<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1999.
REGISTRATION NO. 333-85053
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT
NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LEARNSAT.COM, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 3663 59-3101307
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
3819 SOUTH PERKINS ROAD
STILLWATER, OKLAHOMA 74074
(405) 377-6100
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHARLES BREWER, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
LEARNSAT.COM, INC.
3819 SOUTH PERKINS ROAD
STILLWATER, OKLAHOMA 74074
(405) 377-6100
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
BARRY FEINER, ESQ. LAWRENCE B. FISHER, ESQ.
170 FALCON COURT ORRICK, HERRINGTON & SUTCLIFFE LLP
MANHASSET, NEW YORK 11030 666 FIFTH AVENUE
PHONE: (516) 484-6890 18TH FLOOR
FAX: (516) 484-6867 NEW YORK, NEW YORK 10103
PHONE: (212) 506-5000
FAX: (212) 506-5151
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
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.
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<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two prospectuses: one relating to this
offering of 1,334,000 units of LearnSat.Com, plus 200,100 units to cover
over-allotments, if any, and one relating to the offering of 3,437,500 shares of
common stock by some of the shareholders of LearnSat.Com. Following the
prospectus are certain substitute pages of the selling shareholder prospectus,
including alternate front outside and back outside cover pages, an alternate
"The Offering" section of the "Summary" and sections titled "Private Financing,"
"Selling Shareholders and Plan of Distribution" and "Legal Matters." Each of the
alternate pages for the selling shareholder prospectus is labeled "Alternate
Page for Selling Shareholder Prospectus." All other sections of the prospectus,
other than "Use of Proceeds," "Dilution," and "Underwriting" are to be used for
the selling shareholder prospectus.
<PAGE> 3
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 OR ANY APPLICABLE STATE SECURITIES 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.
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1999
LEARNSAT.COM, INC.
------------------------
1,334,000 UNITS
(EACH UNIT CONSISTING OF
TWO SHARES OF COMMON STOCK,
TWO CLASS C REDEEMABLE WARRANTS AND
ONE CLASS D REDEEMABLE WARRANT)
------------------------
This is an initial public offering. You may trade the common stock and
warrants separately starting six months from the effective date of this offering
unless we agree with the underwriter that trading may begin sooner.
No public market currently exists for the units, the common stock or the
warrants. We anticipate that the initial public offering price will be $3.00 per
unit, which consists of $1.35 per share, $0.10 per C warrant and $0.10 per D
warrant. We have applied to list the units, common stock and the warrants on
Tier II of the Pacific Stock Exchange under the symbols LSN__, LSN__, LSN__, and
LSN__, respectively. As part of this offering, we have sold the underwriter for
nominal consideration warrants to purchase 133,400 units.
Selling shareholders are also offering 1,375,000 shares of common stock and
an additional 2,062,500 shares of common stock which we will issue to them if
they exercise warrants currently held by them. The shares of common stock to be
sold by selling shareholders are offered through an alternate prospectus that is
dated , 1999.
BEFORE BUYING THE UNITS, CAREFULLY READ THIS PROSPECTUS, ESPECIALLY THE
RISK FACTORS BEGINNING ON PAGE 7. THE PURCHASE OF OUR SECURITIES INVOLVES A HIGH
DEGREE OF RISK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
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PER UNIT TOTAL
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to LearnSat.Com.................. $ $
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</TABLE>
The underwriter may purchase up to an additional 200,100 units from us at
the initial public offering price, less the underwriting discount.
------------------------
Delivery of the common stock and warrants will be made on or about
, 1999, in New York, New York, against payment in immediately
available funds.
DIRKS & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 4
TABLE OF CONTENTS
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Dilution.................................................... 15
Private Financing........................................... 16
Capitalization.............................................. 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 26
Management.................................................. 37
Certain Transactions........................................ 42
Principal Shareholders...................................... 43
Description of Securities................................... 44
Shares Eligible for Future Sale............................. 46
Underwriting................................................ 47
Legal Matters............................................... 49
Experts..................................................... 49
Additional Information...................................... 49
Financial Statements........................................ F-1
</TABLE>
------------------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. We are not offering to sell you or asking you to
buy anything other than the units. We are not offering to sell you or asking you
to buy anything in any jurisdiction where doing so is not permitted. The
information in this document may only be accurate on the date of this document.
