Underwriter elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Underwriter if the Company
elects to terminate the offering for any reason. For the purposes of this
sub-section, the Underwriter shall be deemed to have assumed such expenses when
they are billed or incurred, regardless of whether such expenses have been paid.
The Underwriter shall not be responsible for any expenses of the Company or
others, or for any charges or claims relative to the proposed public offering if
it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the Underwriter, from time to time
until the Effective Date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date of
the Registration Statement as the Underwriter may reasonably request. The
Company will deliver to the Underwriter on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Definitive
Prospectus, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Underwriter during the period ending five (5) years from the Effective Date,
(i) as soon as practicable after the end of each fiscal year, a balance sheet of
the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and any
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent accountants; (ii) as
soon as they are available, a copy of all reports (financial or other) mailed to
security holders; (iii) as soon as they are available, a copy of all
non-confidential documents, including annual reports, periodic reports and
financial statements, furnished to or filed with the Commission under the Act
and the 1934 Act; (iv) copies of each press release, news item and article with
respect to the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to the Underwriter as soon
as it is practicable, but in no event later than the first day of the sixteenth
full calendar month following the Effective Date, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
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(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to and will have obtained approval for
the listing of the Units (and when applicable, the Shares and Warrants) on The
Nasdaq Small Cap Market System, and will use its best efforts to maintain such
listing for at least seven (7) years from the date of this Agreement.
(i) For a period of seven (7) years following the Effective Date, the
Company will hold an annual meeting of stockholders for the election of
Directors within 180 days after the end of each of the Company's fiscal years
and, within nine (9) months after the end of each of the Company's fiscal years
will provide the Company's stockholders with the audited financial statements of
the Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriter and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you
the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement and
Warrant Certificates will be substantially in the form of the Underwriter's
Warrant Agreement filed as an exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Warrants outstanding from time to time.
(n) All existing beneficial owners of the Company's securities
(including warrants, options and Preferred Stock of the Company) as of the
Effective Date shall agree in writing, in a form satisfactory to the
Underwriter, not to sell, transfer or otherwise dispose of any of such
securities (or underlying securities) of the Company for a period of twenty-four
(24) months from the Effective Date or any longer period required by the NASD,
Nasdaq or any State, without the prior written consent of the Underwriter. For a
period of two (2) years following the Effective Date, all sales of the Company's
securities by officers and/or directors of the Company shall be through the
Underwriter.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on each of the lives of George L. Bird, Jr. and Arthur V. Boyce,
Jr. in an amount of not less than $2,000,000 each, and will use its best efforts
to maintain such insurance for a period of at least five (5) years from the
Effective Date.
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(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Underwriter may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain such listing for a period of
not less than five (5) years. The Company shall take such action as may be
reasonably requested by the Underwriter to obtain a secondary market trading
exemption in such states as may be reasonably requested by the Underwriter.
(q) During the one (1) year period commencing on the Closing Date, the
Company will not, without the prior written consent of the Underwriter, grant
options or warrants to purchase the Company's Common Stock at a price less than
the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Underwriter as a
non-exclusive financial advisor to the Company for a period of twelve (12)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Underwriter on the Closing Date. The financial advisory
agreement will provide that the Underwriter shall, at the Company's request,
provide advice and consulting services to the Company concerning potential
merger and acquisition proposals and the obtaining of short or long-term
financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain ______________________________ as the
transfer agent for the securities of the Company, or such other transfer agent
as you may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Underwriter with daily transfer sheets as to each
of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrantholders as reasonably requested by
the Underwriter, for a five (5) year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to furnish special security position
reports ("DTC Tracking Reports") to the Underwriter on a daily and weekly basis
at the expense of the Company, for a five (5) year period from the Effective
Date. It is anticipated that the DTC Tracking Reports may cost up to $10,000 for
the initial two (2) month period from the Effective Date, after which time the
Company's obligation to furnish such tracking reports will be reviewed by the
Company and the Underwriter.
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(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Underwriter shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Underwriter shall have the opportunity to invite an observer to attend Board of
Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Underwriter in a form satisfactory to the
Underwriter, providing:
(1) that the Underwriter will be paid a finder's fee, of from five
percent (5%) of the first $1,000,000 ranging in $1,000,000 increments
down to one percent (1%) of the excess, if any, over $4,000,000 of the
consideration involved in any transaction introduced by the Underwriter
(including mergers, acquisitions, joint ventures, and any other
business for the Company introduced by the Underwriter) consummated by
the Company, as an "Introduced, Consummated Transaction", by which the
Underwriter introduced the other party to the Company during a period
ending five (5) years from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Underwriter will be paid
in cash or stock as mutually agreed at the closing of the particular
Introduced, Consummated Transaction for which the finder's fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
(aa) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish the
Underwriter and each dealer as many copies of each such Prospectus as the
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statement shall also include the Underwriter's
Warrants and all the securities underlying the Underwriter's Warrants. The
Company shall not call for redemption any of the Warrants unless a Registration
Statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, the Warrants shall not be redeemable during the
first year after the Effective Date without the written consent of the
Underwriter.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the Underwriter a
written opinion detailing those states in which the Shares and Warrants of the
Company may be traded in non-issuer transactions under the Blue Sky laws of the
fifty states ("Secondary Market Trading Opinion"). The initial Secondary Market
Trading Opinion shall be delivered to the Underwriter on the Effective Date, and
the Company shall continue to update such opinion and deliver same to the
Underwriter on a timely basis, but in any event at the beginning of each fiscal
quarter, for a five (5) year period, if required.
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(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Underwriter or counsel to the Underwriter.
4. Conditions of Underwriter's Obligations. The obligation of the
Underwriter to purchase and pay for the Securities which the Underwriter has
agreed to purchase hereunder from the Company is subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the execution of this
Agreement by the Underwriter, to the continuing accuracy of, and compliance
with, the representations and warranties of the Company herein, to the accuracy
of statements of officers of the Company made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder, and to the
following additional conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the Commission;
(iii) no stop order suspending the effectiveness of the qualification or
registration of the Securities under the securities or "blue sky" laws of any
jurisdiction (whether or not a jurisdiction which you shall have specified)
shall be threatened or to the knowledge of the Company contemplated by the
authorities of any such jurisdiction or shall have been issued and in effect;
(iv) any request for additional information on the part of the Commission or any
such authorities shall have been complied with to the satisfaction of the
Commission and any such authorities, and to the satisfaction of counsel to the
Underwriter; and (v) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Underwriter and the Underwriter did not
object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any material subsidiary except as set forth
in or contemplated by the Registration Statement, (ii) there shall not have been
any material adverse change in the general affairs, business, properties,
condition (financial or otherwise), management, or results of operations of the
Company or any subsidiary, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement or Prospectus; (iii) neither the
Company nor any subsidiary shall have sustained any material interference with
its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and Prospectus; and (iv) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
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(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall have been duly performed, fulfilled or complied with.
(e) At the Closing Date, the Underwriter shall have received the
opinion, dated as of the Closing Date, from Connolly Epstein Chicco Foxman
Oxholm & Ewing, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriter, which in the aggregate shall state:
(i) the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement and Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the ownership or leasing
of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly authorized,
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company and other securities have not been
issued in violation of the preemptive rights of any shareholder and the
shareholders of the Company do not have any preemptive rights or, to
such counsel's knowledge, other rights to subscribe for or to purchase
securities of the Company, nor, to such counsel's knowledge, are there
any restrictions upon the voting or transfer of any of the securities
of the Company, except as disclosed in the Prospectus; the Units, the
Common Stock, the Shares, the Warrants, and the securities contained in
the Underwriter's Warrant Agreement conform to the respective
descriptions thereof contained in the Prospectus; the Units, the Common
Stock, the Shares, the Warrants, the shares of Common Stock to be
issued upon exercise of the Warrants and the securities contained in
the Underwriter's Warrant Agreement, have been duly authorized and,
when issued, delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of pre-emptive rights and no
personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been made in
compliance with or under an exemption from registration under the Act
and applicable state securities laws and no shareholders of the Company
have any rescission rights against the Company with respect to the
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Underwriter Warrants, and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any registration rights or other rights, other than those which have
been waived or satisfied or described in the Registration Statement;
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(iii) this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement have been duly and validly authorized, executed and delivered
by the Company and, assuming the due authorization, execution and
delivery of this Agreement by the Underwriter, are the valid and
legally binding obligations of the Company, enforceable in accordance
with their terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which effect creditors' rights
generally; and (b) no opinion is expressed as to the enforceability of
the indemnity provisions or the contribution provisions contained in
this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock and the Warrants are in valid and
proper legal form;
(v) to the best of such counsel's knowledge, except as set forth in
the Prospectus, there is not pending or threatened any material action,
suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary or any of the officers of directors of the
Company or any subsidiary, nor any material action, suit, proceeding,
inquiry, arbitration, or investigation, which might materially and
adversely affect the condition (financial or otherwise), business
prospects, net worth, or properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement, the Financial
Advisory Agreement, and the M/A Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a
violation of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary; (b) to the
best of such counsel's knowledge, any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company or any subsidiary is a party or by which it or any of
its material properties is bound; or (c) to the best of such counsel's
knowledge, any material order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality or court,
domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Underwriter's Warrants or the Securities underlying the
Underwriter's Warrants, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky
laws and registration under the Act.
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Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriter. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Underwriter and they are justified in
relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
statements therein, in light of the circumstances under which they are made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(f) You shall have received on the Closing Date, a certificate dated as
of the Closing Date, signed by the Chief Executive Officer and the Chief
Financial Officer of the Company and such other officers of the Company as the
Underwriter may reasonably request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities is in
effect and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any
officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or
supplement to either of the foregoing contains an untrue statement of
any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
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(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects, and the Company has
complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and other tax return or the payment of any
federal, state or other taxes; they know of no proposed redetermination
or re-assessment of taxes, adverse to the Company or any subsidiary,
and the Company and each subsidiary has paid or provided by adequate
reserves for all known tax liabilities;
(vii) This Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement, and the M/A
Agreement, the consummation of the transactions therein contemplated,
and the fulfillment of the terms thereof, will not result in a breach
by the Company of any terms of, or constitute a default under, the
Company's Articles of Incorporation or By-Laws, any indenture,
mortgage, lease, deed of trust, bank loan or credit agreement or any
other material agreement or undertaking of the Company or any
subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any material right and/or obligations by
succession or otherwise;
(viii) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(ix) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein or contemplated thereby, neither the
Company nor any subsidiary has, prior to the Closing Date, either (i)
issued any securities or incurred any material liability or obligation,
direct or contingent, for borrowed money, or (ii) entered into any
material transaction other than in the ordinary course of business. The
Company has not declared, paid or made any dividend or distribution of
any kind on its capital stock;
(x) They have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company,
and all information contained therein is true and accurate; and
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(xi) Except as disclosed in the Prospectus, during the past five
years, they have not been:
(1) The subject of a petition under the federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which any of them
was a general partner at or within two years before the time of
such filing, or any corporation or business association of which
any of them was an executive officer at or within two years before
the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining any of
them from, or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, any other person
regulated by the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice
in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of federal or state securities law or
federal commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or state
authority barring, suspending or otherwise limiting for more than
sixty (60) days their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in
any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any federal or state securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any federal commodities law, and the judgment in such
civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or vacated.
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(g) The Underwriter shall have received from Ernst & Young LLP,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information
of the Company (with an indication of the date of the latest available
unaudited interim financial statements), inquiries of officers of the
Company who have responsibility for financial and accounting matters,
review of minutes of all meetings of the shareholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to the
date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except as
specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working capital or in any other item
appearing in the Company's financial statements as to which the
Underwriter may request advice, in each case as compared with
amounts shown in the balance sheet as of the date of the most
recent financial statements in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or loss
before extraordinary items or net income or loss, or any other
material change in such other items appearing in the Company's
financial statements as to which the Underwriter may request
advice, in each case as compared with the fiscal period ended as of
the date of the most recent financial statements in the Prospectus,
except in each case for increases, changes or decreases which the
Prospectus discloses have occurred or will occur;
(c) the unaudited interim financial statements of the Company
appearing in the Registration Statement and the Prospectus (if any)
do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles and practices on a basis
substantially consistent with the audited financial statements
included in the Registration Statements or the Prospectus.
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(iv) they have compared specific dollar amounts, numbers of shares,
percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting
records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letters and found them to be in agreement; and
(v) they have not during the immediately preceding five (5) year
period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or decreases in
the items set forth in such letters which, in the judgment of the Underwriter,
are materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the Company
to comply with the conditions of the obligations to the Underwriter hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the Underwriter to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending, or, to your knowledge or the
knowledge of the Company, shall be contemplated by the Commission, and
any reasonable request on the part of the Commission for additional
information shall have been complied with to the satisfaction of
counsel to the Underwriter.
(ii) At the Option Closing Date, there shall have been delivered to
you the signed opinion from Connolly Epstein Chicco Foxman Oxholm &
Ewing, counsel for the Company, dated as of the Option Closing Date, in
form and substance satisfactory to counsel to the Underwriter, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriter, substantially the
same in scope and substance as the certificate furnished to you at the
Closing Date pursuant to Section 4(f) hereof.
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(iv) At the Option Closing Date, there shall have been delivered to
you a letter in form and substance satisfactory to you from Ernst &
Young LLP, independent auditors to the Company, dated the Option
Closing Date and addressed to the Underwriter confirming the
information in their letter referred to in Section 4(g) hereof and
stating that nothing has come to their attention during the period from
the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date,
which would require any change in said letter if it were required to be
dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Securities shall be
satisfactory in form and substance to the Underwriter, and the
Underwriter and counsel to the Underwriter shall have been furnished
with all such documents, certificates, and opinions as you may request
in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants
or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Units, Shares and/or Warrants, and no proceedings for the taking of such action
shall have been instituted or shall be pending, or, to the knowledge of the
Underwriter or the Company, shall be contemplated by the Commission or the NASD.
The Company represents that at the date hereof it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD. The Company shall
advise the Underwriter of any NASD affiliations of any of its officers,
directors, or stockholders or their affiliates in accordance with Section 1(y)
of this Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Units, Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with Section 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the Underwriter, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to pass
upon the matters referred to in this sub-section.
(l) Prior to the Effective Date, the Underwriter shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the Underwriter under this Agreement may be canceled at, or at any time prior
to, the Closing Date and/or the Option Closing Date by the Underwriter notifying
the Company of such cancellation in writing or by facsimile at or prior to the
applicable Closing Date or Option Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
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<PAGE>
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Securities is subject to the execution of this
Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such
later time or date as the Company and the Underwriter may agree in
writing; and
(ii) At the Closing Date and the Option Closing Date, no stop orders
suspending the effectiveness of the Registration Statement shall have
been issued under the Act or any proceedings therefore initiated or
threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled after
the Closing Date and prior to the Option Closing Date, then only the obligation
of the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use in
the Registration Statement or any amendment or supplement thereof or any Blue
Sky Application or any Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. Notwithstanding the foregoing, the Company
shall have no liability under this Section if such untrue statement or omission
made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus
is not delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
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<PAGE>
(b) The Underwriter indemnifies and holds harmless the Company, each of
its directors, each nominee (if any) for director named in the Prospectus, each
of the persons who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, signer of the
Registration Statement, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in such
Registration Statement or Prospectus. Notwithstanding the foregoing, the
Underwriter shall have no liability under this section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability upon
which indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, promptly notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it promptly notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party and in the
reasonable judgment of the indemnified party, it is advisable for the
indemnified party to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying and indemnified parties.
<PAGE>
7. Contribution.
(a) If the indemnification provided for in this Agreement is
unavailable to any indemnified party in respect to any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, will contribute to the amount paid
or payable by such indemnified party, as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand, and by
the Underwriter on the other hand, from the Offering, 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 on the one
hand, and of the Underwriter on the other hand, in connection with any
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations;
provided, that any contribution hereunder by the Underwriter shall not exceed
the amount of consideration received by the Underwriter hereunder. The relative
benefits received by the Company on the one hand, and by the Underwriter on the
other hand, shall be deemed to be in the same proportion as the total proceeds
from the Offering (net of sales commissions, and the non-accountable expense
allowance, but before deducting expenses) received by the Company, bear to the
commissions and the non-accountable expense allowance received by the
Underwriter. The relative fault of the Company on the one hand, and of the
Underwriter on the other hand, will be determined with reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company, and its relative intent, knowledge, access or information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriter agree that it would not be just and equitable if contribution
pursuant to this Section were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in this paragraph.
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<PAGE>
(b) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit, or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party ("Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission to so notify
the Contributing Party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a Contributing Party or its representative of the commencement thereof within
the aforesaid fifteen (15) days, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing Party
similarly notified. Any such Contributing Party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding which was effected by such party seeking contribution on account of
any settlement of any claim, action or proceeding effected by such party seeking
contribution without the written consent of such Contributing Party. The
contribution provisions contained in this Section are intended to supersede, to
the extent permitted by law, any right to contribution under the Act, the
Exchange Act or otherwise available.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Underwriter
who shall serve as Blue Sky counsel to the Company in connection with the filing
of applications to register the Securities under the state securities or blue
sky laws (which legal fees shall be payable by the Company in the sum of
$25,000, of which $12,500 has been paid); the cost of printing and furnishing to
the Underwriter copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Selected Dealers Agreement, and
the Blue Sky Memorandum; the cost of printing the certificates evidencing the
securities comprising the Securities; the cost of preparing and delivering to
the Underwriter and its counsel bound volumes containing copies of all documents
and appropriate correspondence filed with or received from the Commission and
the NASD and all closing documents; and the fees and disbursements of the
transfer agent for the Company's securities. The Company shall pay any and all
taxes (including any original issue, transfer, franchise, capital stock or other
tax imposed by any jurisdiction) on sales to the Underwriter hereunder. The
Company will also pay all costs and expenses incident to the furnishing of any
amended Prospectus or of any supplement to be attached to the Prospectus. The
Company shall also engage the Company's counsel to provide the Underwriter with
a written Secondary Market Trading Opinion in accordance with Sections 3(ab) and
4(j) of this Agreement.
26
<PAGE>
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the Underwriter
at the Option Closing Date an additional amount equal to three percent (3%) of
the gross proceeds received upon exercise of the overallotment option.
(c) Other than as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and each of the Company and the Underwriter agrees
to indemnify and hold harmless the other against any losses, claims, damages or
liabilities, which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees,
to which the Underwriter may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the claim of any person (other than an employee of the party claiming
indemnity) or entity that he or it is entitled to a finder's fee in connection
with the proposed offering by reason of such person's or entity's influence or
prior contact with the indemnifying party.
9. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the execution
of this Agreement; or at such earlier time after the Effective Date of the
Registration Statement as you in your discretion shall first commence the public
offering of any of the Securities. The time of the public offering shall mean
the time after the effectiveness of the Registration Statement when the
Securities are first generally offered by you to the Selected Dealers and/or the
public. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, 15,
16 and 17 shall remain in effect notwithstanding such termination.
10. Termination. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity having occurred; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Underwriter to have a material
adverse impact on the business, financial condition or financial statements of
the Company or the market for the Securities offered hereby; (vii) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement; (viii) any
material adverse change having occurred, since the respective dates as of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix) a
pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received by
the Company of the threat of any such proceeding or action, which could, in the
reasonable judgment of the Underwriter, materially adversely affect the Company;
(x) except as contemplated by the Prospectus, the Company is merged or
consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; or (xi) the Company shall not have complied in all
material respects with any term, condition or provisions on its part to be
performed, complied with or fulfilled (including but not limited to those set
forth in this Agreement) within the respective times therein provided.
27
<PAGE>
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
11. Underwriter's Warrant Agreement. At the Closing Date, the Company
will issue to the Underwriter and/or persons related to the Underwriter, for an
aggregate purchase price of $10, and upon the terms and conditions set forth in
the form of Underwriter's Warrant Agreement annexed as an exhibit to the
Registration Statement, Underwriter Warrants to purchase up to an aggregate of
50,000 Units, in such denominations as the Underwriter shall designate. In the
event of conflict in the terms of this Agreement and the Underwriter's Warrant
Agreement, the language of the form of Underwriter's Warrant Agreement shall
control.
12. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriter set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriter, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
13. Notice. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telefaxed,
and confirmed:
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Arthur V. Boyce, Jr., President
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462
Copy to: Joseph Chicco, Esq.
Connolly, Epstein, Chicco et al.
1515 Market Street, 9th Floor
Philadelphia, PA 19102-1909
28
<PAGE>
14. Parties in Interest. This Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company and, to the extent expressed,
any person controlling the Company or the Underwriter, and directors of the
Company, nominees for director (if any) named in the Prospectus, each person who
has signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of the Securities, as such purchaser,
from the Underwriter.
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
16. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
17. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
GEN TRAK, INC.
BY:_____________________________
Arthur V. Boyce, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:_____________________________
Robert T. Kirk, President
29
<PAGE>
GEN TRAK, INC.
650,000 UNITS
SELECTED DEALER AGREEMENT
Boca Raton, Florida
_____, 1999
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering for
sale an aggregate of 650,000 Units (the "Units" or the "Firm Securities") of Gen
Trak, Inc. (the "Company"), which the Underwriter has agreed to purchase from
the Company, and which are more particularly described in the Registration
Statement, Underwriting Agreement and Prospectus. In addition, the Underwriter
has been granted an option to purchase from the Company up to an additional
97,500 Units (the "Option Securities") to cover overallotments in connection
with the sale of the Firm Securities. The Firm Securities and any Option
Securities purchased are herein called the "Securities". The Securities and the
terms under which they are to be offered for sale by the Underwriter is more
particularly described in the Prospectus.
2. The Securities are to be offered to the public by the Underwriter at
the price per Unit set forth on the cover page of the Prospectus (the "Public
Offering Price"), in accordance with the terms of offering set forth in the
Prospectus.
3. The Underwriter, subject to the terms and conditions hereof, is
offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who are
either (a) members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of
business located outside the United States, its territories and its possessions
and not registered as brokers or dealers under the Securities Exchange Act of
1934, as amended (the "1934 Act"), who have agreed not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein (such dealers who shall agree to sell
Securities hereunder being herein called "Selected Dealers") at the public
offering price, less a selling concession (which may be changed) of not in
excess of $_____ per Unit payable as hereinafter provided, out of which
concession an amount not exceeding $_____ per Unit may be reallowed by Selected
Dealers to members of the NASD or foreign dealers qualified as aforesaid. The
Selected Dealers who are members of the NASD agree to comply with all of the
provisions of the NASD Conduct Rules. Foreign Selected Dealers agree to comply
with the provisions of Rule 2740 of the NASD Conduct Rules, and, if any such
dealer is a foreign dealer and not a member of the NASD, such Selected Dealer
also agrees to comply with the NASD's Interpretation with Respect to Free-Riding
and Withholding, and to comply, as though it were a member of the NASD, with the
provisions of Rules 2730 and 2750 of the NASD Conduct Rules,
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<PAGE>
and to comply with Rule 2420 thereof as that Rule applies to non-member foreign
dealers. The Underwriter has agreed that, during the term of this Agreement, it
will be governed by the terms and conditions hereof.
4. Barron Chase Securities, Inc. shall act as Underwriter and shall
have full authority to take such action as we may deem advisable in respect to
all matters pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by facsimile, letter or
telegraph at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the right
to reject subscriptions in whole or in part, to make allotments, and to close
the subscription books at any time without notice. The Securities allotted to
you will be confirmed, subject to the terms and conditions of this Selected
Dealers Agreement (the "Agreement").
6. The privilege of subscribing for the Securities is extended to you
only on the condition that the Underwriter may lawfully sell the Securities to
Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities purchased by
you hereunder which, prior to the completion of the public offering as defined
in paragraph 8 below, we may purchase or contract to purchase for our account
and, in addition, we may charge you with any broker's commission and transfer
tax paid in connection with such purchase or contract to purchase. Certificates
for Securities delivered on such repurchases need not be the identical
certificates originally purchased.
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or overallotted for the account of the
Underwriter, you will, forthwith upon our request, grant to us for the account
of the Underwriter the right, exercisable promptly after receipt of notice from
you that such right has been granted, to purchase, at the Public Offering Price
less the selling concession or such part thereof as we shall determine, such
number of Securities owned by you as shall have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you will
be paid when such Securities are
2
<PAGE>
delivered to you. However, you shall pay any transfer tax on sales of Securities
by you and you shall pay your proportionate share of any transfer tax (other
than the single transfer tax described above) in the event that any such tax
shall from time to time be assessed against you and other Selected Dealers as a
group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when
we shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will
comply therewith.
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but we shall not assume any obligation or responsibility as
to the right of any Selected Dealer to sell the Securities in any state or other
jurisdiction or as to the eligibility of the Securities for sale therein. We
will, if requested, file a Further State Notice in respect of the Securities
pursuant to Article 23-A of the General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make any
representation except as contained in the Prospectus.
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13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter, or with each other, but
you will be responsible for your share of any liability or expense based on any
claim to the contrary. We shall not be under any liability for or in respect of
value, validity or form of the Securities, or the delivery of the certificates
for the Securities, or the performance by anyone of any agreement on its part,
or the qualification of the Securities for sale under the laws of any
jurisdiction, or for or in respect of any other matter relating to this
Agreement, except for lack of good faith and for obligations expressly assumed
by us or by the Underwriter in this Agreement and no obligation on our part
shall be implied herefrom. The foregoing provisions shall not be deemed a waiver
of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on such
time and date as we may advise, at the office of Barron Chase Securities, Inc.,
7700 West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk, by
wire transfer to the account of the Underwriter or by a certified or official
bank check in current New York Clearing House funds, payable to the order of
Barron Chase Securities, Inc., as Underwriter, against delivery of certificates
for the Securities so purchased. If such payment is not made at such time, you
agree to pay us interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of Barron
Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk. Notices to you shall be deemed to have been duly
given if telephoned, telefaxed, telegraphed or mailed to you at the address to
which this Agreement or accompanying Selected Dealer Letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice of law
or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of the Selected Dealer Letter enclosed
herewith, even though you may have previously advised us thereof by telephone,
letter or telegraph. Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
Authorized Officer
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SELECTED DEALER LETTER
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
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We hereby subscribe for ____ Units of Gen Trak, Inc. in accordance with
the terms and conditions stated in the foregoing Selected Dealer Agreement and
this Selected Dealer letter. We hereby acknowledge receipt of the Prospectus
referred to in the Selected Dealers Agreement and Selected Dealer letter. We
further state that in purchasing said Units we have relied upon said Prospectus
and upon no other statement whatsoever, whether written or oral. We confirm that
we are a dealer actually engaged in the investment banking or securities
business and that we are either (i) a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); or (ii) a dealer with its
principal place of business located outside the United States, its territories
and its possessions and not registered as a broker or dealer under the
Securities Exchange Act of 1934, as amended, who hereby agrees not to make any
sales within the United States, its territories or its possessions or to persons
who are nationals thereof or residents therein. As a member of the NASD, we
hereby agree to comply with all of the provisions of NASD Conduct Rules. If we
are a foreign Selected Dealer, we agree to comply with the provisions of Rule
2740 of the NASD Conduct Rules, and if we are a foreign dealer and not a member
of the NASD, we agree to comply with the NASD's interpretation with respect to
free-riding and withholding, and agree to comply, as though we were a member of
the NASD, with provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and
to comply with Rule 2420 of the NASD Conduct Rules as that Rule applies to
non-member foreign dealers.
Firm:
By: ________________________
(Name and Position)
Address:
Telephone No.:
Dated: _____________, 1998
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UNDERWRITERS'S UNIT PURCHASE OPTION OR WARRANT AGREEMENT (the
"Underwriter's Warrant Agreement" or "Agreement"), dated as of , 1999, between
Gen Trak, Inc. (the "Company"), and Barron Chase Securities, Inc. (the
"Underwriter").
W I T N E S S E T H:
--------------------
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Underwriter, to act as the Underwriter in connection with the
Company's proposed public offering of 650,000 Units at $10.00 per Unit, each
Unit consisting of two (2) shares of Common Stock and two (2) Common Stock
Purchase Warrants. Each Common Stock Purchase Warrant ("Public Warrants") is
exercisable to purchase one share of Common Stock at a price of $6.00 per share
at any time during the period between the Effective Date and five years from the
Effective Date (the "Public Offering"); and
WHEREAS, the Company proposed to issue to the Underwriter and/or
persons relating to the Underwriter as those persons are defined in Rule 2710 of
the NASD Conduct Rules (the "Holder"), 65,000 Underwriter Warrants to purchase
65,000 Units, each Unit consisting of two (2) shares of Common Stock ("Shares")
and two (2) Common Stock Purchase Warrants, each Common Stock Purchase Warrant
("Underlying Warrant") exercisable to purchase one share of Common Stock at any
time during the period between the Effective Date and five years from the
Effective Date. The "Underwriter Warrants" are also referred to as the
"Warrants". The "Units", the "Shares" and the "Underlying Warrants" are
collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Underwriter acting as Underwriter
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
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1. Grant and Period.
The above recitals are true and correct. The Public Offering has been
registered under a Registration Statement on Form SB-2 (File No. _________) and
declared effective by the Securities and Exchange Commission (the "SEC" or
"Commission") on __________, 1999 (the "Effective Date"). This Agreement,
relating to the purchase of the Warrants, is entered into pursuant to the
Underwriting Agreement between the Company and the Underwriter in connection
with the Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 65,000 Units at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $14.50 per Unit (145% of the public offering
price) (the "Exercise Price" or "Purchaser Price"), each Unit consisting of two
(2) Shares and two (2) non-redeemable Underlying Warrants. Each Underlying
Warrant is exercisable to purchase one (1) share of Common Stock at $6.00 per
share during the five (5) year period commencing on the Effective Date.
Except as specifically otherwise provided herein, the Units, the Shares
and the Underlying Warrants constituting the Warrant Securities shall bear the
same terms and conditions as such securities described under the caption
"Description of Securities" in the Registration Statement, and as designated in
the Company's Articles of Incorporation and any amendments thereto, and the
Underlying Warrants shall be governed by the terms of the Warrant Agreement
executed in connection with the Company's public offering (the "Warrant
Agreement"), except as provided herein, and the Holders shall have registration
rights under the Securities Act of 1933, as amended (the "Act"), for the
Warrants, the Units, the Shares, the Underlying Warrants, and the shares of
Common Stock underlying the Underlying Warrants, as more fully described in
paragraph seven (7) of this Underwriter's Warrant Agreement. In the event of any
extension or change of the expiration date or reduction or change of the
exercise price of the Public Warrants, the same such changes to the Underlying
Warrants shall be simultaneously effected, except that the Underlying Warrants
shall expire no later than five (5) years from the Effective Date.
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2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the Common
Stock Underwriter Warrants and/or the Warrant Underwriter Warrants
and/or the Underlying Warrants by surrendering the Warrant Certificate,
together with a Subscription in the form of Exhibit "A" attached
thereto, duly executed by such Holder to the Company, at any time prior
to the Expiration Time, at the Company's principal office, accompanied
by payment in cash or by certified or official bank check payable to
the order of the Company in the amount of the aggregate purchase price
(the "Aggregate Price"), subject to any adjustments provided for in
this Agreement. The aggregate price hereunder for each Holder shall be
equal to the exercise price as set forth in Section six (6) hereof
multiplied by the number of Warrants, Underlying Warrants or Shares
that are the subject of each Holder's Warrant (as adjusted as
hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Warrants and/or the Underlying Warrants by delivering the Warrant
Certificate to the Company together with a Subscription in the form of
Exhibit "B" attached thereto, duly executed by such Holder, in which
case no payment of cash will be required. Upon such cashless exercise,
the number of Units or Shares to be purchased by each Holder hereof
shall be determined by dividing: (i) the number obtained by multiplying
the number of Units or Shares that are the subject of each Holder's
Warrant Certificate by the amount, if any, by which the then Market
Value (as hereinafter defined) exceeds the Purchase Price; by (ii) the
then per share Market Value or Purchase Price, whichever is greater. In
no event shall the Company be obligated to issue any fractional
securities and,
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at the time it causes a certificate or certificates to be issued, it
shall pay the Holder in lieu of any fractional securities or shares to
which such Holder would otherwise be entitled, by the Company check, in
an amount equal to such fraction multiplied by the Market Value. The
Market Value shall be determined on a per Unit or Share basis as of the
close of the business day preceding the exercise, which determination
shall be made as follows: (a) if the Units or Common Stock is listed
for trading on a national or regional stock exchange or is included on
the NASDAQ National Market or Small-Cap Market, the average closing
sale price quoted on such exchange or the NASDAQ National Market or
Small-Cap Market which is published in The Wall Street Journal for the
ten (10) trading days immediately preceding the date of exercise, or if
no trade of the Unit or Common Stock shall have been reported during
such period, the last sale price so quoted for the next day prior
thereto on which a trade in the Unit or Common Stock was so reported;
or (b) if the Unit or Common Stock is not so listed, admitted to
trading or included, the average of the closing highest reported bid
and lowest reported ask price as quoted on the National Association of
Securities Dealer's OTC Bulletin Board or in the "pink sheets"
published by the National Daily Quotation Bureau for the first day
immediately preceding the date of exercise on which the Common Stock is
traded.
3.2 Partial Exercise. The securities referred to in paragraph 3.1 above
also may be exercised from time to time in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof, except that with
respect to a cash exercise, the Purchase Price payable shall be equal to the
number of securities being purchased hereunder multiplied by the per security
Purchase Price, subject to any adjustments provided for in this Agreement. Upon
any such partial exercise, the Company, at its expense, will forthwith issue to
the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in
the aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been exercised, issued
in the name of the Holder hereof or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying
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Warrants, the issuance of certificates for the shares of Common Stock and/or
other securities shall be made forthwith (and in any event within three (3)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 5
and 7 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the Underwriter or to officers and partners of the Selected Dealers
participating in the Public Offering; (b) by will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Warrant shall be $14.50 per
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Unit (145% of the public offering price). The initial exercise price of each
Underlying Warrant shall be $6.00 per share. The adjusted exercise price shall
be the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section 8
hereof. The Warrant and the Underlying Warrants are exercisable during the five
(5) year period commencing on the Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants, the Units, the Shares, the Underlying Warrants and the
shares of Common Stock issuable upon exercise of the Underlying Warrants
(collectively the "Registrable Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or in
whole, of the Warrants, certificates representing the Shares, the Underlying
Warrants and/or the shares of Common Stock issuable upon exercise of the
Underlying Warrants shall bear the following legend in the event there is no
current registration statement effective with the Commission at such time as to
such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act and applicable state securities laws is
available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company
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prepares and files a post-effective amendment to the Registration Statement, or
a new Registration Statement under the Act, or files a Notification on Form 1-A
or otherwise registers securities under the Act, or files a similar disclosure
document with the Commission (collectively the "Registration Documents") as to
any of its securities under the Act (other than under a Registration Statement
pursuant to Form S-8), it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such Registration Document, to the
Underwriter and to all other Holders of the Registrable Securities of its
intention to do so. If the Underwriter and/or other Holders of the Registrable
Securities notify the Company within twenty (20) days after receipt of any such
notice of its or their desire to include any such Registrable Securities in such
proposed Registration Documents, the Company shall afford the Underwriter and
such Holders of such Registrable Securities the opportunity to have any
Registrable Securities registered under such Registration Documents or any other
available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respective Registrable
Securities for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by such Holders and
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any other Holders of any of the Registrable Securities who notify the Company
within ten (10) days after being given notice from the Company of such request.
A Demand Registration shall not be counted as a Demand Registration hereunder
until such Demand Registration has been declared effective by the SEC and
maintained continuously effective for a period of at least nine months or such
shorter period when all Registrable Securities included therein have been sold
in accordance with such Demand Registration, provided that a Demand Registration
shall be counted as a Demand Registration hereunder if the Company ceases its
efforts in respect of such Demand Registration at the request of the majority
Holders making the demand for a reason other than a material and adverse change
in the business, assets, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
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(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 Covenants of the Company With Respect to Registration.
In connection with the filing of any Registration Document by the
Company, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable
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Securities such number of copies of such registration statement and of each such
amendment and supplement thereto (in each case including each preliminary
prospectus and summary prospectus) in conformity with the requirements of the
Act, and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all special and consequential
damages sustained by the Holder(s) requesting registration of their Registrable
Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s),
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provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction. The Company shall use its good
faith reasonable efforts to cause such Registrable Securities covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any State thereof
as may be reasonably necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter as contained in the Underwriting
Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder(s) of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the Company, except that the maximum amount
which may be recovered from each Holder pursuant to this paragraph or otherwise
shall be
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limited to the amount of net proceeds received by the Holder from the
sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants or Underlying Warrants prior to the
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement
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as it deems reasonably necessary to comply with applicable securities laws or
rules of the National Association of Securities Dealers, Inc. ("NASD"). Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have issued
a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect
that the entire number of
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<PAGE>
Registrable Securities proposed to be sold by such Holder(s) may be sold by it,
in the manner proposed by such Holder(s), without registration under the
Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall
14
<PAGE>
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Section, the Holder of this Warrant shall become entitled
to receive shares of two or more classes of capital stock of the Company, the
Board of Directors of the Company (whose determination shall be conclusive)
shall determine the allocation of the adjusted Exercise Price between or among
shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
15
<PAGE>
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company or
by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
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<PAGE>
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder of
the Warrants and/or Underlying Warrants at the Holder's address as shown on the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including, but not limited to, a statement of (i) the
Exercise Price at the time in effect, and (ii) the number of additional
securities and the type and amount, if any, of other property which at the time
would be received upon exercise of the Warrants and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such
17
<PAGE>
adjusted number of underlying shares of Common Stock or other securities,
properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation, Validity and Listing.
The Company covenants and agrees that during the exercise period, the
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants and the Underlying Warrants, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
under this Warrant Certificate. The Company covenants and
18
<PAGE>
agrees that, upon exercise of the Warrants and/or the Underlying Warrants, and
payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly authorized, validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Warrants and/or Underlying Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and the Underlying
Warrants to be listed and quoted (subject to official notice of issuance) on all
securities Exchanges and Systems on which the Units, Common Stock and/or the
Public Warrants may then be listed and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
19
<PAGE>
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $6.00 during the five (5)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered
20
<PAGE>
Holder complies with the terms governing exercise of the Underlying Warrant set
forth in the Warrant Agreement, and pays the applicable exercise price,
determined in accordance with the terms of the Warrant Agreement. Upon exercise
of the Underlying Warrants, the Company shall forthwith issue to the registered
Holder of any such Underlying Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided herein and in this Agreement, the
Underlying Warrants shall be governed in all respects by the terms of the
Warrant Agreement. The Underlying Warrants shall be transferrable in the manner
provided in the Warrant Agreement, and upon any such transfer, a new Underlying
Warrant certificate shall be issued promptly to the transferee. The Company
covenants to send to each Holder, irrespective of whether or not the Warrants
have been exercised, any and all notices required by the Warrant Agreement to be
sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when sent by
facsimile and personally delivered, or mailed by registered or certified mail,
return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of
the Company; or
(b) If to the Company, to the address set forth below or to
such other address as the Company may designate by notice to the
Holders.
Arthur V. Boyce, Jr., President
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462
With copies to: Joseph Chicco, Esq.
Connolly, Epstein, Chicco et al.
1515 Market Street, 9th Floor
Philadelphia, PA 19102-1909
and
21
<PAGE>
David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on July 23,
2005. Notwithstanding the foregoing, the indemnification provisions of Section 7
shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United
22
<PAGE>
States District Court for the Southern District of Florida, West Palm Beach
Division, and irrevocably submits to such jurisdiction, which jurisdiction shall
be exclusive. The Company, the Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. A
party to this Agreement named as a Defendant in any action brought in connection
with this Agreement in any court outside of the above named designated county or
district shall have the right to have the venue of said action changed to the
above designated county or district or, if necessary, have the case dismissed,
requiring the other party to refile such action in an appropriate court in the
above designated county or federal district.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
Holder(s) of the Warrant Certificates or Registrable Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Warrant Certificates or Registrable Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but
23
<PAGE>
one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
GEN TRAK, INC.
BY:
--------------------------------
Arthur V. Boyce, Jr., President
Attest:
- -------------------------------------
George L. Bird, Secretary
BARRON CHASE SECURITIES, INC.
By:
--------------------------------
Robert Kirk, President
GEN TRAK, INC.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
24
<PAGE>
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON ___________________, 2004
NO. W- ___________
_____________ Warrants
or
_____________ Underlying
Warrants
This Warrant Certificate certifies that _________, or registered
assigns, is the registered holder of ________ Warrants or _____________
Underlying Warrants of Gen Trak, Inc. (the "Company"). Each Warrant permits the
Holder hereof to purchase initially, at any time from ________, 1999 ("Purchase
Date") until 5:30 p.m. Eastern Time on _________, 2004 ("Expiration Date"), one
(1) Unit of the Company at the initial exercise price, subject to adjustment in
certain events (the "Exercise Price"), of $14.50 per Unit (145% of the public
offering price). Each Underlying Warrant permits the Holder thereof to purchase,
at any time from the Purchase Date until five (5) years from the Purchase Date,
one (1) share of the Company's Common Stock at the Exercise Price of $6.00 per
share.
Any exercise of Warrants and/or Underlying Warrants shall be effected
by surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Underwriter's Warrant Agreement dated as of ___________, 1999,
between the Company and Barron Chase Securities, Inc. (the "Underwriter's
Warrant Agreement"). Payment of the Exercise Price shall be made by certified
check or official bank check in New York Clearing House funds payable to the
order of the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Underwriter's Warrant Agreement.
25
<PAGE>
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events, the Exercise Price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue a
new Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Underwriter's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate
26
<PAGE>
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, and of any distribution to the
holder(s) hereof, and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ____________________, 1999
GEN TRAK, INC.
By: ______________________________
Arthur V. Boyce, Jr., President
Attest:
__________________________________
George L. Bird, Secretary
27
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
------------------------------------
(To be signed only upon exercise of Warrant)
TO: Arthur V. Boyce, Jr., President
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462
The undersigned, the Holder of Warrant Certificate number (the
"Warrant"), representing ___________ Warrants and/or ____________ Underlying
Warrants of Gen Trak, Inc. (the "Company"), which Warrant Certificate is being
delivered herewith, hereby irrevocably elects to exercise the purchase right
provided by the Warrant Certificate for, and to purchase thereunder,
____________ Units or _____________ Shares of the Company, and herewith makes
payment of $_____________ therefor, and requests that the certificates for such
securities be issued in the name of, and delivered to, ____________________
______________________________________________________________________ , whose
address is __________________________________________________________________
____________________________________________________________________ , all in
accordance with the Underwriter's Warrant Agreement and the Warrant Certificate.
Dated: __________________________
28
<PAGE>
__________________________
(Signature must conform in
all respects to name of
Holder as specified on the
face of the Warrant
Certificate)
__________________________
__________________________
(Address)
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Arthur V. Boyce, Jr., President
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462
The undersigned, the Holder of Warrant Certificate number_________ (the
"Warrant"), representing ______________ Warrants and/or ________________
Underlying Warrants Gen Trak, Inc. (the "Company"), which Warrant is being
delivered herewith, hereby irrevocably elects the cashless exercise of the
purchase right provided by the Underwriter's Warrant Agreement and the Warrant
Certificate for, and to purchase thereunder, ______________ Units or
29
<PAGE>
Shares of the Company in accordance with the formula provided at Section three
(3) of the Underwriter's Warrant Agreement. The undersigned requests that the
certificates for such Units or Shares be issued in the name of, and delivered
to, , whose address is, , all in accordance with the Warrant Certificate.
Dated: ________________________________
__________________________
(Signature must conform in
all respects to name of
Holder as specified on the
face of the Warrant
Certificate)
__________________________
__________________________
(Address)
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
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<PAGE>
FOR VALUE RECEIVED __________________________________________________ hereby
sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
_____________________________________ Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, and full power of
substitution.
Dated: Signature:
- ---------------------------- --------------------------
(Signature must conform in
all respects to name of
holder as specified on the
fact of the Warrant
Certificate)
--------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
31
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COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
ARTICLES OF INCORPORATION
-------------------------
In compliance with the requirements of Section 204 of the Business Corporation
Law Act of May 5, 1933 (P. L. 364) (15 P. S. Section 1204), the undersigned,
desiring to be incorporated as a business corporation, hereby certifies that:
1. The name of the corporation is: Gen Trak, Inc.
2. The location and post office address of the initial registered
office of the corporation in this Commonwealth is: c/o Hamburg, Rubin, Mullin &
Maxwell, 800 East Main Street, Lansdale, Pennsylvania 19446-3098.
3. The corporation is incorporated under the Business Corporation Law
of the Commonwealth of Pennsylvania for the following purpose or purposes: The
corporation shall have the unlimited power to engage in and do any lawful act
concerning any or all lawful business for which corporations may be incorporated
under the Business Corporation Law of Pennsylvania, including, without limiting
the generality of the foregoing, agriculture, manufacturing, printing,
processing, research and development. The corporation is organized under the
Business Corporation Law of Pennsylvania.
4. The term for which the corporation is to exist is perpetual.
5. The aggregate number of shares which the corporation shall have
authority to issue is:
Class A Common Stock, One Million (1,000,000) shares of voting
common capital stock, with a par value of One Dollar ($1.00) per
share;
Class B Common Stock, One Million (1,000,000) shares of nonvoting
common capital stock, with a par value of One Dollar ($1.00) per
share.
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Both classes of stock shall be identical in all respects, except
that the shares of the Class A Common Stock shall have all voting
rights.
6. The name and post office address of the Incorporator and the number
and class of shares subscribed by such Incorporator is:
Name Address Number and Class of Shares
- ---- ------- --------------------------
Gerald Hamburg 800 East Main Street One (1) share, Class A
Lansdale, PA 19446-3098 common stock
IN WITNESS WHEREOF, the Incorporator has signed and sealed these
Articles of Incorporation this 21st day of November, 1986.
------------------------------
Gerald Hamburg
Incorporator
Filed with the Department of State this 24th day of November 1986.
------------------------------
Secretary of the Commonwealth
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Microfilm Number __________ Filed with the Department of State on ______
Entity Number ______________ _____________________________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: Gen Trak, Inc.
--------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
<TABLE>
<CAPTION>
<S> <C>
(a) ---------------------------------------------------------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o Hamburg, Rubin, Mullin & Maxwell Corporation Services, Inc., 800 East Main St., Lansdale, PA 19446-3098 Montgomery
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Name of Commercial Registered Office Provider County
</TABLE>
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Business Corporation
Law, Act of May 5, 1933
4. The date of its incorporation is: November 24, 1986
5. (Check, and if appropriate complete, one of the following):
[X] The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
[ ] The amendment shall be effective on: ________________ at_____________
Date Hour
6. (Check one of the following):
[X] The amendment was adopted by the shareholders (or members) pursuant
to 15 Pa.C.S.ss. 1914(a) and (b).
[ ] The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. ss. 1914(c).
7.(Check, and if appropriate complete, one of the following):
[ ] The amendment adopted by the corporation, set forth in full, is as
follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[X] The amendment adopted by the corporation is set forth in full in
Exhibit A attached hereto and made a part hereof.
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8. (Check if the amendment restates the Articles):
[ ] The restated Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof
this__________ day of December 1998.
GEN TRAK, INC. _______________
(Name of Corporation)
BY:____________________________________
(Signature)
TITLE:__________________________________
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EXHIBIT A
Paragraph 5 of the Corporation's Articles of Incorporation is hereby
amended to provide in its entirety as follows:
"5. The aggregate number of shares which the Corporation shall have the
authority to issue is 25,000,000 shares of voting Common Stock, par value one
cent ($.01) per share."
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[SEAL]
Department of State
Corporation Bureau
308 North Office Building
Harrisburg, PA 17120-0029
Instructions for Completion of Form:
A.One original of this form is required. The form shall be completed in
black or blue-black ink in order to permit reproduction. The filing
fee for this form is $52 made payable to the Department of State.
PLEASE NOTE: A separate check is required for each form submitted.
B.Under 15 Pa.C.S. ss. 135(c) (relating to addresses) an actual street or
rural route box number must be used as an address, and the
Department of State is required to refuse to receive or file any
document that sets forth only a post office box address.
C.The following, in addition to the filing fee, shall accompany this form:
(1) Three copies of a completed form DSCB:15-134B (Changes-Docketing
Statement).
(2) Any necessary copies of form DSCB:17.2 (Consent to Appropriation of
Name) or form DSCB:17.3 (Consent to Use of Similar Name) shall
accompany Articles of Amendment effecting a change of name and the
change in name shall contain a statement of the complete new name.
(3) Any necessary governmental approvals.
D.This form and all accompanying documents shall be mailed to:
Department of State
Corporation Bureau
308 North Office Building
Harrisburg, PA 17120-0029
E.To receive confirmation of the file date prior to receiving the microfilmed
original, send either a self-addressed, stamped postcard with the filing
information
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AMENDED AND RESTATED BY-LAWS
OF
GEN TRAK, INC.
ARTICLE I -
OFFICES AND FISCAL YEAR
Section 1.01 REGISTERED OFFICE. The registered office of the
Corporation in the Commonwealth of Pennsylvania shall be c/o Hamburg, Rubin,
Mullin & Maxwell, 800 East Main Street, Lansdale, Pennsylvania 19446-3098 until
otherwise established by an amendment of the Articles of Incorporation or by the
Board of Directors and a record of such change is filed with the Department of
State in the manner provided by law.
Section 1.02 OTHER OFFICES. The Corporation may also have offices at
such other places within or without the Commonwealth of Pennsylvania as the
Board of Directors may from, time to time appoint or the business of the
Corporation may require.
Section 1.03 FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January in each year.
ARTICLE II -
NOTICE; WAIVERS; MEETINGS GENERALLY
Section 2.01 MANNER OF GIVING NOTICE.
(a) General Rule. Whenever written notice is required to be
given to any person under the provisions of the Business Corporation Law or by
the Articles of Incorporation or these By-Laws, it may be given to the person
either personally or by sending a copy thereof by first class or express mail,
postage prepaid, or by telegram (with messenger service specified), telex or TM
(with answerback received) or courier service, charges prepaid, or by telecopier
to the address (or to the telex, TWX, telecopier or telephone number) of the
person appearing on the books of the Corporation, or, in the case of directors,
supplied by the directors to the Corporation for the purpose of notice. If the
notice is sent by mail, telegraph or courier service, it shall be deemed to have
been given to the person entitled thereto when deposited in the United States
mail or with a telegraph office or courier service for delivery to that person;
or, in the case of telex or TWX, when dispatched; or, in the case of telecopier,
when received. A notice of meeting shall specify the place, day and hour of the
meeting and any other information required by any other provision of the
Business Corporation Law, the Articles of Incorporation or these By-Laws.
(b) Adjourned Shareholder Meetings. When a meeting of
shareholders is adjourned, it shall not be necessary to give any notice of the
adjourned meeting or of the business to be transacted at an adjourned meeting,
other than by announcement at the meeting at which the adjournment is taken,
unless the Board fixes a new record date for the adjourned meeting.