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. This summary
does not contain all of the information that investors should consider before
investing in our common stock and warrants. We encourage you to read the entire
prospectus before you decide whether to invest.
OUR BUSINESS
We market and install satellite communications equipment. We also resell
many other telecommunications products. We plan to build a new communications
delivery system that will provide satellite-based Internet telecommunications
services. The system called ED-WEB(TM) will deliver video, audio, data and other
digital transmissions. This system will send and receive Internet data by
satellite. We will sell it to specific markets -- primarily those markets
located in rural areas and remote parts of the world that lack access to
high-speed telephone lines or cables.
We believe many potential purchasers of our services exist, including:
- schools;
- medical facilities;
- corporate offices;
- power plants and manufacturing facilities; and
- government agencies.
We anticipate that customers for ED-WEB(TM) services will include, among
others, people seeking Internet access, businesses and schools staging video
conferences, and computer users who wish to link to the U.S. Internet
infrastructure, connect to virtual private networks, or buy space from a web
host.
In addition, we recently purchased a local Internet service provider which
we will connect to our ED-WEB(TM) satellite system. This connection will enable
our Internet service provider to expand from offering local services to
providing worldwide services. We believe our Internet service provider will
expand the range of communications services we can offer.
We were incorporated in the State of Florida in October 1991. Our executive
offices are located at 3819 South Perkins Road, Stillwater, Oklahoma 74074. Our
telephone number is (405) 377-6100; and our email address is [email protected].
We maintain a web site at www.learnsat.com. Information contained on our web
site is not part of this prospectus.
3
<PAGE> 6
THE OFFERING
Securities Offered.................. 1,334,000 units, each unit consisting
of two shares of common stock, two
class C redeemable warrants and one
class D redeemable warrant. The C
warrant is exercisable for one share of
common stock at $3.00 per share until
42 months after the date of this
prospectus. The D warrant is
exercisable for one share of common
stock at $6.50 per share until 66
months after the date of this
prospectus. You may trade the common
stock and warrants separately starting
six months after the effective date of
this offering unless we agree with the
underwriter that trading may begin
sooner. Commencing on the date the
common stock and warrants become
separately tradable we may redeem your
warrants. See "Description of
Securities."
Common Stock Outstanding Prior
to the Offering................... 13,713,277 shares; excludes outstanding
options, underwriter's over-allotment
option and warrants.
Common Stock Outstanding After the
Offering............................ 16,381,277 shares; excludes outstanding
options, underwriter's over-allotment
option and warrants.
Warrants Outstanding After the
Offering............................ 5,877,000 warrants.
Use of Proceeds..................... - Completion of ED-WEB(TM) system
development;
- Initial installation and marketing of
the ED-WEB(TM) system;
- Purchase of equipment for our current
business;
- Repayment of bank line of credit; and
- Working capital and general corporate
purposes.
- - Risk Factors...................... You should read the "Risk Factors"
section as well as the other cautionary
statements throughout the entire
prospectus, so that you understand the
risks associated with an investment in
our securities.
- - Proposed Pacific Stock Exchange
Symbol
for Units......................... LSN __.
for Common Stock.................. LSN __.
for Class C Redeemable Warrants... LSN __.
for Class D Redeemable Warrants... LSN __.