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Section 2.02 NOTICE OF MEETINGS OF BOARD OF DIRECTORS. Notice of a
regular meeting of the Board of Directors need not be given. Notice of every
special meeting of the Board of Directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or telecopier), or 48 hours (in the case of notice by telegraph,
courier service or express mail), or five (5) days (in the case of notice by
first class mail) before the time at which the meeting is to be held. Every such
notice shall state the time and place of the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
need be specified in a notice of a meeting.
Section 2.03 NOTICE OF MEETINGS OF SHAREHOLDERS.
(a) General Rule. Written notice of every meeting of the
shareholders shall be given by, or at the direction of, the Secretary to each
shareholder of record entitled to vote at the meeting at least:
(1) ten (10) days prior to the day named for a
meeting called to consider a fundamental transaction under 15 Pa.C.S.
Chapter 19 regarding amendments of the Articles of Incorporation,
mergers, consolidations, share exchanges, sale of assets, divisions,
conversions, liquidations and dissolution; or
(2) five (5) days prior to the day named for the
meeting in any other case.
If the Secretary neglects or refuses to give notice of a meeting, the person or
persons calling the meeting may do so. In the case of a special meeting of
shareholders, the notice shall specify the general nature of the business to be
transacted.
(b) Notice of Action by Shareholders on By-Laws. In the case
of a meeting of shareholders that has as one of its purposes action on the
By-Laws, written notice shall be given to each shareholder that the purpose, or
one of the purposes, of the meeting is to consider the adoption, amendment or
repeal of the By-Laws. There shall be included in, or enclosed with, the notice
a copy of the proposed amendment or a summary of the changes to be effected
thereby.
Section 2.04 WAIVER OF NOTICE.
(a) Written Waiver. Whenever any written notice is required to
be given under the provisions of the Business Corporation Law, the Articles of
Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of the notice. Except
as otherwise required by this subsection, neither the business to be transacted
at, nor the purpose of, a meeting need be specified in the waiver of notice of
the meeting. In the case of a special meeting of shareholders, the waiver of
notice shall specify the general nature of the business to be transacted.
(b) Waiver by Attendance. Attendance of a person at any
meeting shall constitute a waiver of notice of the meeting except where a person
attends a meeting for the
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express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
Section 2.05 MODIFICATION OF PROPOSAL CONTAINED IN NOTICE. Whenever the
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Business Corporation Law or the
Articles Of Incorporation or these By-Laws, the meeting considering the
resolution may, without further notice, adopt it with such clarifying or other
anendments as to not enlarge its original purpose.
Section 2.06 EXCEPTION TO REQUIREMENT OF NOTICE.
(a) General Rule. Whenever any notice or communication is
required to be given to any person under the provisions of the Business
Corporation Law or by the Articles of Incorporation or these By-Laws, or by the
terms of any agreement or other instrument, or as a condition precedent to
taking any corporate action, and communication with that person is then
unlawful, the giving of the notice or communication to that person shall not be
required.
(b) Shareholders without Forwarding Addresses. Notice or other
communications shall not be sent to any shareholder with whom the Corporation
has been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the Corporation with a current address. Whenever the
shareholder provides the Corporation with a current address, the Corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.
Section 2.07 USE OF CONFERENCE TELEPHONE AND OTHER SIMILAR EQUIPMENT.
One or more persons may participate in a meeting of the Board of Directors or
the shareholders of the Corporation by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at the meeting.
ARTICLE III -
SHAREHOLDERS
Section 3.01 PLACE OF MEETING. All meetings of the shareholders of the
Corporation shall be held at the registered office of the Corporation unless
another place is designated by the Board of Directors in the notice of a
meeting.
Section 3.02 ANNUAL MEETING. The Board of Directors may fix the date
and time of the annual meeting of the shareholders, but if no such date and time
is fixed by the Board, the meeting for any calendar year shall be held on the
first Friday of December in such year, if not a legal holiday under the -laws of
the Commonwealth of Pennsylvania, and if a legal holiday then on the next
succeeding
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business day, not a Saturday, at 12:00 p.m., and at said meeting the
shareholders then entitled to vote shall elect directors and shall transact such
other business as may properly be brought before the meeting. If the annual
meeting shall not have been called and held within six (6) months after the
designated time, any shareholder may call the meeting at any time thereafter.
Section 3.03 SPECIAL MEETINGS.
(a) Call of special Meetings. Special meetings of the
shareholders may be called at any time:
(1) by the President;
(2) by a majority of the Board of Directors; or
(3) unless otherwise provided in the Articles
of Incorporation, by shareholders entitled to cast at least twenty
percent (20%) of the vote that all shareholders are entitled to
cast at the particular meeting.
(b) Fixing of Time for Meeting. At any time, upon written
request of any person who has called a special meeting, it shall be the duty of
the Secretary to fix the time of the meeting, which shall be held not more than
60 days after the receipt of the request. If the Secretary neglects or refuses
to fix a time of the meeting, the person or persons calling the meeting may do
so.
Section 3.04 QUORUM AND ADJOURNMENT.
(a) General Rule. A meeting of shareholders of the Corporation
duly called shall not be organized for the transaction of business unless a
quorum is present. The presence of shareholders entitled to cast at least a
majority of the votes that all shareholders are entitled to cast on a particular
matter to be acted upon at the meeting shall constitute a quorum for the
purposes of consideration and action on the matter. Shares of the Corporation
owned, directly or indirectly, by it and controlled, directly or indirectly, by
the Board of Directors of the Corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.
(b) Withdrawal of a Quorum. The shareholders present at a duly
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
(c) Adjournment for Lack of Quorum. If a meeting cannot be
organized because a quorum has not attended, those present may, except as
provided in the Business Corporation Law, adjourn the meeting to such time and
place as they may determine.
(d) Adjournments Generally. Any meeting at which directors are
to be elected shall be adjourned only from day to day, or for such longer
periods not exceeding 15 days each, as the shareholders present and entitled to
vote shall direct, until the directors have been elected.
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Any other regular or special meeting may be adjourned for such period as the
shareholders present and entitled to vote shall direct.
(e) Electing Directors at Adjourned Meeting. Those
shareholders entitled to vote who attend a meeting called for the election of
directors that has been previously adjourned for lack of a quorum, although less
than a quorum as fixed in this section, shall nevertheless constitute a quorum
for the purpose of electing directors.
(f) Other Action in Absence of Quorum. Those shareholders
entitled to vote who attend a meeting of shareholders that has been previously
adjourned for one or more periods aggregating at least 15 days because of an
absence of a quorum, although less than a. quorum as fixed in this section,
shall nevertheless constitute a quorum for the purpose of acting upon any matter
set forth in the notice of the meeting if the notice states that those
shareholders who attend the adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter.
Section 3.05 ACTION BY SHAREHOLDERS.
(a) General Rule. Except as otherwise provided in the Business
Corporation Law, the Articles of Incorporation, these By-Laws or that certain
Shareholders' Agreement made December 1, 1986, as amended from time to time
("Shareholders' Agreement"), the provisions of which Shareholders' Agreement are
incorporated herein by reference, whenever any corporate action is to be taken
by vote of the shareholders of the Corporation, it shall be authorized by a
majority of the votes cast at a duly organized meeting of shareholders by the
holders of shares entitled to vote thereon.
(b) Interested Shareholders. Any merger or other transaction
authorized under 15 Pa.C.S. Subchapter 19C between the Corporation or subsidiary
thereof and a shareholder of this Corporation, or any voluntary Liquidation
authorized under 15 Pa.C.S. Subchapter 19F in which a shareholder is treated
differently from other shareholders of the same class (other than any dissenting
shareholders), shall require the affirmative vote of the shareholders entitled
to cast at least a majority of the votes that all shareholders other than the
interested shareholder are entitled to cast with respect to the transaction,
without counting the vote of the interested shareholder. For the purposes of the
preceding sentence, an interested shareholder shall include the shareholder who
is a party to the transaction or who is treated differently from other
shareholders and any person, or group of persons, that is acting jointly or in
concert with the interested shareholder and any person who, directly or
indirectly, controls, is controlled by or is under common control with the
interested shareholder. An interested shareholder shall not include any person
who, in good faith and not for the purpose of circumventing this subsection, is
an agent, bank, broker, nominee or trustee for one or more other persons, to the
extent that the other person or persons are not interested shareholders.
(c) Exceptions. Subsection (b) shall not apply to a
transaction:
(1) that has been approved by a majority vote of the
Board of Directors without counting the vote of directors who:
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(i) are directors or officers of, or have
a material equity interest in, the interested shareholder;
or
(ii) were nominated for election as a
director by the interested shareholder, and first elected as a
director, within 24 months of the date of the vote on the
proposed transaction; or
(2) in which the consideration to be received by the
shareholders for shares of any class of which shares are owned by the
interested shareholder is not less than the highest amount paid by the
interested shareholder in acquiring shares of the same class.
(d) Additional Approvals. The approvals required by subsection
(b) shall be in addition to, and not in lieu of, any other approval required by
the Business Corporation Law, the Articles of Incorporation or these By-Laws, or
otherwise.
Section 3.06 ORGANIZATION. At every meeting of the shareholders, the
Chairman of the Board, if there be one, or, in the case of vacancy in office or
absence of the Chairman of the Board, one of the following officers present in
the order stated: the Vice Chairman of the Board, if there be one, the
President, the Vice Presidents in their order of rank and seniority, or a person
chosen by vote of the shareholders present, shall act as of the meeting. The
Secretary or, in the absence of the Secretary, an Assistant Secretary, or in the
absence of the Secretary and Assistant Secretaries, a person appointed by the
chairman of the meeting, shall act as Secretary.
Section 3.07 VOTING RIGHTS OF SHAREHOLDERS. Unless otherwise provided
in the Articles of Incorporation, every shareholder of the Corporation shall be
entitled to one (1) vote for every share standing in the name of the shareholder
on the books of the Corporation.
Section 3.08 VOTING AND OTHER ACTION BY PROXY.
(a) General Rule.
(1) Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person to act for the
shareholder by proxy.
(2) The presence of, or vote or other action at a
meeting of shareholders, or the expression of consent or dissent to
corporate action in writing, by a proxy of a shareholder shall
constitute the presence of, or vote or action by, or written consent or
dissent of the shareholder.
(3) where two or more proxies of a shareholder are
present, the Corporation shall, unless otherwise expressly provided in
the proxy, accept as the vote of all shares represented thereby the
vote cast by a majority of them and, if a majority of the proxies
cannot agree whether the shares represented shall be voted or upon the
manner of voting the shares, the voting of the shares shall be divided
equally among those persons.
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(b) Minimum Requirements. Every proxy shall be executed in
writing by the shareholder or by the duly authorized attorney-in-fact of the
shareholder and filed with the Secretary of the Corporation. A proxy, unless
coupled with an interest, shall be revocable at will, notwithstanding any other
agreement or any provision in the proxy to the contrary, but the revocation of a
proxy shall not be effective until written notice thereof has been given to the
Secretary of the Corporation. An unrevoked proxy shall not be valid after three
(3) years from the date of its execution unless a longer time is expressly
provided therein. A proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote is counted or the authority is exercised, written
notice of the death or incapacity is given to the Secretary of the Corporation.
(c) Expenses. Unless otherwise restricted in the Articles of
Incorporation, the Corporation shall pay the reasonable expenses of solicitation
of votes, proxies or consents of shareholders by or on behalf of the Board of
Directors or its nominees for election to the Board, including solicitation by
professional proxy solicitors and otherwise.
Section 3.09 VOTING BY FIDUCIARIES AND PLEDGEES. Shares of the
Corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.
Section 3. 10 VOTING BY JOINT HOLDERS OF SHARES.
(a) General Rule. Where shares of the Corporation are held
jointly or as tenants in common by two or more persons, as fiduciaries or
otherwise:
(1) if only one or more of such persons is
present in person or by proxy, all of the shares standing in the names of such
persons shall be deemed to be represented for the purpose of determining a
quorum and the Corporation shall accept as the vote of all the shares the vote
cast by a joint owner or a majority of them; and
(2) if the persons are equally divided upon whether
the shares held by them shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally among the
persons without prejudice to the rights of the joint owners or the
beneficial owners thereof among themselves.
(b) Exception. If there has been filed with the Secretary of
the Corporation a copy, certified by an attorney-at-law to be correct, of the
relevant portions of the agreement under which the shares are held, or the
instrument by which the trust or estate was created or the order of court
appointing them, or of an order of court directing the persons specified as
having such voting power in the voting of the shares, the operative effect so
filed, and only those persons document latest in date of shares but only in
accordance therewith shall be entitled to vote the shares but only in accordance
therewith.
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Section 3. 11 VOTING BY CORPORATIONS.
(a) Voting by Corporate Shareholders. Any corporation that is
a shareholder of this Corporation may vote by any of its officers or agents, or
by proxy appointed by any officer or agent, unless some other person, by
resolution of the Board of Directors of the other corporation or provision of
its Articles of Incorporation or By-Laws, a copy of which resolution or
provision certified to be correct by one of its officers has been filed with the
Secretary of this Corporation, is appointed its general or special proxy, in
which case that person shall be entitled to vote the shares.
(b) Controlled Shares. Shares of this corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
Board of Directors of this Corporation, as such, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time.
Section 3.12 DETERMINATION OF SHAREHOLDERS OF RECORD.
(a) Fixing Record Date. The Board of Directors may fix a time
prior to the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be not
more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the Corporation after any record date
fixed as provided in this subsection. The Board of Directors may similarly fix a
record date for the determination of shareholders of record for any other
purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof, unless the Board fixes a new record date for
the adjourned meeting.
(b) Determination when a Record Date is Not Fixed. If a record
date is not fixed:
(1) The record date for determining shareholders
entitled to notice of, or to vote at, a meeting of shareholders shall
be at the close of business on the date next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the day immediately preceding the day on which the meeting is held.
(2) The record date for determining shareholders
entitled to express consent or dissent to corporate action in writing
without a meeting, when prior action by the Board of Directors is not
necessary, shall be the close of business on the day on which the first
written consent or dissent is filed with the secretary of the
Corporation.
(3) The record date for determining shareholders for
any other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
Section 3.13 VOTING LISTS.
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(a) General Rule. The officer or agent having charge of the
transfer books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and of the number of shares held by
each. The list shall be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
(b) Affect of List. Failure to comply with the requirements of this section
shall not effect the validity of any action taken at a meeting prior to a demand
at the meeting by any shareholder entitled to vote thereat to examine the list.
The original share register or transfer book, or a duplicate thereof kept in
this Commonwealth, shall be prima facie evidence as to who are the shareholders
entitled to examine the list or share register or transfer book or to vote at
any meeting of shareholders.
Section 3.14 JUDGES OF ELECTION.
(a) Appointment. In advance of any meeting of shareholders of
the Corporation, the Board of Directors may appoint judges of election, who need
not be shareholders, to act at the meeting or any adjournment thereof. If judges
of election are not so appointed, the presiding officer of the meeting may, and
on the request of any shareholder shall, appoint judges of election at the
meeting. The number of judges shall be one (1) or three (3). A person who is a
candidate for office to be filled at the meeting shall not act as a judge.
(b) Vacancies. In case any person appointed as a judge fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
made by the Board of Directors in advance of the convening of the meeting or at
the meeting by the presiding officer thereof.
(c) Duties. The judges of election shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may be proper to
conduct the election or vote with fairness to all shareholders. The judges of
election shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. If there are three (3)
judges of election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of all.
(d) Report. On request of the presiding officer of the
meeting, or of any shareholder, the judge shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts stated therein.
Section 3.15 CONSENT OF SHAREHOLDERS IN LIEU OF MEETING.
(a) Unanimous Written Consent. Any action required or
permitted to be taken
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at a meeting of the shareholders or of a class of shareholders may be taken
without a meeting if, prior or subsequent to the action, a consent or consents
thereto by all of the shareholders who would be entitled to vote at a meeting
for such purpose shall be filed with the Secretary of the Corporation.
(b) Partial Written Consent. Any action required or permitted
to be taken at a meeting of the shareholders or of a class of shareholders may
be taken without a meeting upon the written consent of shareholders who would
have been entitled to cast the minimum number of votes that would be necessary
to authorize the action at a meeting at which all shareholders entitled to vote
thereon were present and voting. The consents shall be filed with the Secretary
of the Corporation. The action shall not become effective until after at least
ten (10) days' written notice of the action has been given to each shareholder
entitled to vote thereon who has not consented thereto.
Section 3.16 MINORS AS SECURITY HOLDERS. The Corporation may treat a
minor who holds shares or obligations of the Corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of shareholders or the transfer
agent of the Corporation or, in the case of payments or distributions on
obligations, the Treasurer or paying officer or agent has received written
notice that the holder is a minor.
Section 3.17 RESTRICTIONS ON CORPORATE ACTION. The Corporation shall
not implement any of the following matters submitted to a vote of the
shareholders of the Corporation unless the owners of at least eighty percent
(80%) of the common stock of the Corporation vote for the approval of any such
matter:
(a) the sale of all or substantially all of the Corporation's
assets;
(b) distributions on the Corporation's capital stock in excess
of the amounts required to be distributed pursuant to subparagraph (b) of
Paragraph 4 of the Shareholders' Agreement, including but not limited to
distributions of stock or the recapitalization of the Corporation;
(c) the merger or consolidation of the Corporation with or
into another company;
(d) the dissolution or liquidation of the corporation; or
(e) the amendment of the Corporation's Articles of
Incorporation or these By-Laws.
ARTICLE IV -
BOARD OF DIRECTORS
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Section 4.01 POWERS; PERSONAL LIABILITY.
(a) General Rule. Unless otherwise provided by statute, all
powers vested by law in the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of, the Board of Directors.
(b) Standard of Care; Justifiable Reliance. A director shall
stand in a fiduciary relation to the corporation and shall perform his duties as
a director, including duties as a member of any committee of the Board upon
which the director may serve, in good faith, in a manner the director reasonably
believes to be in the best interests of the Corporation and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing his duties, a
director shall be entitled to rely in good faith on information, opinions.,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by any of the following:
(1) One or more officers or employees of the
Corporation whom the director reasonably believes to be reliable and
competent in the matters presented.
(2) Counsel, public accountants or other persons as
to matters which the director reasonably believes to be within the
professional or expert competence of such person.
(3) A committee of the Board upon which the director
does not serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director
reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if the director
has knowledge concerning the matter in question that would cause his reliance to
be unwarranted.
(c) Consideration of Factors. In discharging the duties of
their respective positions, the Board of Directors, committees of the Board and
individual directors may, in considering the best interests of the Corporation,
consider the effects of any action upon employees, upon suppliers and customers
of the Corporation and upon communities in which offices or other establishments
of the Corporation are located, and all other pertinent factors. The
consideration of those factors shall not constitute a violation of subsection
(b).
(d) Presumption. Absent breach of fiduciary duty, lack of good
faith or self-dealing, actions taken as a director or any failure to take any
action shall be presumed to be in the best interests of the Corporation.
(e) Personal Liability of Directors.
(1) A director shall not be personally liable, as
such, for monetary damages for any action taken, or any failure to take
any action, unless:
(i) the director has breached or failed to
perform the duties of his office under this section; and
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(ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
(2) The provisions of paragraph (1) shall not apply
to the responsibility or liability of a director pursuant to any
criminal statute, or the liability of a director for the payment of
taxes pursuant to local, state or Federal law.
(f) Notation of Dissent. A director who is present at a
meeting of the Board of Directors, or of a committee of the Board, at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent is entered in the minutes of the meeting, or
unless the director files a written dissent to the action with the Secretary of
the meeting before the adjournment thereof, or transmits the dissent in writing
to the Secretary of the Corporation immediately after the adjournment of the
meeting. The right to dissent shall not apply to a director who voted in favor
of the action. Nothing in this section shall bar a director from asserting that
minutes of the meeting incorrectly omitted his dissent if, promptly upon receipt
of a copy of such minutes, the director notifies the Secretary in writing of the
asserted omission or inaccuracy.
Section 4.02 QUALIFICATION AND SELECTION OF DIRECTORS.
(a) Qualifications. Each director of the Corporation shall be
a natural person of full age who need not be a resident of Pennsylvania or a
shareholder of the Corporation.
(b) Election of Directors. Except as otherwise provided in
these ByLaws, directors of the Corporation shall be elected by the shareholders.
In elections for directors, voting need not be by ballot, except upon demand
made by a shareholder entitled to vote at the election and before the voting
begins. The candidates receiving the highest number of votes from each class or
group of classes, if any, entitled to elect directors separately up to the
number of directors to be elected by the class or group of classes shall be
elected. If at any meeting of shareholders, directors of more than one class are
to be elected, each class of directors shall be elected in a separate election.
(c) Cumulative Voting. Unless the Articles of Incorporation
provide otherwise, in each election of directors every shareholder entitled to
vote shall have the right to multiply the number of votes to which the
shareholder may be entitled by the total number of directors to be elected in
the same election by the holders of the class or classes of shares of which his
shares are a part, and the shareholder may cast the whole number of his votes
for one candidate or may distribute them among two or more candidates.
Section 4.03 NUMBER AND TERM OF OFFICE.
(a) Number. The business of this Corporation shall be managed
by its Board of Directors, three (3) in number, which shall consist of one (1)
representative of George L. Bird, Jr. (the Management Shareholder); one (1)
representative of Harry A. Arena; and one (1)
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representative of the law firm of Hamburg, Rubin, Mullin & Maxwell, a
Professional Corporation.
(b) Term of Office. Each director shall hold office until the
expiration of the term for which he was elected and until a successor has been
selected and qualified or until his earlier death, resignation or removal. A
decrease in the number of directors shall not have the effect of shortening the
term of any incumbent director.
(c) Resignation. Any director may resign at any time upon
written notice to the Corporation. The resignation shall be effective upon
receipt thereof by the Corporation or at such subsequent time as shall be
specified in the notice of resignation.
Section 4.04 VACANCIES AND REMOVAL OF DIRECTORS. A member of the Board
of Directors may be removed or a vacancy in the Board of Directors filled or the
Board of Directors restructured only by the affirmative vote of the owners of at
least eighty percent (80%) of the common stock of the Corporation.
Section 4.06 PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at such place within or without Pennsylvania as the Board of Directors
may from time to time appoint or as may be designated in the notice of the
meeting.
Section 4.07 ORGANIZATION OF MEETINGS. At every meeting of the Board of
Directors, the Chairman of the Board, if there be one, or, in the case of a
vacancy in the office or absence of the Chairman of the Board, one of the
following officers present in the order stated: the Vice Chairman of the Board,
if there be one, the President, the Vice Presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The Secretary or, in the absence of the Secretary,
an Assistant Secretary, or, in the absence of the Secretary and the Assistant
Secretaries, any person appointed by the chairman of the meeting, shall act as
Secretary.
Section 4.08 REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held without notice immediately following the annual meeting
of the shareholders in each year at the registered office of the Corporation, or
at such other time and place as shall be determined from time to time by
resolution of the Board of Directors.
Section 4.09 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman or by two or more of the
directors.
Section 4.10 QUORUM OF AND ACTION BY DIRECTORS.
(a) General Rule. A majority of the directors in office of the
Corporation shall be necessary to constitute a quorum for the transaction of
business, and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the Board of
Directors.
(b) Action by Written Consent. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if, prior or subsequent to the action, a
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consent or consents thereto by all of the directors in office is filed with the
Secretary of the Corporation.
Section 4.11 EXECUTIVE AND OTHER COMMITTEES.
(a) Establishment and Powers. The Board of Directors may, by
resolution adopted by a majority of the directors in office, establish one or
more committees to consist of me or more directors of the Corporation. Any
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all of the powers and authority of the Board of
Directors, except that a committee shall not have any power or authority as to
the following:
(1) The submission to shareholders of any action
requiring approval of shareholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the Board
of Directors.
(3) The adoption, amendment or repeal of these
By-Laws.
(4) The amendment or repeal of any resolution of the
Board that by its terms is amendable or repealable only by the Board.
(5) Action on matters committed by a resolution of
the Board of Directors to another committee of the Board.
(b) Alternate Committee Members. The Board may designate one
or more directors as alternate members of any committee who may replace any
absent or
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disqualified member at any meeting of the committee or for the purposes of any
written action by the committee. In the absence or disqualification of a member
and alternate member or members of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member.
(c) Term. Each committee of the Board shall serve at the
pleasure of the Board.
(d) Committee Procedures. The term "Board of Directors" or
"Board", when used in any provision of these By-Laws relating to the
organization or procedures of or the manner of taking action by the Board of
Directors, shall be construed to include and refer to any executive or other
committee of the Board.
Section 4.12 COMPENSATION. The Board of Directors shall have the
authority to fix compensation of directors for their services as directors, and
a director may be a salaried officer of the Corporation.
ARTICLE V -
OFFICERS
Section 5.01 OFFICERS GENERALLY.
(a) Number, Qualification and Designation. The officers of the
Corporation shall be a President, a Secretary, a Treasurer and such other
officers as may be elected in accordance with the provisions of Section 5.03.
Officers may but need not be directors or shareholders of the Corporation. The
President and Secretary shall be natural persons of full age. The Treasurer may
be a corporation, but if a natural person shall be of full age. The Board of
Directors may elect from among the members of the Board a Chairman of the Board
and a Vice Chairman of the Board, who shall be officers of the Corporation. Any
number of offices may be held by the same person.
(b) Resignations. Any officer may resign at any time upon
written notice to the Corporation. The resignation shall be effective upon
receipt thereof by the Corporation or at such subsequent time as may be
specified in the notice of resignation.
(c) Bonding. The Corporation may secure the fidelity of any or
all of its officers by bond or otherwise.
(d) Standard of Care. Except as otherwise provided in the
Articles of Incorporation, an officer shall perform his duties as an officer in
good faith, in a manner he reasonably believes to be in the best interests of
the Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his duties shall not be liable by reason
of having been an officer of the Corporation.
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Section 5.02 ELECTION AND TERM OF OFFICE. The officers of the
Corporation, except those elected by delegated authority pursuant to Section
5.03, shall be elected annually by the Board of Directors, and each such of
officer shall hold office for a term of one (1) year and until a successor has
been selected and qualified or until his earlier death, resignation or removal.
Section 5.03 SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The Board of
Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the Corporation may
require, including one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority
and perform such duties as are provided in these By-Laws or as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof and to
prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.
Section 5.04 REMOVAL OF OFFICERS AND AGENTS. Any officer or agent of
the Corporation may be removed by the Board of Directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of any
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 5.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled by the
Board of Directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.03, as the case may be, and
if the office is one for which these By-Laws prescribe a term, shall be filled
for the unexpired portion of the term.
Section 5.06 AUTHORITY. All officers of the Corporation, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of the Corporation as may be provided by or pursuant to
resolution or orders of the Board of Director or, in the absence of controlling
provisions in the resolutions or orders of the Board of Directors, as may be
determined by or pursuant to these By-laws.
Section 5.07 CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Chairman of
the Board, or in the absence of the chairman the Vice Chairman of the Board,
shall preside at all meetings of the shareholders and of the Board of Directors,
and shall perform such other duties as may from time to time be requested by the
Board of Directors.
Section 5.08 PRESIDENT. The President shall be the chief executive
officer of the Corporation and have general supervision over the business and
operations of the Corporation, subject, however, to the control of the Board of
Directors. The President shall sign, execute and acknowledge, in the name of the
Corporation, deeds, mortgages, contracts or other instruments authorized by the
Board of Directors, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors, or by these By-Laws, to
some other officer or agent of the corporation; and, in general, perform all
duties incident to the office of President, and such other duties as from time
to time may be assigned by the Board of Directors.
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Section 5.09 SECRETARY. The Secretary or an Assistant Secretary shall
attend all meetings of the shareholders and of the Board of Directors, and shall
record all votes of the shareholders and of the directors and the minutes of the
meetings of the shareholders and of the Board of Directors and of committees of
the Board in a book or books to be kept for that purpose; shall see that notices
are given and records and reports properly kept and filed by the Corporation as
required by law; shall be the custodian of the seal of the Corporation and see
that it is affixed to all documents to be executed on behalf of the Corporation
under its seal; and, in general, shall perform all duties incident to the office
of Secretary, and such other duties as may from time to time be assigned by the
Board of Directors or the President.
Section 5.10 TREASURER. The Treasurer or an Assistant Treasurer shall
have or provide for the custody of the funds or other property of the
Corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the Corporation;
shall deposit all funds in his custody as Treasurer in such banks or other
places of deposit as the Board of Directors may from time to time designate;
shall, whenever so required by the Board of Directors, render an account showing
all transactions as Treasurer and the financial condition of the Corporation;
and, in general, shall discharge such other duties as may from time to time be
assigned by the Board of Directors or the President.
Section 5.11 SALARIES. The salaries of the officers elected by the
Board of Directors shall be fixed from time to time by the Board of Directors or
by such officer as may be designated by resolution of the Board. The salaries or
other compensation of any other officers, employees and other agents shall be
fixed from time to time by the officer or committee to which the power to elect
such officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.03. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a director of the Corporation.
Section 5.12 COMPENSATION. Any payments made to an officer or employee
of the Corporation, such as a salary, commission, bonus, interest, rent, travel
or entertainment expense incurred by him, which shall be disallowed, in whole or
in part, as a deductible expense by the Internal Revenue Service shall be
reimbursed by such officer or employee to the Corporation to the full extent of
such disallowance. It shall be the duty of the directors, as a Board, to enforce
payment of each such amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors, proportionate amounts
may be withheld from future compensation payments until the amount owed to the
Corporation has been recovered.
ARTICLE VI --
CERTIFICATES OF STOCK, TRANSFER, ETC.
Section 6.01 SHARE CERTIFICATES. Certificates for shares of the
Corporation shall be in such form as approved by the Board of Directors, and
shall state that the Corporation is incorporated under the laws of Pennsylvania,
the name of the person to whom issued, and the number and class of shares and
the designation of the series (if any) that the certificate represents. The
share register or transfer books and blank share certificates shall be kept by
the Secretary or by any transfer agent or registrar designated by the Board of
Directors for that purpose.
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Section 6.02 ISSUANCE. The share certificates of the Corporation shall
be numbered and registered in the share register or transfer books of the
Corporation as they are issued. They shall be signed by the President and the
Secretary, and shall bear the corporate seal, which may be a facsimile, engraved
or printed; but where such certificate is signed by a transfer agent or a
registrar, the signature of any corporate officer upon such certificate may be a
facsimile, engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise before the
certificate is issued, it may be issued with the same effect as if the officer
had not ceased to be such at the date of its issue. The provisions of this
Section 6.02 shall be subject to any inconsistent or contrary agreement at the
time between the Corporation and any transfer agent or registrar.
Section 6.03 TRANSFER. Transfers of shares shall be made on the share
register or transfer books of the Corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made inconsistent with the
provisions of the Shareholders' Agreement or the Uniform Commercial Code, 13
Pa.C.S. 8101, et seq., and its amendments and supplements.
Section 6.04 RECORD HOLDER OF SHARES. The Corporation shall be entitled
to treat the person in whose name any share or shares of the Corporation stand
on the books of the Corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person.
Section 6.05 LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of
any shares of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate upon the
surrender of the mutilated certificate, or in case of loss or destruction of the
certificate upon satisfactory proof of such loss or destruction, and, if the
Board of Directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
Section 7.01 SCOPE OF INDEMNIFICATION.
(a) General Rule. The Corporation shall indemnify an
indemnified representative against any liability incurred in connection with any
proceeding which the indemnified representative may be involved as a party or
otherwise by reason of the fact that such person is or was serving in an
indemnified capacity, including, without limitation, liabilities resulting from,
any actual or alleged breach or neglect of duty, error, misstatement or
misleading statement, negligence, gross negligence or act giving rise to strict
or products liability, except:
(1) where such indemnification is expressly
prohibited by applicable law;
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(2) where the conduct of the indemnified
representative has been determined pursuant to Section 7.06 or
otherwise:
(i) to constitute willful misconduct or
recklessness within the meaning of 15 Pa.C.S. 513(b) and
1746(b) and 42 Pa.C.S. 8365(b) or any superseding provision of
law sufficient in the circumstances to bar indemnification
against liabilities arising from the conduct; or
(ii) to be based upon or attributable to the
receipt by the indemnified representative from the Corporation
of a personal benefit to which the indemnified representative
is not legally entitled; or
(3) to the extent such indemnification has been
finally determined in a final adjudication pursuant to Section 7.06 to
be otherwise unlawful.
(b) Partial Payment. If an indemnified representative is
entitled to indemnification in respect of a portion, but not all, of any
liabilities, to which such person may be subject, the Corporation shall
indemnify such indemnified representative to the maximum extent for such portion
of the liabilities.
(c) Presumption. The termination of a proceeding by judgment,
order, settlement or conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the indemnified
representative is not entitled to indemnification.
(d) Definitions. For purposes of this Article:
(1) "indemnified capacity" means any and all past,
present and future service by an indemnified representative in one or
more capacities as a director, officer, employee or agent of the
Corporation, or, at the request of the Corporation, as a director,
officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise;
(2) "indemnified representative" means any
and all directors and officers of the corporation and any other person
designated as an indemnified representative by the Board of Directors
of the Corporation (which may, but need not, include any person serving
at the request of the Corporation as a director, officer, employee,
agent, fiduciary or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity or enterprise);
(3) "liability" means any damage, judgment,
amount paid in settlement, fine, penalty, punitive damages, excise tax
assessed with respect to an employee benefit plan, or cost or expense,
of any nature (including, without limitation, attorneys' fees and
disbursements); and
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(4) "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of any nature,
whether civil, criminal, administrative or investigative, whether
formal or informal, and whether brought by or in the right of the
Corporation, a class of its security holders or otherwise.
Section 7.02 PROCEEDINGS INITIATED BY INDEMNIFIED REPRESENTATIVES.
Notwithstanding any other provision of this Article, the Corporation shall not
indemnify under this Article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include
counterclaims or affirmative defenses) or participated in as an intervenor or
amicus curiae by the person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
This section does not apply to a reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under Section 7.06 or
otherwise successfully prosecuting or defending the rights of an indemnified
representative granted by or pursuant to this Article.
Section 7.03 ADVANCING EXPENSES. The corporation shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 7.01 of the initiation of or participation in which is
authorized pursuant to Section 7.02 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is ultimately
determined pursuant to Section 7.06 that such person is not entitled to be
indemnified by the Corporation pursuant to this Article. The financial ability
of an indemnified representative to repay an advance shall not be a prerequisite
to the making of such advance.
Section 7.04 SECURING OF INDEMNIFICATION OBLIGATIONS. To further
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the Corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the Board of Directors shall deem
appropriate. Absent fraud, the determination of the Board of Directors with
respect to such amounts, costs, terms and conditions shall be conclusive against
all security holders, officers and directors and shall not be subject to
voidability.
Section 7.05 PAYMENT OF INDEMNIFICATION. An indemnified representative
shall be entitled to indemnification within 30 days after a written request for
indemnification has been delivered to the Secretary of the Corporation.
Section 7.06 ARBITRATION.
(a) General Rule. Any dispute related to the right to
indemnification, contribution or advancement of expenses as provided under this
Article, except with respect to indemnification for liabilities arising under
the Securities Act of 1933 that the Corporation has undertaken to submit to a
court for adjudication, shall be decided only by arbitration in the metropolitan
area in which the principal executive offices of the Corporation are located at
the
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time, in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association, before a panel of three (3) arbitrators,
one of whom shall be selected by the Corporation, the second of whom shall be
selected by the indemnified representative and third of whom shall be selected
by the other two arbitrators. In the absence of the American Arbitration
Association, or if for any reason arbitration under the arbitration rules of the
American Arbitration Association cannot be initiated, or if one of the parties
fails or refuses to select an arbitrator, or if the arbitrators selected by the
Corporation and the indemnified representative cannot agree on the selection of
the third arbitrator within 30 days after such time as the Corporation and the
indemnified representative have each been notified of the selection of the
other's arbitrator, the necessary arbitrator or arbitrators shall be selected by
the presiding judge of the court of general jurisdiction in such metropolitan
area.
(b) Burden of Proof. The party or parties challenging the
right of an indemnified representative to the benefits of this Article shall
have the burden of proof.
(c) Expenses. The Corporation shall reimburse an indemnified
representative for the expenses (including attorneys' fees and disbursements)
incurred in unsuccessfully prosecuting or defending such arbitration.
(d) Effect. Any award entered by the arbitrators shall be
final, binding and nonappealable, and judgment may be entered thereon by any
party in accordance with applicable law in any court of competent jurisdiction,
except that the corporation shall be entitled to interpose as a defense in any
such judicial enforcement proceeding any prior judicial determination adverse to
the indemnified representative under Section 7.01(a)(2) in a proceeding not
directly involving indemnification under this Article. This arbitration
provision shall be specifically enforceable.
Section 7.07 CONTRIBUTION. If the indemnification provided for in this
Article or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the Corporation shall contribute to the liabilities to which
the indemnified representative may be subject in such proportion as is
appropriate to reflect the intent of this Article or otherwise.
Section 7.08 MANDATORY INDEMNIFICATION OF DIRECTORS, OFFICERS, ETC. To
the extent that an authorized representative of the Corporation has been
successful on the merits or otherwise in defense of any action or proceeding
referred to in 15 Pa.C.S. 1741 or 1742 or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
person in connection therewith.
Section 7.09 CONTRACT RIGHTS; AMENDMENT OR REPEAL. All rights under
this Article shall be deemed a contract between the Corporation and the
indemnified representative pursuant to which the Corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights or
obligations then existing.
Section 7.10 SCOPE OF ARTICLE. The rights granted by this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or
21
<PAGE>
advancement of expenses may be entitled under any statute, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in an
indemnified capacity and as to action in any other capacity. The
indemnification, contribution and advancement of expenses provided by or granted
pursuant to this Article shall continue as to a person who has ceased to be an
indemnified representative in respect of matters arising prior to such time, and
shall inure to the benefit of the heirs, executors, administrators and personal
representatives of such a person.
Section 7.11 RELIANCE ON PROVISIONS. Each person who shall act as an
indemnified representative of the Corporation shall be deemed to be doing so in
reliance upon the rights provided in this Article.
Section 7.12 INTERPRETATION. The provisions of this Article are
intended to constitute By-Laws authorized by 15 Pa.C.S. 513 and 1746 and 42
Pa.C.S. 8365.
ARTICLE VIII -
MISCELLANEOUS
Section 8.01 CORPORATE SEAL. The Corporation shall have a corporate
seal in the form of a circle containing the name of the Corporation, the year of
its organization and the words "Corporate Seal, Pennsylvania".
Section 8.02 CHECKS. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the Board of
Directors or any Person authorized by resolution of the Board of Directors may
from time to time designate.
Section 8.03 CONTRACTS.
(a) General Rule. Except as otherwise provided in the Business
Corporation Law in the case of transactions that require action by the
shareholders, the Board of Directors may authorize any officer or agent to enter
into any Contract or to execute or deliver any instrument on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
(b) Statutory Form of Execution of Instruments. Any note,
mortgage, evidence of indebtedness, contract or other document, or any
assignment or endorsement thereof, executed or entered into between the
Corporation and any other person, when signed by one or more officers or agents
having actual or apparent authority to sign it, or by the President or Vice
President and Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Corporation, shall be held to have been properly executed for
and in behalf of the Corporation, without prejudice to the rights of the
Corporation against any person who shall have executed the instrument in excess
of his actual authority.
Section 8.04 INTERESTED DIRECTORS OR OFFICERS; QUORUM.
(a) General Rule. A contract or transaction between the
Corporation and one or more of its directors or officers or between the
Corporation and another corporation, partnership, joint venture, trust or other
enterprise in which one or more of its directors or officers
22
<PAGE>
are directors or officers or have a financial or other interest, shall not be
void or voidable solely for that reason, or solely because the director or
officer is present at or participates in the meeting of the Board of Directors
that authorizes the contract or transaction, or solely because his, her or their
votes are counted for that purpose, if:
(1) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors and the Board authorizes the contract
or transaction by the affirmative vote of a majority of the
disinterested directors even though the disinterested directors are
less than a quorum;
(2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are
known to the shareholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those
shareholders; or
(3) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by
the Board of Directors or the shareholders.
(b) Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board which authorizes
a contract or transaction specified in subsection (a).
Section 8.05 DEPOSITS. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositaries as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the Board of Directors shall from time to
time determine.
Section 8.06 CORPORATE RECORDS
(a) Required Records. The Corporation shall keep complete and
accurate books and records of account, minutes of the proceedings of the
incorporators, shareholders and directors, and a share register giving the names
and addresses of all shareholders and the number and class of shares held by
each. The share register shall be kept at either the registered office of the
Corporation in Pennsylvania or at its principal place of business, wherever
situated, or at the office of its registrar or transfer agent. Any books,
minutes or other records may be in written form or any other form capable of
being converted into written form within a reasonable time.
(b) Right of Inspection. Every shareholder shall, upon written
verified demand stating the purpose thereof, have a right to examine, in person
or by agent or attorney, during the usual hours for business for any proper
purpose, the share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to the interest of the person as a shareholder. In every instance where an
attorney or other agent is the person who seeks the right of inspection, the
demand shall be accompanied by a verified power of attorney or other writing
that authorizes the attorney or other agent to so act on behalf of the
shareholder.
23
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The demand shall be directed to the Corporation at its registered office in
Pennsylvania or at its principal place of business, wherever situated.
Section 8.07 FINANCIAL REPORTS. Unless otherwise agreed between the
Corporation and a shareholder, the Corporation shall furnish to its shareholders
annual financial statements, including at least a balance sheet as of the end of
each fiscal year and a statement of income and expenses for the fiscal year. The
financial statements shall be prepared on the basis of generally accepted
accounting principles, if the Corporation prepares financial statements for the
fiscal year on that basis for any purpose, and may be consolidated statements of
the corporation and one or more of its subsidiaries. The financial statements
shall be mailed by the Corporation to each of its shareholders entitled thereto
within 120 days after the close of each fiscal year and, after the mailing and
upon written request, shall be mailed by the Corporation to any shareholder or
beneficial owner entitled thereto to whom a copy of the most recent annual
financial statements has not previously been mailed. Statements that are audited
or reviewed by a public accountant shall be accompanied by the report of the
accountant; in other cases, each copy shall be accompanied by a statement of the
person in charge of the financial records of the Corporation:
(1) stating his reasonable belief as to whether or
not the financial statements were prepared in accordance with generally
accepted accounting principles, and, if not, describing the basis of
presentation; and
(2) describing any material respects in which the
financial statements were not prepared on a basis consistent with those
prepared for the previous year.
Section 8.08 GENDER. Whenever in these By-Laws the context requires,
words importing the singular number and masculine gender shall be understood to
apply to one or more persons when appropriate and to the comparable feminine or
neuter pronoun.
Section 8.09 AMENDMENT OF BY-LAWS. By-Laws may be amended or repealed,
or new By-Laws may be adopted, either: (a) by vote of the shareholders at any
duly organized annual or special meeting of shareholders as hereinabove
provided; or (b) with respect to those matters that are not by statute committed
expressly to the shareholders and regardless of whether the shareholders have
previously adopted or approved the By-Law being amended or repealed, by vote of
a majority of the Board of Directors of the Corporation in office at any regular
or special meeting of directors. Any change in these By-Laws shall take effect
when adopted unless otherwise provided in the resolution effecting the change
ARTICLE IX - ADOPTION OF AMENDED AND RESTATED BY-LAWS AND
RECORD OF AMENDMENTS THERETO
Section 9.01 ADOPTION OF AMENDED AND RESTATED BY-LAWS. These Amended
and Restated By-Laws have been adopted as the Amended and Restated By-Laws of
the Corporation as of the lst day of October, 1989, and shall be effective as of
said date.
Section 9.02 AMENDMENTS TO AMENDED AND RESTATED BY-LAWS:
24
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Section Amended Date Amended Amended By
- --------------- ------------ -------------------
ARTICLE I. Section 1.01 - January 22, 1991 Statement of Change
REGISTERED OFFICE. "The of Registered Office
name of the Corporation's by Agent filed
commercial registered office
provider and the county of
venue in the Commonwealth of
Pennsylvania shall be c/o
Hamburg, Rubin, Mullin &
Maxwell Corporation Service,
Inc., Montgomery County,
Pennsylvania (for venue and
official publication purposes),
until otherwise established by
an amendment of the Articles of
Incorporation or by the Board of
Directors and a record of such
change is filed with the Department
of State in the manner provided by law."
25
<PAGE>
EXHIBIT NO. 3.3
TO BE FILED BY AMENDMENT
<PAGE>
[FORM OF WARRANT CERTIFICATE]
WARRANT NO. _____________ NUMBER OF WARRANTS __________
GEN TRAK, INC.
NOT EXERCISABLE OR SEPARATELY
TRANSFERABLE BEFORE _____
UNLESS OTHERWISE NOTIFIED
Warrant for the Purchase of Shares of Common Stock
--------------------------------------------------
THIS CERTIFIES THAT, ________________________________________________
or registered assigns is the registered holder (the "Registered Holder") of the
number of Common Stock Purchase Warrants (the "Warrants") set forth above, each
of which represents the right to purchase one fully paid and nonassessable share
of common stock, $.01 par value per share (the "Common Stock"), of GEN TRAK,
INC., a Pennsylvania corporation (the "Company"), at the price of Six ($6.00)
Dollars per share (the "Exercise Price") at any time from and after __________
through and including the Expiration Date set forth below (the "Exercise
Period"), provided that such shares of Common Stock issuable upon exercise of
the Warrants have been effectively registered under the Securities Act of 1933
(the "Securities Act") and such other action as may be required by federal or
state law relating to the issuance or distribution of securities shall have been
taken, but not after the Expiration Date hereinafter referred to, by
surrendering this Warrant Certificate, with the form of election to purchase set
forth hereon duly executed with signature guaranteed by a member firm of a
national securities exchange, a commercial bank (not a savings bank or a savings
and loan association) or a trust company located in the United States, or a
member of the National Association of Securities Dealers, Inc., at the office
maintained by StockTrans, Inc., or its successor as warrant agent (any such
warrant agent being herein called the
<PAGE>
"Warrant Agent") at the address set forth below and by paying full in good funds
the Exercise Price plus transfer taxes, if any. Payment of the Exercise Price
may be made on the option of the holder hereof in United States currency, by
check or money order payable to the order of the Warrant Agent and upon
compliance with and subject to the conditions set forth herein and in the
Warrant Agreement referred to below.
No Warrant may be exercised after 5:00 p.m., New York City, New York
Time, on the Warrant expiration date (the "Expiration Date") which will be on
the fifth anniversary date of the date upon which a registration statement under
the Securities Act of 1933, as amended (the "Act"), covering all Shares becomes
effective under the Act. All Warrants evidenced hereby shall thereafter become
void, provided that in the event that the Securities Act registration applicable
to the Warrants and the shares of Common Stock issuable upon the exercise of
such Warrants should lapse during the thirty day period prior to the Expiration
Date, the Warrant Expiration Date shall be extended until the thirtieth day
following the effectiveness of a Securities Act Registration Statement
applicable to the shares of Common Stock issuable upon exercise of the Warrants.
Commencing after ______, this Warrant is redeemable in whole or in part
at the option of the Company at the initial price ("Redemption Price") of $.10
per Warrant Share, upon 30-days written notice to the Registered Holder thereof
if the closing bid price of the Company's Common Stock as reported on Nasdaq or
the closing sale price of such Common Stock, if traded on a national or regional
securities exchange, as applicable, averages at least $10.00 over the thirty
(30) consecutive trading days within ten (10) days of the notice of redemption.
The Company is required to maintain an effective registration statement with
respect to the Common Stock underlying the warrants at the time of redemption of
the Warrants. In the event the Company exercises the right to redeem the
Warrant, such Warrants will be exercisable until the close of
2
<PAGE>
business on the date for redemption fixed in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the holder will be entitled only to the redemption price.
Prior to the Expiration Date, subject to any applicable laws,
rules or regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate in whole or in
part upon surrender of this Warrant Certificate at the office of the Warrant
Agent set forth next to its countersignature below, with the form of assignment
set forth hereon duly executed, with signatures guaranteed by a member firm of a
national securities exchange, a commercial bank (not a savings bank or a savings
and loan association) or a trust company located in the United States, or a
member of the National Association of Securities Dealers, Inc. Upon any such
transfer, a new Warrant Certificate or Warrant Certificates representing the
same aggregate number of Warrants will be issued in accordance with instructions
in the form of assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the Principal Office of the Warrant Agent.
Upon certain events provided for in the Warrant Agreement hereinafter
referred to, the Exercise Price and the number of shares of Common Stock
issuable upon the exercise of each Warrant will be adjusted.
3
<PAGE>
No fractional shares will be issued upon the exercise of Warrants. As
to any final fractions of a share which the registered holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement hereinafter referred to.
This Warrant Certificate issued under and in accordance with the
Warrant Agreement dated as of __________, 1998 between the Company and the
Warrant Agent, as it may be amended from time to time, and is subject to the
terms and provisions contained in said Warrant Agreement, all of which are
incorporated herein by reference and to all of which terms and provisions the
Registered Holder consents by acceptance of this Warrant Certificate. In the
event of any conflict between the terms and provisions of this Warrant
Certificate and the terms and provisions of such Warrant Agreement, the terms
and provisions of such Warrant Agreement shall control. Capitalized terms used
herein and not otherwise defined shall have the same meanings ascribed to them
in such Warrant Agreement as applicable to the Common Stock Purchase Warrants.
This Warrant Certificate shall not entitle the Registered Holder to any
of the rights of a stockholder of the Company, including, without limitation,
the right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly exercised under its facsimile Corporate Seal.
GEN TRAK, INC.
By:_______________________________
Title:
Countersigned: STOCKTRANS, INC.
7 E. Lancaster Avenue
Ardmore, PA 19003
By:_______________________________
Authorized Signature
Dated:__________________
5
<PAGE>
[FORM OF]
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise ___________ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:
----------------------------
(NAME)
----------------------------
(ADDRESS, INCLUDING ZIP CODE)
----------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
----------------------------
(NAME)
at
----------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$____________ by check or money order payable representing good funds in United
States currency to the order of the Warrant Agent.
Date:__________________ Signature:___________________________
(Signature must conform in all particulars to name of holder as specified on the
face of the Warrant Certificate without alteration or enlargement or any change
whatsoever, or if signed by other person, the form of assignment hereof must be
duly executed and this Form of Election must be signed by the assignee whose
signature must correspond with the name set forth on the Form of Assignment in
every particular. Signature must be guaranteed by a commercial bank or trust
company located in the United States or by a broker or dealer which is a member
of a registered national securities exchange or the National Association of
Securities Dealers, Inc.)
Signature Guaranteed: ________________________________________
6
<PAGE>
[FORM OF]
ASSIGNMENT
(To be signed only upon assignment of
Warrants evidenced by this Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfer unto
---------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
Insert Social Security Number or Identifying Number of Assignee
all of the rights of the undersigned represented by the within Warrant
Certificate with respect to ______________________ Warrants and hereby
irrevocably constitutes and appoints
Attorney to transfer said Warrant on the books of GEN TRAK, INC. with full power
of substitution in the premises.