4
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------------
1997 1998 1998 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................. $2,576,230 $2,144,169 $1,072,451 $ 896,820
Cost of sales............................. 2,076,336 1,914,482 922,870 830,767
---------- ---------- ---------- ---------
Gross profit.............................. 499,894 229,687 149,581 66,053
Selling, general and administrative
expenses................................ (282,721) (409,970) (237,806) (252,218)
Net gain on settlement of litigation...... 215,691
---------- ---------- ---------- ---------
Operating income (loss)................... 217,173 (180,283) (88,225) 29,526
Other expenses -- net..................... (42,000) (58,611) (26,954) (15,359)
---------- ---------- ---------- ---------
Income (loss) before provision for income
taxes................................... 175,173 (238,894) (115,179) 14,167
Provision for income taxes................ 2,900
---------- ---------- ---------- ---------
Net Income (loss)......................... $ 175,173 $ (238,894) $ (115,179) $ 11,267
========== ========== ========== =========
</TABLE>
The following table provides pro forma income statement data as if
LearnSat.Com had entered into employment agreements with two of its officers as
of the first day of each period and as if LearnSat.Com was being taxed as a C
Corporation during each of these periods.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS
DATA:
Income (loss) before pro forma
adjustment for employment agreements
and pro forma provision (credit) for
income taxes........................ $ 175,173 $ (238,894) $ (115,179) $ 11,267
Pro forma adjustment for employment
agreements.......................... (55,000) (55,000) (27,500)
----------- ----------- ----------- -----------
Pro forma income (loss) before
provision (credit) for income
taxes............................... 120,173 (293,894) (142,679) 11,267
----------- ----------- ----------- -----------
Pro forma provision (credit) for
income taxes:
Federal............................. 27,300 (27,300) (13,650)
State............................... 7,200 (7,200) (3,600)
----------- ----------- ----------- -----------
34,500 (34,500) (17,250)
----------- ----------- ----------- -----------
Pro forma net income (loss)........... $ 85,673 $ (259,394) $ (125,429) $ 11,267
=========== =========== =========== ===========
Basic pro forma net income (loss) per
common share........................ $ 0.01 $ (0.02) $ (0.01) $ 0.00
=========== =========== =========== ===========
Weighted average number of common
shares outstanding -- basic......... 12,440,677 12,440,677 12,440,677 13,248,688
=========== =========== =========== ===========
Diluted pro forma net income (loss)
per common share.................... $ 0.01 $ (0.02) $ (0.01) $ 0.00
=========== =========== =========== ===========
Weighted average number of common
shares outstanding -- diluted....... 12,474,011 12,440,677 12,440,677 13,260,474
=========== =========== =========== ===========
</TABLE>
5
<PAGE> 8
The following table provides a summary of our balance sheet at June 30,
1999:
- on an actual basis; and
- on an adjusted basis to reflect the sale of 1,334,000 units in this
offering, using an initial offering price of $3.00 per unit and the
receipt of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 277,968 $3,451,241
Total assets................................................ 1,530,211 4,597,984
Short-term debt............................................. 414,398 414,398
Long-term debt.............................................. 155,418 155,418
Shareholders' equity........................................ 503,080 3,595,853
</TABLE>
6
<PAGE> 9
RISK FACTORS
Before you invest in our securities you should be aware that there are
various risks, including those described below. Each of these risk factors could
hurt our business, operating results and financial condition, which in turn
could diminish the value of an investment in our common stock and warrants. You
should carefully consider these risk factors together with all of the other
information included in this prospectus before you decide whether to purchase
units in this offering.
BECAUSE OUR PLANNED NEW BUSINESS SEGMENT HAS NO OPERATING HISTORY, THERE IS NO
ASSURANCE OF PROFITABILITY.
We have been in the business of selling and installing satellite
communications equipment since 1991, but are new to the business of providing
two-way satellite-based Internet based Internet telecommunications services. We
cannot assure that we will be able to operate our planned communications
services business segment profitably. In order to attain profitability in this
new market, we must, among other things:
- successfully complete development of our proprietary software;
- install and test our two-way satellite communications system;
- market and sell our new services and the related hardware system;
- develop and sustain a customer base; and
- control costs.
Although we believe that there is a market for our planned services,
assuming that the software development is completed and the system operates to
its specifications, we can give no assurance that these services will be
accepted by potential customers or that we can obtain or expand a customer base
for these services. If we fail to introduce our planned services successfully,
whether due to the capabilities or pricing of these services or otherwise, our
business could become less competitive which would hurt our financial condition
and results of operations.
WE WILL DEPEND ON THE PROCEEDS OF THIS OFFERING TO FINANCE OUR PLANNED NEW
BUSINESS SEGMENT, AND WE MAY NEED ADDITIONAL FINANCING THAT COULD FURTHER DILUTE
THE INTERESTS OF INVESTORS IN THIS OFFERING.
We believe that we will require approximately $2.4 million to complete the
development of our two-way satellite-based Internet communications services and
to begin generating revenues from sales of our proposed new services and system.