DATED: _____________ 19__
NOTE: The above signature must correspond with the name as written on the face
of this Warrant Certificate in every particular, without alteration or
enlargement or and change whatever. Signature must be guaranteed by a commercial
bank or trust company located in the United States or by a broker or dealer
which is a member of a registered national securities exchange or the National
Association of Securities Dealers, Inc.
Signature Guaranteed: __________________________________________
7
<PAGE>
GEN TRAK, INC.
1998 STOCK OPTION PLAN
------------------------
1. Purpose. The Plan is intended as an additional incentive to key
employees, consultants, advisors and members of the Board of Directors
(together, the "Optionees") to enter into or remain in the service or employ of
Gen Trak, Inc., a Pennsylvania corporation (the "Company"), or any Affiliate (as
defined below) of the Company, and to devote themselves to the Company's success
by providing them with an opportunity to acquire or increase their proprietary
interest in the Company through receipt of rights (the "Options") to acquire the
Company's Common Stock, par value $.01 per share (the "Common Stock"). Each
Option granted under the Plan to a person who is employed by the Company or an
Affiliate is intended to be an incentive stock option ("ISO") within the meaning
of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
for federal income tax purposes, except to the extent (i) any such ISO grant
would exceed the limitation of subsection 6(a) below, or (ii) any Option is
specifically designated at the time of grant (the "Grant Date") as not being an
ISO. No Option granted to a person who is not an employee of the Company or any
Affiliate on the Grant Date, or is not identified as an ISO in the Option
Documents (as hereinafter defined), shall be an ISO.
For purposes of the Plan, the term "Affiliate" shall mean a corporation
which is a parent corporation or a subsidiary corporation with respect to the
Company within the meaning of section 424(e) or (f) of the Code.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company, without participation by any director on any matter
pertaining to him, provided that any director may join in a written consent to
action signed by all directors notwithstanding that such action pertains to such
director, in whole or in part. The Board of Directors may appoint a Stock Option
Committee composed of two or more of its members to operate and administer the
Plan in its stead. The Stock Option Committee or the Board of Directors in its
administrative capacity with respect to the Plan is referred to herein as the
"Committee."
The Committee shall hold meetings at such times and places as it may
determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
The Committee shall from time to time at its discretion grant Options
pursuant to the terms of the Plan. The Committee shall have plenary authority to
determine the Optionees to whom and the times at which Options shall be granted,
the number of Option Shares (as defined in Section 4 below) to be covered by
such Options and the price and other terms and conditions thereof, including a
-1-
<PAGE>
specification with respect to whether an Option is intended to be an ISO,
subject, however, to the express provisions of the Plan. In making such
determinations the Committee may take into account the nature of the Optionee's
services and responsibilities, the Optionee's present and potential contribution
to the Company's success and such other factors as it may deem relevant. The
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted under it shall be final, binding and conclusive.
No member of the Board of Directors or the Committee shall be
personally liable for any action or determination made in good faith with
respect to the Plan or any Option granted under it, nor shall any member of the
Board of Directors or Committee be liable for any act or omission of any other
member of the Committee or for any omission on his own part, including but not
limited to the exercise of or the failure to exercise any power or discretion
given to him under the Plan, except that this section shall not absolve any
member of personal responsibility for liabilities which arises out of or result
from (i) an intentional infliction of harm on the Company or its shareholders,
(ii) intentional violation of criminal law, (iii) acts or omissions that would
result in liability under Subchapter B of the Pennsylvania Business Corporation
Law of 1988 (the "BCL"), and (iv) the receipt of an improper personal financial
benefit, to the extent of the amount of such benefit.
In addition to such other rights of indemnification as he may have as a
member of the Board of Directors or the Committee, and with respect to the
administration of the Plan and the granting of Options under it, each member of
the Board of Directors and of the Committee shall be entitled without further
action on his part to indemnity from the Company for all expenses (including the
amount of judgment and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he may be involved by reason of his being
or having been a member of the Board of Directors or the Committee, whether or
not he continues to be such member of the Committee at the time of the incurring
of such expenses; provided, however, that such indemnity shall not include any
expenses incurred by such member of the Board of Directors or Committee: (i) in
respect of matters as to which he shall be finally adjudged in such action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duties as a member of the Board of Directors or the
Committee; or (ii) in respect of any settlement amount in excess of an amount
approved by the Company on the advice of its legal counsel; and provided further
that no right of indemnification hereunder shall be available to or accessible
by any such member of the Committee unless within a reasonable time after
institution of any such action, suit or proceeding (which shall be no later than
the earlier of ten (10) days prior to the date that any responsive pleading or
other action in response to the institution of any such proceeding is due, or
ten (10) days after he has actual notice of the institution of such proceeding)
he shall have offered the Company in writing the opportunity to handle and
defend such action, suit or proceeding at its own expense. The foregoing right
of indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Board of Directors or the Committee
and shall be in addition to all other rights to which such member of the Board
of Directors or the Committee would be entitled to as a matter of law, contract
or otherwise.
-2-
<PAGE>
3. Eligibility. All key employees of the Company or its Affiliates (who
may also be directors of the Company or its Affiliates) shall be eligible to
receive Options hereunder, and such Options may be either ISOs or Options which
are not ISOs (hereinafter, "Nonqualified Options"). Consultants, advisors and
directors of the Company shall be eligible to receive Nonqualified Options
hereunder. The Committee, in its sole discretion, shall determine whether an
individual qualifies as an employee or an Optionee. An Optionee may receive more
than one Option.
4. Option Shares. The aggregate maximum number of shares of the Common
Stock for which Options may be granted under the Plan is One Hundred Thousand
(100,000) shares (the "Option Shares"), which number is subject to adjustment as
provided in Section 8(b). Option Shares shall be issued from authorized and
unissued Common Stock or Common Stock held in or hereafter acquired for the
treasury of the Company. If any outstanding Option granted under the Plan
expires, lapses or is terminated for any reason, the Option Shares allocable to
the unexercised portion of such Option may again be the subject of an Option
granted pursuant to the Plan.
5. Term of Plan. The Plan is adopted by the Board of Directors
effective on September 30, 1998 (the "Effective Date"), but shall terminate (a)
on the first anniversary of the Effective Date unless the Plan is approved by
the stockholders of the Company as set forth in section 422(b)(1) of the Code,
and (b) if the Plan is so approved, on the tenth anniversary of the Effective
Date. Notwithstanding anything to the contrary herein or in any Option Document
(as hereinafter defined), all Options granted hereunder shall be Nonqualified
Options if the Plan is not approved by shareholders of the Company prior to the
first anniversary of the Effective Date.
6. Terms and Conditions of Options. Options granted pursuant to the
Plan shall be evidenced by written documents (the "Option Documents") in such
form as the Committee shall from time to time approve, which Option Documents
shall comply with and be subject to the following terms and conditions and with
any other terms and conditions (including vesting schedules for the
exercisability of Options) which the Committee shall from time to time provide
which are not inconsistent with the terms of the Plan.
a. Number of Option Shares. Each Option Document shall state the
number of Option Shares to which it pertains.
b. Option Price. Each Option Document shall state the price at which
Option Shares may be purchased (the "Option Price"), which, for any ISO, shall
be at least 100% of the fair market value of the Common Stock on the date the
option is granted as determined by the Committee; provided, however, that if an
ISO is granted to an Optionee who then owns, directly or by attribution under
section 424(b) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the ISO Option Price shall be at least 110% of the fair market value of the
Option Shares on the Grant Date. The Option Price of Nonqualified Options may be
below 100% of the fair market value of the Common Stock on the Grant Date. The
fair market value of the Common Stock shall be as determined by the Committee,
provided that the fair market value of the Common Stock on the Grant Date in
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<PAGE>
respect of the grant of an ISO shall be determined in accordance with Section
422(b)(4) of the Code and Regulations hereunder.
c. Medium of Payment. An Optionee shall pay for Options Shares (i)
in cash, (ii) by certified check payable to the order of the Company, or (iii)
by such other mode of payment as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board.
d. Termination of Options. No Option shall be exercisable after the
first to occur of the following:
(i) Expiration of the Option term specified in the Option
Documents pertaining thereto, which shall not exceed ten years from the date of
grant (or five years from the date of grant in the case of an ISO if, on such
date the Optionee owns, directly or by attribution under section 424(b) of the
Code, shares possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an Affiliate);
(ii) If the Optionee is an employee of the Company or an
Affiliate, expiration of three months (or such shorter period as the Committee
may select) from the date the Optionee's employment with the Company or its
Affiliates terminates for any reason other than (A) disability (within the
meaning of section 22(e)(3) of the Code) or death, or (B) circumstances
described by subsection (d)(v), below; or expiration of one year from the date
the Optionee's employment with the Company or its Affiliates terminates by
reason of the Optionee's disability (within the meaning of section 22(e)(3) of
the Code) or death;
(iii) The date, if any, fixed by the Committee as an accelerated
expiration date in the event of a "Change in Control" described in sub-Section
6(e)(i) and (ii) below, provided an Optionee who holds an Option affected by
such acceleration of expiration date is given written notice at least sixty (60)
days before the date so fixed;
(iv) The date set by the Committee to be an accelerated
expiration date after a finding by the Committee that a change in the financial
accounting treatment for Options from that in effect on the date the Plan was
adopted adversely affects or, in the determination of the Committee, may
adversely affect in the foreseeable future, the Company, provided that (A) an
Optionee who holds an Option affected by such acceleration of expiration date is
given written notice at least sixty (60) days before the date so fixed, and (B)
the Committee may take whatever other action, including acceleration of any
exercise provisions, it deems necessary or appropriate should it make the
determination referred to hereinabove; or
(v) A finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Optionee, that the
Optionee has been discharged from employment or service with the Company or an
Affiliate for Cause. For purposes of this Section, "Cause" shall mean: (A) a
breach by Optionee of his employment or service agreement with the Company or an
Affiliate, (B) a breach of Optionee's duty of loyalty to the Company or an
-4-
<PAGE>
Affiliate, including without limitation any act of dishonesty, embezzlement or
fraud with respect to the Company or an Affiliate, (C) the commission by
Optionee of a felony, a crime involving moral turpitude or other act causing
material harm to the Company's or an Affiliate's standing and reputation, (D)
Optionee's continued failure to perform his duties to the Company or an
Affiliate or (E) unauthorized disclosure of trade secrets or other confidential
information belonging to the Company or an Affiliate. In the event of a finding
that the Optionee has been discharged for Cause, in addition to immediate
termination of the Option, the Optionee shall automatically forfeit all Option
Shares for which the Company has not yet delivered the share certificates upon
refund of the Option Price; provided, however, that, with respect to any
Non-Qualified Option, the Committee may provide other and additional terms and
conditions in the Option Document which are expressly or by implication at
variance with the above terms and conditions, in which case the terms and
conditions set forth in the Option Documents shall be controlling.
e. Change of Control. In the event of a Change in Control (as
defined below), the Committee may take whatever action with respect to the
Options outstanding it deems necessary or desirable, including, without
limitation, accelerating the vesting, expiration or termination dates in the
respective Option Documents to a date no earlier than thirty (30) days after
notice of such acceleration is given to the Optionee; provided, however, that
(x) the Committee shall not accelerate the expiration or termination date of any
outstanding option except in the case of a Change in Control as described in
sub-Sections (i) or (ii) below, and (y) the Committee may provide in the Option
Documents other and additional terms and conditions of such Option which are
applicable if a Change of Control occurs, including terms and conditions which
limit the Committee's discretion under this section. A Change of Control shall
be deemed to have occurred upon the earliest to occur of the following events:
(i) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) approve a plan or other
arrangement pursuant to which the Company will be dissolved or liquidated;
(ii) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) approve a definitive agreement
to sell or otherwise dispose of substantially all of the assets of the Company;
(iii) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) and the stockholders of the
other constituent corporation (or its board of directors if stockholder action
is not required) have approved a definitive agreement to merge or consolidate
the Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of the Common
Stock immediately prior to the merger or consolidation will hold at least a
majority of the ownership of common stock of the surviving corporation (and, if
one class of common stock is not the only class of voting securities entitled to
vote on the election of directors of the surviving corporation, a majority of
the voting power of the surviving corporation's voting securities) immediately
-5-
<PAGE>
after the merger or consolidation, which common stock (and, if applicable,
voting securities) is to be held in the same proportion as such holders'
ownership of Common Stock immediately before the merger or consolidation;
(iv) the date any entity, person or group, (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended), other than (A) the Company or any of its subsidiaries or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its subsidiaries or (B) any person who, on the date the Plan is effective, shall
have been the beneficial owner of at least twenty percent (20%) of the
outstanding Common Stock, shall have become the beneficial owner of, or shall
have obtained voting control over, more than fifty percent (50%) of the
outstanding shares of the Common Stock; or
(v) the first day after the first anniversary of the adoption of
this Plan by the Board of Directors a majority of the directors comprising the
Board of Directors shall have been members of the Board of Directors for less
than twenty-four (24) months, unless each director who was not a director at the
beginning of such twenty-four (24) month period was either appointed or
nominated for election with the approval of at least two-thirds of the directors
then still in office who were directors at the beginning of such period.
f. Transfers. No Option granted under the Plan may be transferred,
except by will or by the laws of descent and distribution and, in the case of a
Non-Qualified Option, as expressly set forth in the Option Documents. During the
lifetime of the person to whom an Option is granted, such Option may be
exercised only by the Optionee.
g. Other Provisions. The Option Documents shall contain such other
provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the Option, as
the Committee shall deem advisable.
h. Amendment. Subject to the provisions of the Plan, the Committee
shall have the right to amend Option Documents issued to such Optionee, subject
to the Optionee's consent if such amendment is not favorable to the Optionee
except that the consent of the Optionee shall not be required for any amendment
made under subsection 6(e) above.
7. Exercise. No Option shall be deemed to have been exercised prior to
the receipt by the Company of written notice of such exercise and of payment in
full of the Option Price for the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall satisfy the
securities law requirements set forth in this Section 7.
Each exercise notice shall (unless the Option Shares are covered by a
then current registration statement or a Notification under Regulation A under
the Securities Act of 1933 (the "Act")), contain the Optionee's acknowledgment
in form and substance satisfactory to the Company that (i) such Option Shares
are being purchased for investment and not for distribution or resale (other
than a distribution or resale which, in the opinion of counsel satisfactory to
the Company, may be made without violating the registration provisions of the
Act), (ii) the Optionee has been advised and understands that (A) the Option
Shares have not been registered under the Act and are "restricted securities"
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<PAGE>
within the meaning of Rule 144 under the Act and are subject to restrictions on
transfer and (B) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (iii) such Option Shares may not
be transferred without compliance with all applicable federal and state
securities laws, and (iv) an appropriate legend referring to the foregoing
restrictions on transfer and any other restrictions imposed under the Option
Documents may be endorsed on the certificates. Notwithstanding the above, should
the Company be advised by counsel that the issuance of Option Shares upon the
exercise of an Option should be delayed pending (A) registration under federal
or state securities laws or (B) the receipt of an opinion that an appropriate
exemption therefrom is available, (C) the listing or inclusion of the shares on
any securities exchange or in an automated quotation system or (D) the consent
or approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Option Shares, the Company may
defer the exercise of any Option granted hereunder until either such event in A,
B, C or D has occurred.
8. Adjustments on Changes in Common Stock.
a. In case the Company shall (i) declare a dividend or make a
distribution on outstanding shares of its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of its Common Stock
into a greater number of shares, or (iii) combine or reclassify the outstanding
shares of its Common Stock into a lesser number of shares, the number of Option
Shares subject to outstanding Options shall be increased or decreased in
proportion to the increase or decrease, as the case may be, in the total number
of outstanding shares of Common Stock of the Company as a result of such
subdivision, combination or reclassification. Such adjustment shall be effective
as of the record date of such subdivision, combination or reclassification.
Adjustments hereunder shall be made successively whenever any event specified
above shall occur.
b. The aggregate number of shares of Common Stock as to which
Options may be granted hereunder shall be adjusted in proportion to any
adjustment made in the number of Option Shares covered by outstanding Options
pursuant to Section 8(a) above.
c. In case of any reclassification, recapitalization or other change
in the capital structure of the Company affecting its Common Stock, other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in the Common Stock into
two or more classes or series of shares), the Optionee shall have the right
thereafter to receive upon exercise of this Option solely the kind and amount of
shares of stock and other securities, property, cash or any combination thereof
receivable in connection with such reclassification, recapitalization or other
change by a holder of a number of shares of Common Stock equal to the number of
Option Shares for which this Option might have been exercised immediately prior
to such event.
d. In case of a Change of Control of the Company involving a
consolidation with or merger of the Company into another corporation (other than
a merger of consolidation in which the Company is the continuing or surviving
corporation), the Optionee shall have the right thereafter to receive upon
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<PAGE>
exercise of the Option solely the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
consolidation, merger, sale, lease or conveyance by a holder of a number of
shares of Common Stock equal to the number of Option Shares for which this
Option might have been exercised immediately prior to such consolidation or
merger.
9. Amendment of the Plan. The Board of Directors may amend the Plan
from time to time in such manner as it may deem advisable, subject to compliance
with applicable corporate laws, securities laws and exchange requirements.
Notwithstanding the foregoing, any amendment which would change the class of
individuals eligible to receive an ISO, extend the expiration date of the Plan,
decrease the Option Price of an ISO granted under the Plan or increase the
maximum number of shares as to which Options may be granted will only be
effective if such action is approved by a majority of the outstanding voting
stock of the Company within twelve months before or after such action.
10. Continued Employment. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate, as a member of the Board
of Directors, as an independent contractor or in any other capacity.
11. Withholding of Taxes. Whenever the Company proposes or is required
to issue or transfer Option Shares, the Company shall have the right to (a)
require the recipient or transferee to remit to the Company an amount sufficient
to satisfy any federal, state and/or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for such Option
Shares or (b) take whatever action it deems necessary to protect its interests.
12. Assumption by Successors. Any agreement providing for a Change of
Control involving a consolidation with or merger into another corporation (other
than a merger or consolidation in which the Company is the continuing or
surviving corporation) shall make express, effective provisions for the
assumption of the Company's obligations under this Plan by the surviving or
continuing corporation, and/or by the parent of the surviving or continuing
corporation in the case of a "triangular" merger in which holders of the
Company's Common Stock receive securities of such parent corporation in exchange
for or in conversion of the Company's Common Stock.
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<PAGE>
EXHIBIT NO. 4.0
TO BE FILED BY AMENDMENT
<PAGE>
EXHIBIT NO. 5.0
TO BE FILED BY AMENDMENT
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
WHEREAS, GEN TRAK, INC., a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania (hereinafter called "Company"), and
Arthur V. Boyce, Jr. (hereinafter called "Employee") entered into a certain
EMPLOYMENT AGREEMENT dated as of November 26, 1996 ("Employment Agreement"); and
WHEREAS, the parties hereto wish to clarify and supplement their
agreement effective as of January 1, 1998.
NOW, THEREFORE, the parties hereto, for good and valuable
considerations, the receive and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, agree as follows:
1. Compensation. The initial base compensation to Employee is hereby increased
to One Hundred Sixty-Six Thousand Dollars ($166,000.00) per year, provided,
however that up to Twenty Four Thousand Dollars ($24,000.00 dollars) of such
salary per year shall be deferred until December 31, 1999: provided, however,
that
(i) Should the Employee cease to be employed by the Company or be
terminated for any reason whatsoever, all deferred salary shall be paid in full
to the Employee on the date of such termination; and
(ii) In the event that the Company "goes public", is acquired or is
in some other fashion placed on a sounder financial footing,
all deferred salary shall be immediately paid in full to the
Employee.
2. Success Fee. In addition to the provisions of paragraph 1 above, in the event
that Employee shall introduce Company to any person(s) and/or entity(ies) which
the Company, during the term of this the Employment Agreement or within 18
months after Employee's employment hereunder ceases, shall enter into a
Transaction (as herein defined) the Company shall pay to the Employee, upon the
closing of any Transaction, an amount (the "Success Fee") equal to the sum of
the following percentages of the Total Consideration (as herein defined) of such
Transactions.
Success Fee of the Total Consideration
----------- ------ -------------------
5 percent Up to $5 million
4 percent In excess of $5 million but
less than $6 million
3 percent In excess of $6 million but
less than $7 million
2 percent In excess of $7 million but
less than $10 million
1 percent In excess of $10 million
<PAGE>
For purposes of this paragraph, a "Transaction" shall mean any transaction in
which (i) the Company acquires all or any part of the assets or stock of any
other entity (other than in the ordinary course of the Company's business) (ii)
the Company sells all or any material part of its assets other than in the
ordinary course of business, or (iii) the shareholders of the Company sell more
than 50 percent of the outstanding stock of the Company. The "Total
Consideration" shall mean the entire payment received by the seller of assets or
stock, including any indebtedness assumed directly or indirectly by the
purchaser.
In the event an individual or individuals are involved with Employee
with such introduction (collectively, the "Third Parties"), the Company shall
pay the Success Fee:
(i) In accordance with any written agreement between the Employee and
the Third Parties, or
(ii) In the absence of such an agreement, pro rata between the Employee
and the Third Parties.
3. Except as specifically modified herein, the Employment Agreement shall
continue in full force and affect in accordance with its terms.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman and its corporate seal affixed, duly attested by its
Controller, and Employee has hereunto set his hand and seal as of the day and
year first above written.
Company: Gen Trak, Inc.
By:________________________________ By:_________________________________
Attest: George L. Bird, Jr.
Chairman
Employee:
- ----------------------------------- ------------------------------------
Witness Arthur V. Boyce, Jr.
Corporate Seal:
<PAGE>
FINANCIAL ADVISORY AGREEMENT
----------------------------
This Agreement is made and entered into as of the ____ day of
____________, 1999, between Gen Trak, Inc. (the "Company") and Barron Chase
Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
---------------------
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's securities;
and
WHEREAS, the Financial Advisor has experience in providing
financial and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Purpose. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render financial
advisory and consulting advice to the Company as an investment banker relating
to financial and similar matters upon the terms and conditions set forth herein.
However, the advisory will only be rendered if specifically requested in writing
by the CEO of the Company.
2. Representations of the Financial Advisor and the Company. The
Financial Advisor represents and warrants to the Company that (i) it is a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD") and that it is engaged in the securities brokerage business; (ii) in
addition to its securities brokerage business, the Financial Advisor provides
consulting advisory services; and (iii) it is free to enter into this Agreement
and the services to be provided pursuant to this Agreement are not in conflict
with any other contractual or other obligation to which the Financial Advisor is
bound. The Company acknowledges that the Financial Advisor is in the business of
providing financial services and consulting advice (of the type contemplated by
this Agreement) to others and that nothing herein contained shall be construed
to limit or restrict the Financial Advisor in conducting such business with
respect to others, or rendering such advice to others.
1
<PAGE>
3. Duties of the Financial Advisor. During the term of this Agreement,
the Financial Advisor will provide the Company with consulting advice as
specified below at the request of the Company, provided that the Financial
Advisor shall not be required to undertake duties not reasonably within the
scope of the consulting advisory service in which the Financial Advisor is
engaged generally. In performance of these duties, the Financial Advisor shall
provide the Company with the benefits of its best judgment and efforts. It is
understood and acknowledged by the parties that the value of the Financial
Advisor's advice is not measurable in any quantitative manner, and that the
amount of time spent rendering such consulting advice shall be determined
according to the Financial Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily be
limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business
operations and investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities
of the Company or any subsidiary.
4. Term. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of the
proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. Fee. The Company shall pay the Financial Advisor a fee of $108,000
for the financial services to be rendered pursuant to this Agreement, all of
which shall be payable at the Closing Date of the Company's proposed public
offering.
6. Expenses. In addition to the fees payable hereunder, the Company
shall reimburse the Financial Advisor, within five (5) business days of its
request, for any and all reasonable out-of-pocket expenses incurred in
connection with the services performed by the Financial Advisor and its counsel
pursuant to this Agreement, including (i) reasonable hotel, food and associated
expenses; (ii) reasonable charges for travel; (iii) reasonable long-distance
telephone calls; and (iv) other reasonable expenses spent or incurred on the
Company's behalf. All such expenses in excess of $500 shall be pre-approved by
the Company.
2
<PAGE>
7. Introduction of Customers, Origination of Line of Credit and Similar
Transactions. In the event the Financial Advisor originates a line of credit
with a lender or a corporate partner, the Company and the Financial Advisor will
mutually agree on a satisfactory fee and the terms of payment of such fee. In
the event the Financial Advisor introduces the Company to a joint venture
partner or customer and sales develop as a result of the introduction, the
Company agrees to pay a fee of five percent (5%) of total sales generated
directly from this introduction during the first two years following the date of
the first sale. Total sales shall mean cost receipts less any applicable
refunds, returns, allowances, credits and shipping charges and monies paid by
the Company by way of settlement or judgment arising out of claims made by or
threatened against the Company. Commission payments shall be paid on the 15th
day of each month following the receipt of customers' payments. In the event any
adjustments are made to the total sales after the commission has been paid, the
Company shall be entitled to an appropriate refund or credit against future
payments under this Agreement.
All fees to be paid pursuant to this paragraph, except as otherwise
specified, are due and payable to the Financial Advisor in cash at the closing
or closings of any transaction specified in this paragraph. In the event that
this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, the Financial Advisor shall
be entitled to a full fee as provided under this paragraph for any transaction
for which the discussions were initiated during the term of this Agreement and
which is consummated within a period of twelve months after non-renewal or
termination of this Agreement. Nothing herein shall impose any obligation on the
part of the Company to enter into any transaction or to use any services of the
Financial Advisor offered pursuant to this paragraph or this Agreement.
8. Use of Advice by the Company; Public Market for the Company's
Securities. The Company acknowledges that all opinions and advice (written or
oral) given by the Financial Advisor to the Company in connection with the
engagement of the Financial Advisor are intended solely for the benefit and use
of the Company in considering the transaction to which they relate, and the
Company agrees that no person or entity other than the Company shall be entitled
to make use of or rely upon the advice of the Financial Advisor to be given
hereunder, and no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor may the Company make any public references to the Financial
Advisor, or use of the Financial Advisor's name in any annual reports or any
other reports or releases of the Company without the prior written consent of
the Financial Advisor.
3
<PAGE>
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by the
Financial Advisor will, when and if prepared, be done solely on the merits or
judgment and analysis of the Financial Advisor or any senior corporate finance
personnel of the Financial Advisor.
9. Company Information; Confidentially. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and other
information furnished to the Financial Advisor by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
the Financial Advisor may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In addition, in the performance of its
services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as the Financial Advisor determines to have a need to
know.
10. Indemnification. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject under the
Securities Act of 1933, (the "Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including costs,
expenses, awards and/or judgments) arise out of or are in connection with the
services rendered by the Financial Advisor or any transactions in connection
with this Agreement, except for any liabilities, claims and lawsuits (including
awards and/or judgments), arising out of willful misconduct or willful omissions
of the Financial Advisor. In addition, the Company shall also indemnify and hold
harmless the Financial Advisor against any and all reasonable costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
4
<PAGE>
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the 1934
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon willful misconduct or willful
omissions of the Financial Advisor. In addition, the Financial Advisor shall
also indemnify and hold the Company harmless against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Financial Advisor's indemnification and the Financial Advisor thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
11. The Financial Advisor as an Independent Contractor. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company in
writing from time to time.
12. Miscellaneous.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered or sent
by facsimile and postage prepaid by certified or registered mail, return receipt
requested, to the respective parties as set forth below, or to such other
address as either party may notify the other in writing:
5
<PAGE>
If to the Company: Arthur V. Boyce, Jr., President
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462
Copy to: Joseph Chicco, Esq.
Connolly, Epstein, Chicco et al.
1515 Market Street, 9th Floor
Philadelphia, PA 19102-1909
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida applicable to contracts made and to be
performed entirely within the State of Florida. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
(g) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Financial Advisor.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
GEN TRAK, INC.
BY:
--------------------------------
Arthur V. Boyce, Jr., President
BARRON CHASE SECURITIES, INC.
BY:
--------------------------------
Robert T. Kirk, President
7
<PAGE>
____________, 1999
Arthur V. Boyce, Jr., President
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 19462
Re: Merger and Acquisition Agreement
--------------------------------
Dear Mr. Boyce:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant for you in various
transactions in which Gen Trak, Inc. (the "Company") may be involved, including
but not limited to, mergers, acquisitions, business combinations, joint
ventures, debt or equity placements or other on-balance or off-balance sheet
corporate transactions. The Company hereby agrees that in the event that the
Finder shall first introduce to the Company another party or entity, and that as
a result of such introduction, a transaction between such entity and the Company
is consummated ("Consummated Transaction"), then the Company shall pay to the
Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration paid
in such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000 and
up to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000 and
up to $3,000,000;
d. Two percent (2%) of any consideration in excess of $3,000,000 and up
to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$5,000,000, the consideration to be paid by the Company to the Finder at closing
shall be $150,000.
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However, both parties agree that it is the purpose of the Company to
use the proceeds of the offering in the acquisition, merger, purchase of shares
or any other kind of association with foreign companies as described in the
prospectus. To the extent that the Company has any prior relationships with such
foreign companies these foreign companies are specifically excluded from this
Agreement.
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced by
the Finder to the Company prior to the termination of said five year period, the
Company shall also pay the Finder the fee determined above.
The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:_________________________________
Robert T. Kirk, President
Agreed to and Accepted:
GEN TRAK, INC.
BY:_______________________________
Arthur V. Boyce, Jr., President
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CONSULTING AGREEMENT
THIS AGREEMENT, MADE AS OF , by and between, GEN TRAK, INC.
(hereafter referred to as "GEN TRAK"), and George L. Bird, Jr., 13 Crestview
Road, Phoenixville, Pa 19460, (hereafter referred to as "CONSULTANT");
WITNESSETH:
WHEREAS, GEN TRAK desired that CONSULTANT provide certain business development
consulting services, and
WHEREAS, both GEN TRAK and CONSULTANT desire to set forth in writing the terms
and conditions of their dealings;
NOW, THEREFORE, in consideration of the premises hereof and the mutual covenants
and conditions hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follow:
ARTICLE 1 - CONSULTING SERVICES
On the terms and conditions set forth, GEN TRAK hereby engages CONSULTANT to
consult in the area(s) of business development, and CONSULTANT hereby accepts
such engagement. CONSULTANT agrees to use his best efforts, at a level
consistent with persons having similar level of education, experience, and
expertise in his field, in the performance of the services called hereunder.
ARTICLE 2 - TERMS OF AGREEMENT
The term of this agreement shall be for two years from the above date,
extendible for a mutually agreed upon period. Services shall consist of specific
tasks or results to be achieved and shall be performed at mutually agreeable
times on an as-needed basis.
ARTICLE 3 - INDEPENDENT CONTRACTOR
CONSULTANT agrees that he shall be acting as an independent contractor.
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ARTICLE 4 - COMPENSATION
GEN TRAK agrees to pay CONSULTANT at the rate of 2000 dollars per month for up
to 40 hours of work and 75 dollars per hour for work in excess of 40 hours. plus
reasonable travel and other expenses incurred by CONSULTANT during the term of
this Agreement. CONSULTANT shall report directly to Arthur C. Boyce and provide
a invoice of time and expenses spent on the project.
ARTICLE 5 - CONFIDENTIALITY
For purposes of this Agreement, the term "confidential information" shall be any
information embodying a whole or any portion or phase of any scientific or
technical information, design, process, procedure, formula, improvement,
concept, idea, technique, know-how, market data and accounting data. CONSULTANT
agrees to, sign and execute a Confidentiality Agreement provided by GEN TRAK
that shall be attached to this Agreement and be considered part of this
Agreement.
ARTICLE 6 - SCOPE OF AGREEMENT
This Agreement is intended by the parties hereto to be the final expression of
their agreement, and it constitutes the full and entire understanding between
the parties with respect to the subject hereof, notwithstanding any
representations, statements, or agreements to the contrary heretofore made. This
Agreement may be amended only in writing signed by the parties to this
Agreement.
ARTICLE 7 - OWNERSHIP OF PROVIDED SERVICES AND RESULTS
CONSULTANT agrees that the Services and their results, reports and other data or
materials generated or developed by CONSULTANT shall be and main the sole and
exclusive property of GEN TRAK.
CONSULTANT shall perform any acts that may be reasonably deemed necessary by GEN
TRAK to evidence transfer of ownership of all materials designated under this
Article 7 to GEN TRAK to the fullest extent possible, including but not limited
to the making of further written assignments in a form determined by GEN TRAK.
ARTICLE 8 - RETURN OF MATERIAL
Upon request of GEN TRAK, but in any event upon termination of the Agreement,
CONSULTANT shall surrender to GEN TRAK all memoranda, notes, records, drawings,
models, maps, plans, reports, blueprints, sketches, letters, manuals, and other
documents or materials (and all copies of same) pertaining to the services
generated or developed by CONSULTANT or furnished by GEN TRAK to CONSULTANT,
including all materials embodying any Proprietary Materials.
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ARTICLE 9 - TERMINATION
This Agreement may be terminated by GEN TRAK or CONSULTANT upon sixty (60) days
written notice to the other party after the two year period. In the event GEN
TRAK, for any reason, terminated this Agreement prior to the expiration of the
term hereof, GEN TRAK shall be obligated to compensate CONSULTANT at the rate
established herein for any remaining time of the Agreement.
ARTICLE 10 - COUNTERPARTS
This Agreement is executed in two counterparts, each of which shall for all
purposes by deemed an original.
ARTICLE 11 - GOVERNING LAW
All disputes arising in any matter out of or in relation to this Agreement shall
be decided in accordance with the laws of Pennsylvania.
ARTICLE 12 - NOTICES
All notices given pursuant to this agreement shall be sufficient if mailed,
postage prepaid, by certified or registered mail, addressed as follows:
If to GEN TRAK:
Gen Trak, Inc.
5100 Campus Drive
Plymouth Meeting, PA 10462
If to CONSULTANT:
George L. Bird, Jr.
13 Crestview Road
Phoenixville, PS 19460
IN WITNESS WHEREOF, the parties have this Agreement to be entered into as of the
date first above written.
GEN TRAK, INC.
BY ________________________ ______________
Arthur V. Boyce, Jr. Date
President & CEO
CONSULTANT
By ________________________ ______________
George L. Bird, Jr. Date
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This Note has not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), or under the provisions of any applicable state securities
laws, but has been acquired by the registered holder hereof for purposes of
investment and in reliance on statutory exemptions under the 1933 Act, and under
any applicable state securities laws. Note may not be sold, pledged, transferred
or assigned except in a transaction which is exempt under provisions of the 1933
Act and any applicable state securities laws or pursuant to an effective
registration statement; and in the case of an exemption, only if the Company (as
defined) has received an opinion of counsel reasonably acceptable to the Company
that such transaction does not require registration of this Note.
GEN TRAK, INC.
September __, 1998 $300,000
10% PROMISSORY NOTE
FOR VALUE RECEIVED, GEN TRAK, INC., a Pennsylvania corporation (the
"Company") hereby promises to pay to the order of SUSQUEHANA HOLDINGS CORP., or
registered assigns (the "Holder"), on a date which shall be the earlier of (i)
the closing of any sale of its debt or equity securities from which, together
with the net proceeds of any other sale of such securities which shall have been
consummated after the date hereof, the Company shall have received at least an
aggregate of $1,000, 000 in net proceeds, or (ii) September 30, 1999 (the
earlier of such dates being referred to herein as the "Maturity Date") , at the
offices of the Holder, the principal sum equal to the lesser of Three Hundred
Thousand ($300, 000) Dollars, or the then aggregate unpaid principal amount of
advances made hereunder by Holder to the Company as noted by the Holder on
Schedule I hereof and acknowledged by signature of an authorized agent of the
Company. The Company further promises to pay interest on the outstanding amount
of all advances made under this Note at the rate of ten percent (10%) per annum,
commencing from the date of the initial advance hereunder and until all amounts
of principal and interest accrued thereon are paid in full, subject to increase
in the rate of interest as provided in Section 3(c). Interest hereunder shall be
payable quarterly in arrears, commencing December __, 1998.
1. Prepayment. Outstanding principal under this Note may be prepaid by
the Company, in whole or in part, without premium or penalty, at any time,
together with all accrued but unpaid interest on the amount of such prepayment.
2. Covenants of Company. The Company covenants and agrees with the
Holder that, so long as any amounts of principal or interest remain unpaid under
this Note, it will:
(i) not incur any indebtedness for borrowed money, except for
such indebtedness as is outstanding on the date of this Note and indebtedness
incurred by the Company as interim financing in connection with a public
offering of its Common Stock, or permit any lien, security interest or
encumbrance to be created in or with respect to any asset of the Company,
whenever acquired, except for any such as are in effect on the date of this Note
and except for purchase money security interests in assets acquired by the
Company after the date of this Note;
(ii) not issue any additional shares of capital stock (or any
option or warrant to purchase, or securities which are convertible into, shares
of its Common Stock) if after such issuance the outstanding shares of capital
stock of the Company (taking into account shares issuable in respect of such
options, warrants or convertible securities) will exceed 31,943,210 shares of
common stock (or such other number of shares as the presently outstanding shares
of Common Stock of the Company may be converted), provided, however, that this
paragraph shall not apply to shares of Common Stock issued by the Company in
connection with any acquisition by the Company of another business or with a
public offering of its Common Stock (or interim financing relating to such
offering);
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(iii) promptly pay and discharge all amounts as and when due
and to become due on all indebtedness of the Company which is senior to the
indebtedness represented by this Note and all taxes, assessments and
governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become a lien upon
the Company's assets or property, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge upon such
properties or any part thereof; provided, however, that the Company shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings and the Company shall have set aside on its books adequate reserves
with respect to any such tax, assessment, charge, levy or claim so contested;
(iv) not merge into any other corporation or dispose of its
assets other than in the ordinary course of business,
(v) maintain insurance for its assets and business operations
in amounts of coverage not less than the amounts in effect on the date of this
Note; and
(vi) comply fully with its obligations under that certain
Purchase Agreement of even date herewith between the Company and the Holder
("Purchase Agreement").
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3. Events of Default
(a) This Note shall become due and payable, without notice or
demand by Holder, immediately upon the occurrence of any of the following
events, herein called "Events of Default":
(i) Company's failure to pay any principal or accrued
interest on this Note, when and as the same shall become due and payable,
whether by acceleration or otherwise;
(ii) the occurrence of an Event of Default by the
Company under the Purchase Agreement;
(iii) the entry of a final judgment, arbitration
award or order not subject to further appeal against the Company in an amount
exceeding $100,000 which shall remain unsatisfied for thirty (30) days after the
date of such entry;
(vi) Company's admission in writing of its inability
to pay its debts as they mature, or the Company's making a general assignment
for the benefit of creditors, or the filing by or against the Company of a
petition seeking relief under the Bankruptcy Code or a petition or an answer
seeking reorganization, or an arrangement with creditors.
(b) The Company shall give notice to the Holder by certified
mail, of the occurrence of any Event of Default within five (5) days after such
Event of Default shall have occurred.
(c) Upon the occurrence of an Event of Default, interest shall
accrue under this Note on all unpaid amounts of principal at the rate of 18
percent per annum until all such amounts of principal, and all interest accrued
thereon, shall have been paid in full. After the occurrence of an Event of
Default, all payments made in respect to this Note shall be applied first to
reimburse Holder for all of its expenses of collection; any payment in excess of
such amounts shall first be applied to accrued but unpaid interest to the date
of any such payment until all such interest shall have been paid in full.
4. Subordination. Payment of the principal of and accrued interest on
this Note is hereby made expressly subject and subordinated to the payment in
full of all principal of and accrued interest on all indebtedness of the
Company, whenever created, which shall have been incurred by the Company, on
regular commercial terms to banks and other institutional lenders ("Senior
Indebtedness"). The Company shall not remit any payments of principal to the
Holder of this Note in respect of the obligations hereunder unless and until all
obligations to the holders of Senior Indebtedness have been paid in full or such
holders of Senior Indebtedness shall otherwise have consented in writing. The
provisions of this subordination shall not, however, affect or limit the
Company's obligations to pay, when due, all principal of and accrued interest on
this Note, nor shall such subordination be deemed to limit or otherwise affect
any rights and remedies which the Holder of this Note shall be entitled to
receive or assert upon the occurrence of any Event of Default hereunder, other
than to set forth the priority of payments as between the indebtedness created
hereunder and any Senior Indebtedness.
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5. Miscellaneous
(a) The Holder of this Note shall have the right to transfer
this Note by assignment, and the transferee thereof shall become vested with all
the powers and rights of the transferor. Registration of any new owners shall
take place upon presentation of this Note to the Company at its principal
offices, together with a duly authenticated instrument of assignment.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
and (in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Note, if mutilated,
the Company shall execute and deliver a new Note of like tenor and date.
(c) This Note shall be construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania.
(d) Upon the occurrence of an Event of Default or a threatened
Event of Default, the Company shall pay all costs and expenses incurred by the
Holder to enforce any of the provisions of this Note, including attorneys' fees
and other expenses of collection.
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IN WITNESS WHEREOF, GEN TRAK, INC. has caused this Note to be
signed in its name by its President.
GEN TRAK, INC.
By ______________________________
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A. SCHEDULE I
DATE ADVANCE AMOUNT SIGNATURE
---- -------------- ---------
_____________ ______________ _______________
Company
_____________ ______________ _______________
Holder
_____________ ______________ _______________
Company
_____________ ______________ _______________
Holder
_____________ ______________ _______________
Company
_____________ ______________ _______________
Holder
_____________ ______________ _______________
Company
_____________ ______________ _______________
Holder
_____________ ______________ _______________
Company
_______________
Holder
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PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the _______ day of
September, 1998, between GEN TRAK, INC., a Pennsylvania corporation (the
"Company"), with its principal place of business located at 5100 Campus Drive,
Plymouth Meeting, PA 19462, the individuals listed as Sellers on the signature
page hereof (individually a "Seller" and collectively the "Sellers"), and
SUSQUEHANA HOLDINGS CORP., a Delaware corporation ("Purchaser") with an address
at 230 Mathers Road, Ambler, PA 19002.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the parties
hereto, intending to be legally bound, agree as follows:
1. Sale of the Shares. The Sellers, collectively, hereby sell, transfer
and assign to Purchaser free and clear of all liens and encumbrances 6,701,774
shares ("Shares") of Common Stock, par value $.01 per share ("Common Stock") of
the Company for an aggregate purchase price of $2,500 paid by the Purchaser
simultaneously with the execution and delivery of this Agreement.
2. Line of Credit. Purchaser agrees to extend to the Company a line of
credit in the maximum aggregate principal amount of Three Hundred Thousand
($300,000) Dollars (the "Line of Credit"), and the Company has executed and is
delivering to Purchaser herewith the Company's Promissory Note in the maximum
principal amount of $300,000 ("Promissory Note"). The Company may take advances
under such Line of Credit by written request to Purchaser from time to time up
to September 30, 1999; provided, however, that no advances under the Line of
Credit may be taken if an Event of Default under this Agreement or the
Promissory Note shall have occurred. Subject to the foregoing, on each occasion
that the Company shall request an advance under the Line of Credit, Purchaser
shall transmit to the Company the proceeds of such advance by wire transfer to a
bank account designated by the Company or check payable to the order of the
Company, in each case accompanied by the Company's acknowledgment of receipt by
endorsement on the Promissory Note.
3. Representations and Warranties.
(a) The Company represents and warrants to the Purchaser, upon
which representations and warranties the Purchaser is relying, as follows:
(1) The Company is a corporation duly authorized,
validly existing, and in good standing under the laws of the Commonwealth of
Pennsylvania, and has all requisite power and authority to own, lease and
operate its properties, to carry on its business as it is now being conducted,
to enter into this Agreement, to issue the Promissory Note and to consummate the
transactions contemplated hereby and under the Promissory Note.
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(2) All actions of the Company necessary to authorize
it to execute, deliver and consummate this Agreement, and to perform its
obligations hereunder and under the Promissory Note have been duly and validly
taken and no other further actions or authorizations are required. This
Agreement and the Promissory Note constitute the valid, legally binding
obligations of the Company and are enforceable in accordance with their
respective terms.
(3) The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein will not:
(i) result in any breach of, or constitute a
default under the Articles of Incorporation or By-Laws of the Company, or any
instrument or obligation to which the Company or any Seller is a party or by
which it or such Seller is bound; or
(ii) violate any existing statute, order,
writ, injunction or decree of any court, administrative agency or governmental
body.
(4) The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, $.01 par value per share, of
which 22,339,245 shares of Common Stock are issued and outstanding; and 30,000
shares of Common Stock are subject to issuance in respect of all outstanding
options, warrants, and agreements of any kind relating to issuance of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company, including the Shares, are validly issued, fully paid and not
assessable. The Shares are not subject to any lien, security interest, voting
trust agreement, shareholders agreement or other encumbrance of any kind.
(5) The Company has delivered to Purchaser true and
correct copies of the Company's audited financial statements as at December 31,
1997 and 1996 and unaudited financial statements as at June 30, 1998 (the
"Financial Statements"). The unaudited Financial Statements present fairly the
financial condition, assets, liabilities, and stockholders' equity of the
Company as of, and the results of operations for the periods ending on June 30,
1998 in accordance with generally accepted accounting principles (applicable to
interim statements) consistently applied ("GAAP"). Since December 31, 1997,
except as disclosed by the Company to Purchaser, there has not been a material
adverse change in the financial condition, results of operations, business,
prospects, assets or liabilities of the Company.
(6) The Company's Business Plan previously delivered
to Purchaser, including the business projections of the Company (the "Business
Plan") does not contain any material misrepresentations and constitutes the good
faith effort of management of the Company, on the basis of facts known to the
Company as of the date of this Agreement, to take account of all material
contingencies affecting the business of the Company.
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(7) The Company is not a defendant or subject to any
counterclaim in any pending litigation, or the subject of any
administrative proceeding or governmental investigation, nor
does the Company have reason to believe that any material
suit, proceeding or investigation by any other party is
threatened or contemplated.
(8) The Company has paid all taxes of any kind
(collectively, the "Taxes") required to be paid with respect to the assets,
employees or operations of the Company. All federal, state and local tax returns
and reports to be filed by the Company with respect thereto as of the date of
this Agreement have been accurately prepared, duly executed and timely filed,
and all Taxes due with respect to such returns as filed have been paid by the
Company.
(b) George Bird and Arthur Boyce each represents and warrants
to the Purchaser, upon which representation and warranty the Purchaser is
relying, that to his own actual knowledge, he does not know of any material
inaccuracy in any of the representations and warranties made by the Company in
Section (a), above. In the event that the foregoing representation and warranty
of either George Bird or Arthur Boyce shall be found to be inaccurate, the
liability of the person making such inaccurate representation or warranty shall
be limited to his interest in the Company.
4. Representations and Warranties of Purchaser. Purchaser represents
and warrants to the Company, upon which representations and warranties the
Company relies, as follows:
(a) Purchaser is acquiring the Shares for investment for its
and its affiliates account, with no present intention of reselling or otherwise
participating, directly or indirectly, in a distribution of such Shares, and
shall not make any sale, transfer, or pledge thereof without registration under
the Securities Act of 1933, as amended (the "Securities Act") , and any
applicable securities laws of any state, or unless an exemption from such
registration is available under those laws in the opinion of counsel reasonably
acceptable the Company. Notwithstanding the foregoing, all of the parties hereto
acknowledge that Purchaser has agreed to transfer 1,116,962 of the Shares to
Gerald Hamburg, to which transfer the Company and all of the Sellers have
consented.
(b) Purchaser acknowledges that the certificates for the
Shares will contain a legend substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE ACT, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY IS RECEIVED THAT REGISTRATION IS NOT REQUIRED
THEREUNDER.
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5. Covenants of the Company. The Company hereby covenants and agrees
with Purchaser that:
(a) The Company shall use its best efforts to give effect to
its Business Plan, including, without limitation:
(i) the execution of a contract of at least two years
duration providing for manufacturing of the Company's products by SFP Research
Inc. with which the Company has been negotiating; and
(ii) the write-down of the carrying value of the
Company's existing inventory to reflect improvements in the Company's products
resulting from new manufacturing procedures.
(b) The Company will employ the borrowings under the Line of Credit
solely for the purposes described in the Company's cash flow projections
attached hereto as Exhibit "A".
(c) In the event that the Company shall fail to pay in full, as and
when due, by acceleration or otherwise, all amounts of principal under the
Promissory Note within 30 days after demand in writing for such payment shall
have been made by Purchaser and delivered to the Company, each of the Sellers
hereby grants to Purchaser a right and proxy to vote all shares of Common Stock
of the Company registered in the name of such Seller for the purpose of
electing, in Purchaser's sole discretion, nominees of Purchaser as directors of
the Company constituting not less than 75% of the directors of the Company at
any annual meeting or special meeting (which shall be convened at Purchaser's
request) of the shareholders of the Company (the remaining voting power to elect
up to 25% of directors being reserved to the Sellers respectively). The right
granted to the Purchaser by the preceding sentence shall remain in effect until
all amounts of principal, interest and costs payable under the Promissory Note
shall have been paid to Purchaser in full, and each of the Sellers covenants and
agrees that he will not interfere with such right and will take all actions as
shareholder, director or officer of the Company (including, without limitation,
resignation from any position) as may lawfully be requested by Purchaser to give
effect to the foregoing voting right during such time as the right to vote such
Seller's shares of Common Stock shall be in effect.
(d) (1) The Company agrees that, at any time or times hereafter as and
when it intends to file a Registration Statement under the Securities Act with
respect to any shares of its Common Stock, whether for its own account and/or on
behalf of selling shareholders (except in connection with an offering on Form
S-8 or an offering solely related to an acquisition on a Form S-4 or any
subsequent similar form), the Company shall notify the Purchaser of such
intention and, upon Purchaser's request, shall cause the Shares designated by
such holder to be registered at the Company's expense under the Securities Act.
If the offering to be made pursuant to the registration is a firm commitment
underwritten offering, the quantity of the Shares to be included in such
offering may be reduced as provided in paragraph (2) below. The Company shall
keep each such Registration Statement current continuously until the first to
occur of (a) one year after such Registration Statement has been declared
effective or (b) the date on which all Shares included therein shall have been
sold.
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(2) If any of the Shares to be registered pursuant to
a Registration Statement filed pursuant to paragraph (b) are to be sold in a
firm commitment underwritten offering, and if the managing underwriter advises
the Company in writing that in its opinion the aggregate amount of underwritten
securities proposed to be sold in such firm commitment underwritten offering
exceed the amount of securities which can be sold in such underwritten offering,
there shall be included in such firm commitment underwritten offering only the
amount of such securities which in the opinion of such underwriters can be sold,
and the amount of such securities shall be allocated as follows: First, to the
Company based on the number of shares it desires to sell in the underwritten
offering for its own account; next to the Purchaser based on the number of the
Shares proposed to be included therein by the Purchaser; and thereafter, pro
rata among all other selling shareholders based on the number of shares
otherwise proposed to be included therein by such selling shareholders.
Notwithstanding the foregoing, the Company shall use its best efforts to cause
the managing underwriter to include the Shares in such offering.