Because our current operations are capital intensive, we cannot utilize cash
flow from these operations to fund development of the ED-WEB(TM) system.
Accordingly, implementation of the two-way satellite communications services
will be wholly dependent upon the proceeds from the sale of the units. We
estimate that $2.4 million will be sufficient to attain commercial viability for
our new business, but we can give no assurance to this effect. If additional
financing is required, we cannot assure that we will be able to obtain it on
acceptable terms, if at all. Such additional financing would dilute the equity
interests of investors purchasing securities in this offering. Additionally, we
cannot incur additional indebtedness without the permission of BancFirst, our
current lender. BancFirst may not give us the necessary approval for additional
financing. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR SUCCESS WILL DEPEND ON OUR OBTAINING PATENT PROTECTION AND MAINTAINING
EXCLUSIVE PROTECTION FOR OUR PROPRIETARY TECHNOLOGY.
Our failure to secure a patent for the ED-WEB(TM) system, or the loss or
challenge of any patent we may obtain, could materially restrict our ability to
provide our proposed services. The success of our new business segment will
depend, in part, on our ability to:
- secure issuance of our patent for providing two-way satellite
communications;
- obtain additional related patents as necessary;
7
<PAGE> 10
- protect and enforce patents once issued;
- prevent others from infringing our patents;
- operate without infringing on the proprietary rights of others; and
- maintain exclusive rights to trade secrets and proprietary technology and
similar intellectual property that we develop.
We cannot assure you that:
- any issued patents will provide us with competitive advantages or will
not be challenged by others;
- the patents of others will not restrict our ability to provide our new
services; or
- others will not independently develop similar technologies, or will not
duplicate any of our technologies or design around our patents.
The prosecution or defense of patent infringement litigation, if required, could
involve a substantial commitment of our time and financial resources. In
addition, we regard our trademarks as important to our success. We have filed an
intent to use trademark application to register the mark "LearnSat" and register
the mark "ED-WEB" in the U.S. Patent and Trademark Office. Our efforts to
establish and protect our intellectual property rights may be inadequate to
prevent misappropriation or infringement of these rights. If we are unable to
safeguard these rights, it could alter our business plans, hurt our operating
results and weaken our financial condition. See "Business -- Patents, Trade
Secrets and Trademarks."
THE MARKET IN WHICH OUR NEW BUSINESS WILL COMPETE IS SUBJECT TO RAPID
TECHNOLOGICAL CHANGES THAT COULD PUT US AT A DISADVANTAGE IF WE DO NOT REMAIN
COMPETITIVE.
If we are unable to keep up with the changes in technology in our industry,
we may not be competitive with other companies. The markets in which our new
business will compete -- the telecommunications, Internet and software
industries -- are characterized by rapid technological change. The introduction
of services or products embodying new technologies or the emergence of new
industry standards and practices could render our existing services or products
obsolete. Assuming that we are able to implement two-way satellite
communications services through the ED-WEB(TM) system, our future success will
depend in part on our ability to enhance services and products, and develop new
ones to keep pace with technological advances.
THE MARKET IN WHICH OUR CURRENT BUSINESS COMPETES IS RELATIVELY SMALL, CAPITAL
INTENSIVE AND EXHIBITS LIMITED PROFITABILITY.
We estimate that gross annual sales in our current market -- selling and
installing satellite communications equipment -- is approximately $20 million.
We have five major competitors in this market, all of whom are larger than we
are, have greater management, sales and financial resources then we have, and
most of whom generate more annual sales than we do. We cannot assure that we
will continue to compete successfully in this market and it is unlikely that our
sales in this market will increase significantly, if at all.
WE ARE LIKELY TO ENCOUNTER INTENSE COMPETITION FROM MAJOR TELECOMMUNICATIONS
COMPANIES WITH SIGNIFICANTLY GREATER RESOURCES THAN WE HAVE.
Even if we are able to establish our two-way satellite communications
services business, we cannot assure you that we will be able to compete
successfully. Although we believe that there is little current direct
competition in the market in which we propose to compete, we are likely to
encounter intense competition from other firms engaged in related businesses
whose products and services could be applicable to our planned market and/or who
could develop products and services to compete directly with our planned
products and services. Our potential competitors include satellite
communications companies such as Hughes Communica-
8
<PAGE> 11
tions, telecommunications companies such as MCI/WorldCom and telephone companies
such as Southwestern Bell. Most if not all of these potential competitors are
substantially larger, and have:
- substantial and successful operations;
- significantly greater financial and other resources;
- more employees; and
- more extensive facilities.
See "Business -- Planned Operations as a Telecommunications and Internet
Service Provider, ED-WEB(TM) Competition."
WE COULD ENCOUNTER BARRIERS TO ENTERING THE AREA OF TELEMEDICINE, WHICH IS THE
USE OF ELECTRONIC MEDIA TO CONNECT MEDICAL PRACTITIONERS AND PATIENTS.
We believe that one of the prime markets for our two-way satellite
communications services will be the healthcare industry. Our ED-WEB(TM) system
could be used for remote medical diagnosis and treatment. However, our
participation in telemedicine could involve us in issues of:
- licensing for medical practitioners where more than one state or country
jurisdiction is involved;
- our liability for the actions of medical practitioners who use our
system; and
- qualification for coverage by HMOs or other medical insurance plans.
These issues could hurt our business because they could limit the services we
offer, restrict the areas where we offer our services, or make it more difficult
and expensive to offer telemedicine services. See "Business -- Planned
Operations as a Telecommunications and Internet Service Provider, ED-WEB(TM)
Marketing."
OUR PROPOSED BUSINESS COULD FACE RISKS IN INTERNATIONAL MARKETS WHICH, AMONG
OTHER THINGS, COULD INCREASE OUR COSTS OF CONDUCTING BUSINESS AND RESTRICT OUR
ABILITY TO ADMINISTER OUR OPERATIONS.
We plan to market a portion of our communications services outside of the
United States. There are substantial risks in marketing products and services in
foreign countries. These include, among others:
- the difficulty of administering business abroad which could disrupt our
operations;
- exposure to currency fluctuations and devaluations or restrictions on
money supplies which could subject us to losses;
- foreign and domestic export laws and regulations which could restrict our
ability to deliver products and services;
- taxation, tariffs, import quotas and restrictions which could increase
the price for which we sell our products and services;
- shipping interruptions which could delay the delivery of our products and
services;
- political instability which could prevent us from doing business and
restrict our ability to obtain payment for products and services already
provided by us; and
- other economic and political events entirely beyond our control.
In addition, we may find it difficult to prevent the unauthorized use of our
technology in foreign countries.
OUR REVENUES WOULD DECREASE SIGNIFICANTLY IF WE FAIL TO REPLACE MAJOR CUSTOMERS.
During calendar year 1998, three of our customers accounted for
approximately 61% of our sales. During the first six months of 1999, three of
our customers accounted for 62% of our sales, of which one customer accounted
for 31% of sales. All of the contracts relating to these customers have been
completed. If we fail to replace these customers it would materially hurt our
business, financial condition and results of operations
9
<PAGE> 12
because our revenues would decrease significantly. See "Business -- Current
Products and Services, Sales and Markets."
LOSS OF OUR EXCLUSIVE SUPPLIER WOULD REDUCE SALES THAT DEPEND UPON THE USE OF
THAT SUPPLIER'S PRODUCTS.
General Instruments is our sole supplier of digital encoders and decoders.
It provided products that generated approximately 33% of our sales on an annual
basis in 1998 and approximately 60% of our sales for the six months ended June
30, 1999. Although we believe that our relationship with this supplier is
satisfactory, the loss of this supplier would materially hurt our business,
financial condition and results of operations because we would lose sales of
those products which depend on the use of digital encoders and decoders.
BECAUSE OUR SATELLITE COMMUNICATIONS SYSTEM IS SUBJECT TO GOVERNMENT
REGULATIONS, WE WOULD BE UNABLE TO DO BUSINESS IF WE FAIL TO COMPLY WITH THESE
REGULATIONS.
The ownership and operation of our communication systems are subject to
significant regulation by the Federal Communications Commission. The license,
upon which our existing business is dependent, is subject to renewal by the FCC.