(3) Purchaser agrees that the Company shall not be
obligated to register any of the Shares pursuant to this paragraph (b) if at
such time any holder receives an opinion from Company counsel, reasonably
satisfactory to it, that such holder may freely and immediately sell all such
Shares under Rule 144(k) of the rules and regulations promulgated under the
Securities Act, and under applicable state law.
(4) With respect to any Registration Statement
referred to in this paragraph (b): (i) Purchaser agrees to cooperate in
furnishing promptly to the Company in writing any information requested by the
Company in connection with the preparation, filing and processing of such
Registration Statement; (ii) the Company agrees to indemnify the Purchaser for
all costs, expenses (except for underwriters' compensation) and liabilities
arising out of the registration and sale of the Shares (except for such as may
arise solely in respect of information furnished by Purchaser) and shall furnish
to Purchaser such number of Prospectuses or other documents incident to such
registration as may from time to time be requested; and (iii) the Company shall
cause, at its expense, the Shares covered by such Registration Statement to be
registered or qualified under the securities or blue-sky laws of those states
where the Company qualifies its securities for sale; provided, that the Company
shall not be required in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process in any state.
(e) The Company, so long as any amount remains unpaid under
the Promissory Note will not issue any additional shares of capital stock (or
any option or warrant to purchase, or securities which are convertible into,
shares of its Common Stock) if after such issuance the outstanding shares of
capital stock of the Company (taking into account shares issuable in respect of
such options, warrants or convertible securities) will exceed 22,369,247 shares
of common stock (or such other number of shares as the presently outstanding
shares of Common Stock of the Company may be converted).
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6. Miscellaneous.
(a) An "Event of Default" under this Agreement shall mean and
refer to (i) any material inaccuracy or omission in any representation or
warranty made by the Company in this Agreement, (ii) any failure by the Company
to perform its agreements and covenants herein, or (iii) any Event of Default
under the Promissory Note.
(b) All notices hereunder shall be in writing and shall be
mailed by first class registered or certified mail, postage prepaid, return
receipt requested, or by telecopy with confirmation back, or by nationally
recognized overnight courier or hand delivery, and all communications shall be
addressed to the addresses of the Company and Purchaser as shown above (and of
the Sellers as shown on the signature page) or such other address (or telecopy
number) as the parties shall designate by notice to the other party hereunder.
(c) This Agreement and the Promissory Note contain the final,
complete and exclusive understanding of the parties with respect to its subject
matter, and all prior negotiations, discussions, commitments and understandings
heretofore between them are merged herein. This Agreement may not be modified or
amended except by an instrument in writing signed by the party to be charged
therewith.
(d) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties, including transferees of
the Shares permitted pursuant to Section 4.
(e) The titles and headings of the sections of this Agreement
are included for the convenience of the parties only and are not part of this
Agreement.
(f) Whenever possible, each provision of this Agreement will
be interpreted in such manner so as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable under any applicable law or rule in any jurisdiction, provided,
that such provision will be ineffective only to the extent of such invalidity,
illegality or unenforceability in such jurisdiction, without invalidating the
remainder of this Agreement in such jurisdiction or any provision hereof in any
other jurisdiction.
(g) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute but one and the same document.
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(h) At any time, and from time to time, each party agrees, at
its own expense, to take such actions and to execute and deliver such documents
as may be reasonably necessary to effectuate the purposes of this Agreement.
(i) This Agreement shall be governed in all respects, whether
as to validity, construction, interpretation, capacity, performance or
otherwise, by the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have duly executed this agreement the
date first written above.
GEN TRAK, INC.
By:_____________________________________
SUSQUEHANA HOLDINGS CORP.
By:_____________________________________
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
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Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
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Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
Number of
Shares Sold _____________ ________________________________________
Seller
_______________________________
_______________________________
Address
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CONSULTING AGREEMENT
AGREEMENT, made as of this ___ day of September 1998, by and between
GEN TRAK, INC., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania, with offices at 5100 Campus Drive, Plymouth
Meeting, PA 19462 (the "Company") and NORBERT ZEELANDER, with offices at 230
Mathers Road, Ambler, Pennsylvania 19002 ("Consultant").
IT IS AGREED AS FOLLOWS:
1. Service. The Company hereby requests that Consultant act as the
Company's non-exclusive consultant in connection with the Company's business
activities, inclusive of, but not limited to, marketing, strategic planning and
corporate development, and other specified activities to be identified by the
Company and Consultant in conjunction with its on-going business activities.
Consultant will make a good faith effort to provide services to the Company
having due regard for the other commitments and obligations of Consultant.
2. Retainer. The Company hereby agrees to pay Consultant on the first
day of each of the next 36 months commencing October 1, 1998 and ending
September 1, 2001 (the "Expiration Date") a consulting fee of SEVEN THOUSAND
FIVE HUNDRED ($7,500) DOLLARS per month, provided, however, that such fee shall
accrue and not be payable by the Company so long as the principal of that
certain Promissory Note of the Company dated September __, 1998 shall not have
become currently payable.
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3. In addition to the provisions of Paragraph 2, in the event that
Consultant shall introduce Company or its stockholders to any entity with which
the Company or its stockholders during the term of this Agreement or within 18
months after the Expiration Date shall enter into a Transaction (as defined),
the Company shall pay to Consultant, upon the Closing of any Transaction, an
amount ("Success Fee") equal to the sum of following percentages of the Total
Consideration (as defined) of such Transaction:
Success Fee of the Total Consideration
----------- ------ -------------------
5 percent up to $5 million
4 percent in excess of $5 million
but less than $6 million
3 percent in excess of $6 million
but less than $7 million
2 percent in excess of $7 million
but less than $10 million
1 percent in excess of $10 million
For purposes of this paragraph, a "Transaction" shall mean any transaction in
which the Company acquires all or any part of the assets or stock of any other
entity (other than in the ordinary course of the Company's business) or sells
all or any material part of its assets other than in the ordinary course of
business, or in which the shareholders of the Company sell more than 50 percent
of the outstanding stock of the Company. The "Total Consideration" shall mean
the entire payment received by the seller of assets or stock, including any
indebtedness assumed directly or indirectly by the purchaser.
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4. Expenses. Reasonable out-of-pocket expenses incurred by Consultant
in connection with the performance of their duties shall be paid by the Company.
5. Governing Law. This Agreement shall be governed by and be construed
in accordance with the laws of the Commonwealth of Pennsylvania.
6. Complete Agreement. This Agreement constitutes the complete
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes any and all prior existing agreements or
understandings between the parties with respect thereto. No modification or
amendment of any of the terms and provisions of this Agreement shall be valid
unless made pursuant to a writing signed by each party.
7. Counterparts. This Agreement may be signed in counterpart.
8. Benefit of Agreement. This Agreement shall inure to the benefit of
the parties hereto and their successors and assigns, provided, however, that the
assignment of this Agreement shall not relieve any party of its obligations
hereunder. This Agreement shall terminate, without further liability on the
Company, automatically in the event of the death of the Consultant or upon 30
days' written notice by Company to Consultant in the event that the Consultant
shall have become disabled such that the Consultant is unable to perform any
services on behalf of the Company for a period of 180 consecutive days.
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9. Notices. Except as herein provided, any notice, request, demand or
other communication required or permitted under this Agreement shall be in
writing and shall be deemed to have been given when delivered personally,
delivered by overnight courier, or three (3) days after having been mailed by
certified mail, return receipt requested, addressed to a party at the address of
such party first set forth above, or at such other address as such party may
hereafter have designated by notice.
IN WITNESS WHEREOF, the parties have signed this Agreement the day and
year first above written.
GEN TRAK, INC.
By:_________________________________________
____________________________________________
Norbert Zeelander
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CONTRACT MANUFACTURING AGREEMENT
This Agreement is made as of the ____ of ___________, 1998, between GEN TRAK,
INC., a ________________ corporation, with its principal place of business at
5100 Campus Drive, Plymouth Meeting, Pennsylvania 19462 ("GEN TRAK") and SFP
RESEARCH, INC., a ________________ corporation, with its principal place of
business at 121 West Swannanoa Avenue, Liberty, North Carolina 27298 ("SFP").
The parties agree as follows:
1. APPOINTMENT
A. Manufacture Agreement. SFP agrees to manufacture and sell to GEN TRAK
during the Term of this Agreement (defined below) the HLA Trays and related
products manufactured by SFP as described in Exhibit "A" hereto (the "Product").
Except as provided subparagraph C of this paragraph, SFP hereby appoints GEN
TRAK as SFP's exclusive distributor worldwide of the Product. GEN TRAK hereby
accepts such appointment and undertakes to use its best efforts to sell and
promote the sale of Product.
B. Relocation of Materials. GEN TRAK shall consolidate its inventory of
immunogenetic products and reagents in Liberty North Carolina and use SFP as the
primary shipping point for its business. Any in all physical or raw material
assets transferred to SFP in Liberty, North Carolina shall be labeled separately
and distinguished for accounting and ownership purposes.
C. Sales by SFP. Notwithstanding anything herein to the contrary, and
provided that it is not in direct competition with GEN TRAK, SFP may market and
sell the Product under its own label to its existing customers as follows:
JOHN LEE - TAIWAN
LAB CORP.
METHODIST HOSPITAL
UNC HOSPITAL - CHAPPELL HILL
PITT COUNTY MEMORIAL HOSPITAL
CHARLOTTE MECKLENBURG HOSPITAL AUTHORITY
ARC BADGER
DIAGNOSTICA LONGWOOD, SA. - China
D. Relationship of Parties. The relationship between the parties is that of
vendor and purchaser (rather than principal and agent) and, accordingly, GEN
TRAK shall not be empowered by its appointment hereunder or otherwise to act for
or to bind SFP, or to make any express or implied representation or warranty on
behalf of SFP.
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2. TERM OF AGREEMENT
A. Initial Term. The Term of this Agreement shall commence on the date of
this Agreement and, unless this Agreement is earlier terminated pursuant to the
provisions hereof or otherwise, shall continue for a period of two (2) years.
(Such period, as extended as provided in subparagraph B of this paragraph, is
referred to herein as the "Term")
B. Additional Terms. Provided that it is not in default hereunder, GEN TRAK
may extend this Agreement for three (3) additional consecutive one (1) year
periods upon written notice to SFP delivered at least ninety (90) days prior to
the expiration of the then current Term.
3. ORDERS AND FORECASTS FOR THE PRODUCTS
A. 12 Month forecast. On the date of the signing of this Agreement and on
the last day of each calendar quarter during the Term, GEN TRAK will provide to
SFP a twelve (12) month rolling forecast of anticipated Product needs.
B. 60 Day Forecast. SFP will maintain an inventory of Product at its North
Carolina facility sufficient to meet projected demand for the Product as set
forth in the rolling forecast for at least sixty (60) days. SFP will be
responsible for direct shipping of the Product to GEN TRAK's customers as per
shipping orders forwarded by GEN TRAK's Order Entry/Customer Service Department.
4. PRICE AND PAYMENT TERMS
A. Purchase Price. SFP agrees to provide the Product to GEN TRAK at a price
per unit equal to the direct cost to manufacture the unit, exclusive of indirect
costs and overhead, with adjustments, if any, as may be mutually agreed to
reflect market conditions. During the Term of this agreement, this cost per unit
may only be changed by mutual agreement based on a demonstrable increase in the
cost to manufacture of SFP. The parties agree that the initial cost per unit of
the Product will be established by mutual agreement as soon as reasonably
possible and attached hereto as Exhibit "B" (the "Purchase Price").
B. Additional Consideration. GEN TRAK shall pay to SFP the following as
additional compensation here under:
i. A monthly flat fee of seven thousand, five hundred ($7,500.00)
dollars. This flat fee shall be pro rated during the first and last month of
this Agreement.
ii. An hourly fee of fifty ($50.00) dollars per hour for all additional
production hours directly related to the manufacture of the Product over one
hundred sixty (160) hours per month.
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iii. The cost of any additional staff hired to work exclusively on the
manufacture of the Product for GEN TRAK. It is acknowledge and agreed that SFP
shall be the sole employer of any such employee, and that GEN TRAK shall merely
reimburse SFP the direct cost of such employment.
C. Taxes/Risk of Loss. GEN TRAK shall be responsible for and pay all value,
excise, sales and similar taxes that may be required to be paid by reason of GEN
TRAK's purchases of the Units. Risk of loss for the Product shall pass to GEN
TRAK upon delivery to a carrier for shipment. GEN TRAK may use its standard
purchase order form to order products; provided, however, any such form shall
reference this Agreement and the terms and conditions of this Agreement will
supersede any different or additional terms on such order.
D. Expansion by SFP. It is acknowledged and agreed that to perform its
obligations here under, SFP shall be required to expand its existing physical
plant into the adjoining property. It is agreed that (i) the lease for such
property shall be in the name of and shall be the exclusive obligation of SFP,
provided, however, that GEN TRAK shall pay the monthly rental for the additional
property of four hundred fifty ($450.00) dollars; and (ii) SFP shall be
responsible, at its expense, for all improvements in the HVAC and electric
utilities, provided, however, that GEN TRAK shall pay the monthly carrying cost
of the construction mortgage necessary to make said improvements, not to exceed
$_________ per month.
E. Time of Payment. All payments will be sent by GEN TRAK to SFP Net 30,
unless otherwise mutually agreed upon. Any payment not made within said thirty
(30) day period will bear interest from the expiration of said thirty (30) day
period at the rate of one percent (1%) over the Prime Rate as reported by the
Chase Manhattan Bank of New York, or its successor.
5. MARKETING, REDISTRIBUTION
A. Promotion and Marketing.
(i) SFP acknowledges that GEN TRAK anticipates marketing the Product
and agrees that any brand name and all product packaging and all marketing,
advertising and promotion materials (collectively, the "Brand Name") shall
remain the exclusive property of GEN TRAK. SFP may not use the Brand Name in any
way without the express written consent of GEN TRAK.
(ii) GEN TRAK agrees to use its best efforts to promote and sell the
Product, at its own expense, as soon as feasible after the date of this
Agreement.
(iii) GEN TRAK will maintain an adequate sales force during the term of
this Agreement to effectively market and sell the Product and handle all
customer complaints in a professional and efficient manner.
(iv) All expenses incurred by GEN TRAK in connection with the
performance of its obligations hereunder will be borne solely by GEN TRAK
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B. Compliance. SFP will comply with all laws, regulations and orders,
including all health regulatory requirements, of any government and with all
other governmental requirements applicable to the Product and/or to the running
of a GMP production facility. GEN TRAK shall furnish SFP with such assistance
and cooperation as may reasonably be requested in connection with compliance
with such governmental requirements.
C. Trademarks. To the extent reasonably required by GEN TRAK to perform its
obligations pursuant to this Agreement, SFP grants to GEN TRAK a
non-transferable, royalty-free license, with no right to grant sublicenses, to
use during the term of this Agreement the Trademark with respect to the Product,
alone or in conjunction with any one or more trademarks of GEN TRAK, provided,
however, that such license may only be used by GEN TRAK in connection with the
sale of the Product. SFP acknowledges the validity of the Trademark and SFP's
ownership thereof.
D. Customer Service. GEN TRAK shall be responsible for all "front line"
customer services for the Product. SFP will assist with other customer services
for the products as necessary and will transmit shipping advice instructions in
a timely manner.
6. TERMINATION
A. Default by GEN TRAK. If GEN TRAK breaches a term or provision of this
Agreement, SFP shall give GEN TRAK written notice of such breach. If such breach
is not remedied within thirty (30) days of such notice, in addition to any other
right or remedy it may have under this Agreement or otherwise, SFP may:
i. Seek specific performance by GEN TRAK of its obligations hereunder in
an appropriate court, it being acknowledged and agreed that the services
provided by GEN TRAK are specific to GEN TRAK and could not be performed by any
other entity; or
ii. Terminate this Agreement by giving GEN TRAK written notice.
B. Default by SFP. If SFP breaches a term or provision of this Agreement,
GEN TRAK shall give SFP written notice of such breach. If such breach is not
remedied within thirty (30) days of such notice, in addition to any other right
or remedy it may have under this Agreement or otherwise, GEN TRAK may:
i. Seek specific performance by SFP of its obligations hereunder in an
appropriate court, it being acknowledged and agreed that the services provided
by SFP are specific to SFP and could not be performed by any other entity; or
ii. Manufacture the Product at another facility and recover as damages
from SFP all profit lost during the period prior to full operations. SFP hereby
grants to GEN TRAK all licenses, trademarks, patents, etc. required for such
production, if any; or
iii. Terminate this Agreement by giving SFP written notice.
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C. Consequential Damages. Except as provided in Paragraph B of this Article,
neither party, by reason of the termination of this Agreement, will be liable to
the other because of damages, expenditures, loss of profits, or prospective
profits of any kind or nature, sustained or arising out of such termination or
for any investments related to the performance of this Agreement or the goodwill
created in the course of the performance under this Agreement.
D. No Release. No termination of this Agreement will in any manner
whatsoever release, or be construed as releasing, any party from any liability
to the other arising out of or in connection with a party's breach of, or
failure to perform any covenant, agreement, duty or obligation contained in this
Agreement. Neither party will be relieved from any obligations vested prior to
the date of termination of this Agreement.
E. Return of Materials. Upon termination of this Agreement, all furnished
goods, materials and other assets delivered by GEN TRAK in place in North
Carolina or in the possession of SFP shall be returned by SFP, at GEN TRAK's
expense, to GEN TRAK at its offices in Plymouth Meeting, PA, or to such other
place as GEN TRAK shall designate in writing.
F. Sale/Return of Inventory. In addition to its rights under paragraph B
above, for a period of 60 days after the expiration or termination of this
Agreement, GEN TRAK may sell the inventory of Product GEN TRAK has on hand at
the time of such expiration or termination through its normal trade channels for
the Product; provided, however, that if within 10 days after such expiration or
termination SFP notifies GEN TRAK that it wishes to purchase all or part of such
inventory of Product, GEN TRAK shall sell to SFP all or part of such inventory
of Product, as desired by SFP, but in each case limited to those Units in good
and usable condition as per SFP's existing quality control standards, for an
amount equal to the cost of such inventory to SFP at the time of the purchase.
GEN TRAK shall return to SFP for credit against amounts payable by GEN TRAK to
SFP all Product, less reasonable customer samples and test samples, not sold and
paid for at the expiration of such 60 day period.
7. PRODUCT WARRANTY
A. Product Specifications. The parties agree to establish by mutual
agreement as soon as reasonably possible Product Specifications and to attach
the same hereto as Exhibit "C" (the "Product Specifications"). SFP warrants that
the Product will meet the "Product Specifications", as may be amended from time
to time, for the period of time up to and including the expiration date printed
or stamped on the product if used, stored and shipped in accordance with SFP's
instructions. With respect to any Product failing to meet the Product
Specifications, SFP will, at its option: (i) grant to GEN TRAK a credit for such
defective Product equal to the price paid therefor by GEN TRAK or (ii) provide
replacement Product. In no event will SFP be liable under this Agreement for any
failure of any Product to meet the Product Specifications due to improper use,
storage or shipment by GEN TRAK or anyone receiving the Product directly or
indirectly from GEN TRAK.
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B. Quality Control Standards. The parties agree to establish by mutual
agreement as soon as reasonably possible Quality Control and Quality Assurance
standards including manufacturing processes and to attach the same hereto as
Exhibit "D" (the "Quality Control Standards"). SFP and GEN TRAK hereby agree to
the Quality Control Standards, as may be amended from time to time. All products
delivered to GEN TRAK or to GEN TRAK's customers will be certified by SFP as
having met minimum, agreed upon performance standards. SFP will replace all
products that fail to perform to these minimum standards.
8. LIMITATIONS OF LIABILITY
EACH PARTY WILL ONLY BE LIABLE TO THE OTHER PARTY FOR DAMAGES THAT ARE DIRECTLY
ATTRIBUTABLE TO ITS MATERIAL BREACH OF THIS AGREEMENT OR ITS GROSSLY NEGLIGENT
OR INTENTIONAL ACT OR OMISSION. NOTWITHSTANDING THE FOREGOING, NEITHER PARTY
WILL BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD PARTY OR PARTIES FOR INDIRECT
DAMAGES OF ANY KIND WHATSOEVER (INCLUDING WITHOUT LIMITATION LOST PROFITS OR
SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY GOODS SOLD OR DELIVERED TO GEN TRAK. NOTHING IN THIS AGREEMENT
WILL CREATE ANY LIABILITY OF EITHER OR BOTH PARTIES TO ANY THIRD PARTY OR
PARTIES.
9. INDEMNITY
A. Indemnity by SFP. SFP agrees to and hereby does indemnify and hold GEN
TRAK harmless from and against all claims, damages, losses, costs and expenses,
including reasonable attorneys' fees, which GEN TRAK may incur by reason of any
Product sold or furnished by SFP which result in injury, illness or death of any
person, to the extent that such claims arise out of or result from (i) product
design, (ii) manufacturing, (iii) a breach of this Agreement or, (iv) failure to
comply with the Quality Control and Quality Assurance standards including
manufacturing processes set forth in Exhibit D attached hereto, except if such
claims arise from the gross negligence or willful misconduct of GEN TRAK.
B. Indemnity by GET TRAK. GEN TRAK hereby agrees to and hereby does
indemnify and hold SFP harmless from and against all claims, damages, losses,
costs and expenses, including attorney's fees, which SFP may incur to the extent
that such claims arise out of or result from (1) the unlawful sale or other
distribution of Product by GEN TRAK or use by any purchasers, including any
improper sales by GEN TRAK to customers who are enumerated in Paragraph 1(C)
hereof, (ii) the distribution, labeling or packaging of the Products or, (iii)
failure to comply with the Quality Control and Quality Assurance standards
including manufacturing processes set forth in Exhibit D attached hereto, except
for such claims which arise out of or result from the gross negligence, or
willful misconduct of SFP.
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10. PROPRIETARY RIGHTS
A. Ownership of SFP Proprietary Rights. SFP will retain all of its rights,
title and ownership in all copyrights, trademarks, trade secrets, Patents, and
all other intellectual property embodied in the Product. Except as otherwise
expressly provided in this Agreement, GEN TRAK will have no right, title or
interest in the intellectual property embodied in the Product.
B. Ownership of GEN TRAK Proprietary Rights. GEN TRAK will retain all of its
rights, title and ownership in (i) all copyrights, trademarks, trade secrets,
Patents, and all other intellectual property embodied in the Brand Name and (ii)
all customer lists, research and other data. Except as otherwise expressly
provided in this Agreement, SFP will have no right, title or interest in the
intellectual property embodied in the Brand Name.
C. Confidential Information. Each party agrees that it will treat
accordingly all verbal and written communications from the other party which are
designated, or which should reasonably be regarded in the normal commercial
view, as constituting business secrets or propriety information ("Proprietary
Information"). Each party agrees to refrain from disclosing or making available
to any third party any of the other party's Proprietary Information without the
other party's written consent and to impose upon its employees and agents the
same obligations with respect to the other party's Proprietary Information as it
employs with respect to its own confidential information. No such obligations of
confidence will extend to information which (a) is publicly available; (b) is
independently developed by the receiving party; (c) is already in the receiving
party's possession; or (d) is rightfully received from a third party. The
provisions of this Section 12 will survive the termination of this Agreement and
for a period of five (5) years thereafter.
11. GOVERNING LAW
This Agreement shall be deemed to have been made in the Commonwealth of
Pennsylvania, and shall be construed in accordance with and governed by the laws
of Pennsylvania applicable to contracts wholly executed and performed in
Pennsylvania. All disputes under this Agreement which cannot be resolved between
the parties shall be submitted to binding commercial arbitration in accordance
with the rules of the American Arbitration Association the appertaining. The
arbitration shall be held at a mutually agreed upon site. All fees and expenses
of the Arbitrator shall be borne equally by the parties.
12. ASSIGNMENT
A. Neither this Agreement, nor any rights or obligations of GEN TRAK
thereunder shall:
1. be assigned by GEN TRAK to any person or entity, or
2. be transferred, or pass to, any person or entity by merger or
consolidation, in bankruptcy or insolvency proceedings or by operation of law or
otherwise,
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without the prior written consent of SFP, which may be withheld by SFP for any
reason or for no reason, in SFP's sole discretion. Any assignment in violation
of the foregoing shall be deemed null and void. SFP may assign or delegate any
or all of its rights or duties hereunder to any party. Notice thereof need not
be given to GEN TRAK in order to be effective; provided, however, SFP agrees to
notify GEN TRAK of any such assignment and provide information with respect
thereto to the extent necessary to enable GEN TRAK to perform its obligations
thereunder, including, without limitation, any change in the address for
placement of orders or payment of invoices for Products.
13. FORCE MAJEURE
In the event that either party is unable to carry out its obligations under this
Agreement due to Force Majeure beyond its control (including, without
limitation, acts of God; war, riot; fire; flood; explosion; labor disputes;
embargoes; or unavailability or shortages of raw material, bulk, equipment or
transport), the failure so to perform shall be excused and not constitute a
default hereunder during the continuation of the intervention of such Force
Majeure, provided, however that this provision shall not apply to the obligation
of GEN TRAK to pay for the Product as provided in Paragraph 4 hereof. The party
affected by such Force Majeure shall resume performance as promptly as
practicable after such Force Majeure has been eliminated. Notwithstanding the
foregoing, in the event either party is unable to carry out its obligations
hereunder by reason of such Force Majeure for a period of forty-five (45) days
or more, then either party may at any time thereafter during the continuance of
such Force Majeure terminate this Agreement upon notice to the other party
setting forth the circumstances of such Force Majeure.
14. OPTION TO PURCHASE.
GET TRAK shall have an option to purchase, in its sole discretion either (i)
the capital stock or (ii) all or a portion of the assets of SFP, including
usable sera inventory at fair market value, for a mutually agreed upon sum not
to exceed Seven Hundred Thousand Dollars ($700,000.00), subject to appropriate
due diligence. Said consideration to be made, upon the written exercise of the
option, in cash or stock at GEN TRAK's sole discretion, at any time during the
Term of this Agreement. Said purchase shall be consummated as soon as possible
after the exercise of the option, but in all events within ninety (90) days
after the exercise of the option.
15. MISCELLANEOUS.
A. No Agency, No Joint Venture - Independent Contractor. SFP will act as
independent contractor under the terms of this Agreement. SFP is not, and will
not be deemed to be, employee, agent, co-venturer or legal representative of GEN
TRAK for any purpose. SFP will not be entitled to enter into any contracts in
the name of, or on behalf of GEN TRAK, nor will SFP be entitled to pledge the
credit of GEN TRAK in any way or hold itself out as having authority to do so.
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B. Severability. Should any provision of this Agreement be determined by a
court having jurisdiction over the parties and the subject matter to be illegal
or unenforceable in such jurisdiction, the parties agree that such determination
shall not affect or impair the validity or enforceability of such provision in
any other jurisdiction or the validity or enforceability of any other provision.
C. Entire Agreement; Amendment. This Agreement and the Exhibits hereto set
forth and constitute the final, complete and entire agreement between the
parties hereto with respect to the subject matter hereof, supersede any and all
prior agreements, understandings, promises and representations made by either
party to the other concerning the subject matter hereof and the terms applicable
hereto and are intended as a complete and exclusive statement of the terms of
the agreement between the parties. This Agreement may not be released,
discharged, amended or modified in any manner except by an instrument in writing
signed by duly authorized officers of both parties.
D. Waiver. No waiver of any right under this Agreement will be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
will be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
E. Headings. Section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the parties.
F. Notices. Notice, consent, demand, approval, or other communication
required or permitted under this Agreement will be written and will be deemed to
have been given (i) when personally delivered, including confirmed delivery by
facsimile or telex, (ii) on the next day after delivery to a nationally
recognized over-night express delivery service; or (iii) on the third day after
it is mailed, postage prepaid, certified or registered mail, return receipt
requested, addressed to the following address or to such other address as the
party to be notified shall have specified to the other party in accordance with
this paragraph:
If to SFP: with a copy to:
SFP RESEARCH, INC.
121 West Swannanoa Avenue
P.O. Box 1290
Liberty, NC 27298
Attn: Stephen F. Repp
If to GEN TRAK: with a copy to:
Gen Trak, Inc. Henry A. Carpenter II, Esq.
510 Campus Drive 1513 Judith Place
Plymouth Meeting, PA 19462 Yardley, PA 19067
Attn: Arthur V. Boyce Jr.
9
<PAGE>
G. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original and all of which will constitute
together but one of the same document.
H. Authority to Enter Into and Execute Agreement. Each party represents and
warrants to the other they have the right and lawful authority to enter into
this Agreement for the purposes herein and that them are no other outstanding
agreements or obligations inconsistent with the terms and provisions hereof.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
ATTEST: SFP RESEARCH, INC.
BY:________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
ATTEST: GEN TRAK, INC.
BY:________________________
Name:______________________ Name:______________________
10
<PAGE>
DISTRIBUTION AGREEMENT
This Agreement is made as of the ____ of ___________, 1998, between
BIO-SYNTHESIS, INC., a ________________ corporation, with its principal place of
business at ____________________ Lewisville, Texas 75067 ("BSI"), and GEN TRAK,
INC., a ________________ corporation, with its principal place of business at
510 Campus Drive, Plymouth Meeting, Pennsylvania 19462 ("GEN TRAK").
The parties agree as follows:
1. APPOINTMENT
A. Subject to the provisions hereof and except as provided subparagraph
C of this paragraph, BSI hereby appoints GEN TRAK as BSI's exclusive distributor
in the Territory for the Term of this Agreement (defined below) with respect to
the DNA/SSP Class 2 and Class 1 product entries and related products (the
"products") manufactured by BSI as described in Exhibit "A" hereto (the
"Product"). GEN TRAK hereby accepts such appointment and undertakes to use its
best efforts to sell and promote the sale of Product in the market defined in
Exhibit B hereto (the "Territory").
B. Provided that GEN TRAK performs its obligations hereunder, during
the Term of this Agreement, BSI shall not appoint another distributor for the
Product in the Territory.
C. Notwithstanding anything herein to the contrary, and provided that
it is not in direct competition with GEN TRAK, BSI may market and sell it's HLA
products (as more particularly described in Exhibit "C" hereto) to (i) companies
that do not manufacture or market HLA product lines and (ii) individual end
users.
D. Without BSI's prior written consent, neither GEN TRAK, nor any of
its subsidiaries or affiliated companies, nor any director, officer,
stockholder, partner or entity having control of GEN TRAK or such subsidiary or
affiliated company, shall manufacture, sell, promote, or distribute in the
Territory any product that is competitive with the Product.
E. GEN TRAK shall purchase the Product only from BSI during the Term of
this Agreement.
F. The relationship between the parties is that of vendor and purchaser
(rather than principal and agent) and, accordingly, GEN TRAK shall not be
empowered by its appointment hereunder or otherwise to act for or to bind BSI,
or to make any express or implied representation or warranty on behalf of BSI.
-1-
<PAGE>
2. TERM OF AGREEMENT
A. The Term of this Agreement shall commence on the date of this
Agreement and, unless this Agreement is earlier terminated pursuant to the
provisions hereof or otherwise, shall continue for a period of three (3) years.
(Such period, as extended as provided in subparagraph B of this paragraph, is
referred to herein as the "Term")
B. Provided that it is not in default hereunder, GEN TRAK may extend
this Agreement for three (3) additional consecutive one (1) year periods upon
written notice to BSI delivered at least thirty (30) days prior to the
expiration of the then current Term.
3. ORDERS AND FORECASTS FOR THE PRODUCTS
A. On the date of the signing of this Agreement and on the last day of
each calendar quarter during the Term, GEN TRAK will provide to BSI a twelve
(12) month rolling forecast of anticipated Product needs.
B. GEN TRAK will maintain an inventory of Product at its Pennsylvania
facility sufficient to meet demand for the Product in the Territory for at least
thirty (30) days. GENTRAK will be responsible for delivery of the Product to
customers.
C. BSI will maintain an inventory of Product at its Texas facility
sufficient to meet projected demand for the Product as set forth in the rolling
forecast for at least sixty (60) days. BSI will be responsible for delivery of
the Product to GEN TRAK upon receipt of appropriate purchase orders from GEN
TRAK.
4. PRICE AND PAYMENT TERMS
A. BSI agrees to provide the product to GEN TRAK at a cost per unit of
75% of the lowest current prevailing list price set forth on __________________,
with adjustments, if any, as may be mutually agreed to reflect market
conditions. During the term of this agreement, this cost per unit may only be
changed by mutual agreement based on a demonstrable increase in the cost to
manufacture of BIOSYNTHESIS. GEN TRAK shall pay to BSI the cost per unit of the
Product set forth in Exhibit "D" hereto, (the "Purchase Price").
-2-
<PAGE>
B. GEN TRAK shall be responsible for and pay all value, excise, sales
and similar taxes that may be required to be paid by reason of GEN TRAK's
purchases of the Units. Risk of loss for the Product shall pass to the GEN TRAK
upon delivery to a carrier for shipment. GEN TRAK may use its standard purchase
order form to order products; provided, however, any such form shall reference
this Agreement and the terms and conditions of this Agreement will supersede any
different or additional terms on such order.
C. All payments will be sent by GEN TRAK to BSI Net 30, unless
otherwise mutually agreed upon. Any payment not made within said thirty (30) day
period will bear interest from the expiration of said thirty (30) day period at
the rate of one percent (1%) over the Prime Rate as reported by the Chase
Manhattan Bank of New York, or its successor.
5. MARKETING, REDISTRIBUTION
A. Promotion and Marketing.
(i) BSI acknowledges that GEN TRAK anticipates marketing the
Product under the GENSYS name and agrees that such brand name and all product
packaging and all marketing, advertising and promotion materials (collectively,
the "Brand Name") shall remain the exclusive property of GEN TRAK. BSI may not
use the Brand Name in any way without the express written consent of GEN TRAK.
(ii) GEN TRAK agrees to use its best efforts to promote and
sell the Product, at its own expense, in the Territory as soon as feasible after
the date of this Agreement. All promotional and marketing materials developed by
GEN TRAK shall identify BSI as the Manufacturer and utilize appropriate BSI
Trademarks (see Trademark) and be approved by BSI prior to use and shall contain
all notices required to protect BSI's proprietary rights in the Product. Any
promotional and other advertising material prepared by BSI for the Territory
will be provided to GEN TRAK upon its request without charge.
(iii) GEN TRAK will maintain an adequate sales force during
the term of this Agreement to effectively market and sell the Product and handle
all customer complaints in a professional and efficient manner.
(iv) BSI shall provide to GEN TRAK, free of charge, sufficient
Product samples to allow adequate marketing of the Product. GEN TRAK will
maintain an inventory of Product sufficient to meet demand for the Product in
the Territory for at least thirty (30) days.
(v) GEN TRAK will comply with all laws, regulations and
orders, including all health regulatory requirements, of any government within
-3-
<PAGE>
the Territory and with all other governmental requirements applicable to its
sales activities in the Territory with respect to the Product. GEN TRAK will
provide BSI with all information it shall reasonably request in connection with
GEN TRAK's compliance with this paragraph. BSI will furnish GEN TRAK with such
assistance and cooperation as may reasonably be requested in connection with
compliance with such governmental requirements, including without limitation
providing to GEN TRAK all available data for clinical trials performed by BSI in
connection with the Product.
(vi) All expenses incurred by GEN TRAK in connection with the
performance of its obligations hereunder will be borne solely by GEN TRAK
B. Trademarks. To the extent reasonably required by GEN TRAK to perform
its obligations pursuant to this Agreement, BSI grants to GEN TRAK a
non-transferable, royalty-free license, with no right to grant sublicenses, to
use during the term of this Agreement the Trademark within the Territory with
respect to the Product, alone or in conjunction with any one or more trademarks
of GEN TRAK, provided, however, that such license may only be used by GEN TRAK
in connection with the sale of the Product. BSI acknowledges the validity of the
Trademark and BSI's ownership thereof.
C. Customer Service. GEN TRAK shall be responsible for all "front line"
customer services for the Product in accordance with guidelines approved in
advance by BSI. BSI will assist with other customer services for the products as
necessary.
6. TERMINATION
A. If either party breaches a term or provision of this Agreement, in
addition to any other right or remedy it may have under this Agreement or
otherwise, the non-breaching party may terminate this Agreement by giving the
breaching party written notice of such breach, such termination to be effective
30 days after the giving of such notice unless within such 30-day period the
breaching party remedies such breach, in which event such notice of termination
shall be deemed withdrawn.
B. If during any Contract Year, GEN TRAK fails to make and pay for the
Minimum Purchases for any contract year as specified in Exhibit "E", BSI may
terminate this Agreement by giving written notice of such failure to GEN TRAK,
such termination to be effective upon the giving of such notice.
C. Neither party, by reason of the termination of this Agreement, will
be liable to the other because of damages, expenditures, loss of profits, or
prospective profits of any kind or nature, sustained or arising out of such
termination or for any investments related to the performance of this Agreement
or the goodwill created in the course of the performance under this Agreement.
-4-
<PAGE>
D. No termination of this Agreement will in any manner whatsoever
release, or be construed as releasing, any party from any liability to the other
arising out of or in connection with a party's breach of, or failure to perform
any covenant, agreement, duty or obligation contained in this Agreement. Neither
party will be relieved from any obligations vested prior to the date of
termination of this Agreement.
D. Upon the expiration or termination of this Agreement, GEN TRAK shall
have no right to order or purchase Product from BSI or to in any manner hold
itself out as BSI's distributor of the Product in the Territory, or to advertise
or promote the Product, and BSI may appoint, accept orders from, deliver and
sell Product to a new distributor or other person or entity in the Territory
determined by BSI in its sole discretion, who may begin soliciting orders for
and delivering Product to customers in the Territory any time after the
effective date of the termination of this Agreement. No allowance or indemnity
shall be payable hereunder to GEN TRAK as a result thereof. BSI shall have the
right to cancel all unshipped orders for the Product placed by GEN TRAK whether
or not previously accepted.
E. Upon termination of this Agreement, GEN TRAK will immediately
discontinue all use in the Territory of BSI's trade names and trademarks in
connection with the Product GEN TRAK will return to BSI all price lists,
catalogs, sales literature, operating and service manuals, advertising
literature, and other materials relating to the Product; provided, however, that
for materials produced by GEN TRAK, including, but not limited to the Brand
Name, shall remain the exclusive property of GEN TRAK. GEN TRAK expressly agrees
that upon termination such materials produced by GEN TRAK may not include the
BSI name or BSI's trade names or trademarks.
F. For a period of 60 days after the expiration or termination of this
Agreement, GEN TRAK may sell the inventory of Product GEN TRAK has on hand at
the time of such expiration or termination through its normal trade channels for
the Product; provided, however, that if within 10 days after such expiration or
termination BSI notifies GEN TRAK that it wishes to purchase all or part of such
inventory of Product, GEN TRAK shall sell to BSI all or part of such inventory
of Product, as desired by BSI, but in each case limited to those Units in good
and usable condition as per BSI's existing quality control standards, for an
amount equal to the cost of such inventory to BSI at the time of the purchase.
GEN TRAK shall return to BSI for credit against amounts payable by GEN TRAK to
BSI all Product, less reasonable customer samples and test samples, not sold and
paid for at the expiration of such 60 day period.
-5-
<PAGE>
7. PRODUCT WARRANTY
A. BSI warrants that the Product will meet the "Product Specifications"
set forth in Exhibit "F" hereto, as may be amended from time to time, for the
period of time up to and including the expiration date printed or stamped on the
product if used, stored and shipped in accordance with BSI's instructions. With
respect to any Product failing to meet the Product Specifications, BSI will, at
its option: (i) grant to GEN TRAK a credit for such defective Product equal to
the price paid therefor by GEN TRAK or (ii) provide replacement Product. In no
event will BSI be liable under this Agreement for any failure of any Product to
meet the Product Specifications due to improper use, storage or shipment by GEN
TRAK or anyone receiving the Product directly or indirectly from GEN TRAK.
B. BSI and GEN TRAK hereby agree to the Quality Control and Quality
Assurance standards including manufacturing processes set forth in Exhibit "G"
hereto, as may be amended from time to time. All products delivered to GEN TRAK
or to GEN TRAK's customers will be certified by BSI as having met minimum,
agreed upon performance standards. BSI will replace all products that fail to
perform to these minimum standards.
8. LIMITATIONS OF LIABILITY
EACH PARTY WILL ONLY BE LIABLE TO THE OTHER PARTY FOR DAMAGES THAT ARE DIRECTLY
ATTRIBUTABLE TO ITS MATERIAL BREACH OF THIS AGREEMENT OR ITS GROSSLY NEGLIGENT
OR INTENTIONAL ACT OR OMISSION. NOTWITHSTANDING THE FOREGOING, NEITHER PARTY
WILL BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD PARTY OR PARTIES FOR INDIRECT
DAMAGES OF ANY KIND WHATSOEVER (INCLUDING WITHOUT LIMITATION LOST PROFITS OR
SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY GOODS SOLD OR DELIVERED TO GEN TRAK. NOTHING IN THIS AGREEMENT
WILL CREATE ANY LIABILITY OF EITHER OR BOTH PARTIES TO ANY THIRD PARTY OR
PARTIES.
9. INDEMNITY
A. BSI agrees to and hereby does indemnify and hold GEN TRAK harmless
from and against all claims, damages, losses, costs and expenses, including
reasonable attorneys' fees, which GEN TRAK may incur by reason of any Product
sold or furnished by BSI which result in injury, illness or death of any person,
to the extent that such claims arise out of or result from (i) product design,
(ii) manufacturing, (iii) a breach of this Agreement or, (iii) failure to comply
with the Quality Control and Quality Assurance standards including manufacturing
processes set forth in Exhibit G attached hereto, except if such claims arise
from the gross negligence or willful misconduct of GEN TRAK.
B. GEN TRAK hereby agrees to and hereby does indemnify and hold BSI
harmless from and against all claims, damages, losses, costs and expenses,
including attorney's fees, which BSI may incur to the extent that such claims
arise out of or result from (i) the unlawful sale or other distribution of
Product by GEN TRAK or use by any purchasers, including any improper sales by
GEN TRAK to customers who are located in a territory outside the Territory, (ii)
the distribution, labeling or packaging of the Products or, (iii) failure to
-6-
<PAGE>
comply with the Quality Control and Quality Assurance standards including
manufacturing processes set forth in Exhibit G attached hereto, except for such
claims which arise out of or result from the gross negligence, or willful
misconduct of BSI.
10. PROPRIETARY RIGHTS
A. Ownership of BSI Proprietary Rights. BSI will retain all of its
rights, title and ownership in all copyrights, trademarks, trade secrets,
Patents, and all other intellectual property embodied in the Product. Except as
otherwise expressly provided in this Agreement, GEN TRAK will have no right,
title or interest in the intellectual property embodied in the Product.
B. Ownership of GEN TRAK Proprietary Rights. GEN TRAK will retain all
of its rights, title and ownership in all copyrights, trademarks, trade secrets,
Patents, and all other intellectual property embodied in the Brand Name. Except
as otherwise expressly provided in this Agreement, BSI will have no right, title
or interest in the intellectual property embodied in the Brand Name.
C. Confidential Information. Each party agrees that it will treat
accordingly all verbal and written communications from the other party which are
designated, or which should reasonably be regarded in the normal commercial
view, as constituting business secrets or propriety information ("Proprietary
Information"). Each party agrees to refrain from disclosing or making available
to any third party any of the other party's Proprietary Information without the
other party's written consent and to impose upon its employees and agents the
same obligations with respect to the other party's Proprietary Information as it
employs with respect to its own confidential information. No such obligations of
confidence will extend to information which (a) is publicly available; (b) is
independently developed by the receiving party; (c) is already in the receiving
party's possession; or (d) is rightfully received from a third party. The
provisions of this Section 12 will survive the termination of this Agreement and
for a period of five (5) years thereafter.
-7-
<PAGE>
11. GOVERNING LAW
This Agreement shall be deemed to have been made in the Commonwealth of
Pennsylvania, and shall be construed in accordance with and governed by the laws
of Pennsylvania applicable to contracts wholly executed and performed in
Pennsylvania. All disputes under this Agreement which cannot be resolved between
the parties shall be submitted to binding commercial arbitration in accordance
with the rules of the American Arbitration Association the appertaining. The
arbitration shall be held at a mutually agreed upon site. All fees and expenses
of the Arbitrator shall be borne equally by the parties.
12. ASSIGNMENT
A. Neither this Agreement, nor any rights or obligations of GEN TRAK
thereunder shall:
1. be assigned by GEN TRAK to any person or entity, or
2. be transferred, or pass to, any person or entity by merger or
consolidation, in bankruptcy or insolvency proceedings or by operation of law or
otherwise,
without the prior written consent of BSI, which may be withheld by BSI for any
reason or for no reason, in BSI's sole discretion. Any assignment in violation
of the foregoing shall be deemed null and void. BSI may assign or delegate any
or all of its rights or duties hereunder to any party. Notice thereof need not
be given to GEN TRAK in order to be effective; provided, however, BSI agrees to
notify GEN TRAK of any such assignment and provide information with respect
thereto to the extent necessary to enable GEN TRAK to perform its obligations
thereunder, including, without limitation, any change in the address for
placement of orders or payment of invoices for Products.
13. FORCE MAJEURE
In the event that either party is unable to carry out its obligations under this
Agreement due to Force Majeure beyond its control (including, without
limitation, acts of God; war, riot; fire; flood; explosion; labor disputes;
embargoes; or unavailability or shortages of raw material, bulk, equipment or
transport), the failure so to perform shall be excused and not constitute a
default hereunder during the continuation of the intervention of such Force
Majeure, provided, however that this provision shall not apply to the obligation
-8-
<PAGE>
of GEN TRAK to pay for the Product as provided in Paragraph 4 hereof. The party
affected by such Force Majeure shall resume performance as promptly as
practicable after such Force Majeure has been eliminated. Notwithstanding the
foregoing, in the event either party is unable to carry out its obligations
hereunder by reason of such Force Majeure for a period of forty-five (45) days
or more, then either party may at any time thereafter during the continuance of
such Force Majeure terminate this Agreement upon notice to the other party
setting forth the circumstances of such Force Majeure.
-9-
<PAGE>
14. MISCELLANEOUS.
A. No Agency, No Joint Venture - Independent Contractor. GEN TRAK will
act as independent contractor under the terms of this Agreement. GEN TRAK is
not, and will not be deemed to be, employee, agent, co-venturer or legal
representative of BSI for any purpose. GEN TRAK will not be entitled to enter
into any contracts in the name of, or on behalf of BSI, nor will GEN TRAK be
entitled to pledge the credit of BSI in any way or hold itself out as having
authority to do so.
B. Severability. Should any provision of this Agreement be determined
by a court having jurisdiction over the parties and the subject matter to be
illegal or unenforceable in such jurisdiction, the parties agree that such
determination shall not affect or impair the validity or enforceability of such
provision in any other jurisdiction or the validity or enforceability of any
other provision.
C. Entire Agreement; Amendment. This Agreement and the Schedules hereto
set forth and constitute the final, complete and entire agreement between the
parties hereto with respect to the subject matter hereof, supersede any and all
prior agreements, understandings, promises and representations made by either
party to the other concerning the subject matter hereof and the terms applicable
hereto and are intended as a complete and exclusive statement of the terms of
the agreement between the parties. This Agreement may not be released,
discharged, amended or modified in any manner except by an instrument in writing
signed by duly authorized officers of both parties.
D. Waiver. No waiver of any right under this Agreement will be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
will be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
E. Headings. Section headings contained in this Agreement are included
for convenience only and form no part of the agreement between the parties.
F. Notices. Notice, consent, demand, approval, or other communication
required or permitted under this Agreement will be written and will be deemed to
have been given (i) when personally delivered, including confirmed delivery by
facsimile or telex, (ii) on the next day after delivery to a nationally
recognized over-night express delivery service; or (iii) on the third day after
it is mailed, postage prepaid, certified or registered mail, return receipt
requested, addressed to the following address or to such other address as the
-10-
<PAGE>
party to be notified shall have specified to the other party in accordance with
this paragraph:
If to BSI: with a copy to:
Bio-Synthesis Laboratories, Inc. Thad E. Finley, Esq.
HAMMERLE FINLEY
Lewisville, Texas 75067 2220 San Jacinto Blvd
Attn.-President Denton, Texas 76205
If to GEN TRAK: with a copy to:
Gen Trak, Inc. Henry A. Carpenter II, Esq.
510 Campus Drive 1513 Judith Place
Plymouth Meeting, PA 19462 Yardley, PA 19067
Attn: Arthur V. Boyce
G. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original and all of which will constitute
together but one of the same document.
H. Authority to Enter Into and Execute Agreement. Each party represents
and warrants to the other they have the right and lawful authority to enter into
this Agreement for the purposes herein and that them are no other outstanding
agreements or obligations inconsistent with the terms and provisions hereof.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
BIOSYNTHESIS, INC.
ATTEST:
BY: _____________________
Name: _____________________ Name: ___________________
Title: ____________________ Title: __________________
GEN TRAK, INC.
ATTEST:
BY: _____________________
Name: _____________________ Name: ___________________
Title: ____________________ Title: __________________
-11-
<PAGE>
EXHIBIT B
The "Territory"
Gen Trak has the exclusive right to sell, promote and market BSI products, as
outlined in Exhibit A, in the United States an Canada, without limitation or
restriction. Opportunities in other countries throughout the world will be
discussed and decided by mutual agreement on an individual basis.
<PAGE>
EXHIBIT E
Minimum Purchases
From the date of this agreement, Gen Trak will be required to make minimum
purchases of BSI products by contract year as follows:
Year 1 $ 600,000
Year 2 $1,200,000
Year 3 $1,500,000
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit Contents
- ------- --------
A Description of DNA/SSP Class 2 and Class 1 product entries
and related products manufactured by BSI (the "Products")
B Territory within which GEN TRAK may sell and market the
Product
C (I) Companies that do not manufacture or market HLA product
lines and (ii) individual end users to which BSI may sell and
market the Product
D Initial cost per unit of the Product (the "Purchase Price")
E Minimum Purchases for any contract year
F The "Product Specifications"
G Quality Control and Quality Assurance standards including
manufacturing processes
<PAGE>
Exhibit 24.1
Consent of 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 March 13, 1998,
(except Note 17 as to which the date is September 30, 1998), in the Registration
Statement (Form SB-2 No. 333-00000) and related Prospectus of Gen Trak, Inc.
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Philadelphia, PA
December 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 45,757
<SECURITIES> 0
<RECEIVABLES> 361,831
<ALLOWANCES> 6,600
<INVENTORY> 1,358,568
<CURRENT-ASSETS> 1,840,430
<PP&E> 1,114,158
<DEPRECIATION> 995,085
<TOTAL-ASSETS> 2,288,888
<CURRENT-LIABILITIES> 722,144
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 572,807
<TOTAL-LIABILITY-AND-EQUITY> 2,288,888
<SALES> 2,710,485
<TOTAL-REVENUES> 2,710,485
<CGS> 1,490,928
<TOTAL-COSTS> 1,490,928
<OTHER-EXPENSES> 1,234,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,862
<INCOME-PRETAX> (138,083)
<INCOME-TAX> 0
<INCOME-CONTINUING> (138,083)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,083)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