Our new ED-WEB(TM) system will also be dependent upon retaining and expanding
the scope of the FCC license for international use. If we fail to retain and
expand our license, we will be unable to conduct our business. We cannot assure
that our existing license will be renewed or that the rules and regulations of
the FCC will continue to permit us to operate our business as planned. See
"Business -- Government Licensing."
IF WE FAIL TO RESOLVE YEAR 2000 ISSUES OUR ABILITY TO OFFER SERVICES COULD BE
RESTRICTED, WHICH WOULD REDUCE OUR REVENUES.
Many computer systems and software products use two digits rather than four
to define the applicable year. In other words, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations. Year 2000 compliance of equipment and software provided by third
party vendors is not within our control. Literature on the equipment we
currently sell and install indicates that this equipment is year 2000 compliant.
We are in the process of making inquiries to manufacturers of this equipment to
obtain certification of their year 2000 compliance.
The proprietary software to be used in our ED-WEB(TM) system is being
developed with four digit year recognition and, although we do not anticipate
any year 2000 problems with this software, we can give no assurance to this
effect. In the event that any hardware and/or software is not year 2000
compliant, our systems may not operate properly. If a year 2000 problem should
develop, we might have to overhaul our hardware and software and, possibly,
suspend satellite communications services, all of which would increase costs and
restrict our ability to offer services and generate revenues. See "Management's
Discussion and Analysis of Financial Condition And Results of Operations -- Year
2000 Issues."
WE DEPEND UPON THE CONTINUED EMPLOYMENT OF CHARLES BREWER AND IF WE LOST HIS
SERVICES IT WOULD BE SIGNIFICANTLY MORE DIFFICULT TO OPERATE OUR BUSINESS.
We believe that our ability to successfully operate our existing business,
implement our proposed plans and operate profitably depends on the continued
employment of Charles Brewer. We currently have an employment agreement with Mr.
Brewer and maintain key man insurance on his life in the amount of $1 million,
of which $200,000 of the proceeds are currently assigned to our lending
institution. The benefits received under this policy would not be sufficient to
compensate LearnSat.Com for the loss of Mr. Brewer's services should a suitable
replacement not be employed. If he becomes unable or unwilling to continue in
his current position, it would be significantly more difficult to operate our
business, which would hurt our financial condition and results of operations. We
cannot assure that we could recruit and retain new management personnel should
the need arise. See "Management."
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<PAGE> 13
OUR COMPANY IS CONTROLLED BY LINDA AND CHARLES BREWER WHO HAVE THE POWER TO
ELECT ALL OUR DIRECTORS.
Following the offering, Linda and Charles Brewer, two of our executive
officers and directors, will own beneficially approximately 76.25%, and 74.43%
if the underwriter's over-allotment option is exercised in full, of our
outstanding common stock. Mr. and Mrs. Brewer are husband and wife. Because our
Articles of Incorporation do not provide for cumulative voting, Mr. and Mrs.
Brewer will control LearnSat.Com and the power to elect all our directors,
appoint our management and approve actions requiring the approval of a majority
of shareholders. See "Principal Shareholders" and "Description of
Securities -- Common Stock."
THE UNDERWRITER MAY CONTINUE TO HAVE INFLUENCE OVER US, INCLUDING OUR ABILITY TO
OBTAIN FINANCING, AND ITS INTERESTS MAY NOT COINCIDE WITH YOUR INTERESTS.
Following the completion of this offering, the underwriter may designate
one person for election to our board of directors for three years after the
effective date of the registration statement. Accordingly, the underwriter will
continue to influence our operations following the completion of this offering.
The underwriter's interests may not coincide with those of our shareholders. The
underwriter's designee on our board of directors could be in a position to cast
a deciding vote on a matter of importance. Because of this, the underwriter
could limit our ability to obtain financing at a time when we may think it
desirable to do so if it does not accede to our attempts to raise capital.
IF YOU INVEST IN OUR COMMON STOCK YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL
DILUTION.
If you purchase units, your investment will sustain an immediate and
substantial dilution because the net tangible book value per share of the common
stock acquired by you will be $0.22, compared to the $1.50 per share price paid
by you, assuming the entire cost of a unit is allocated to the common stock. In
addition, the exercise of warrants and options currently outstanding could cause
additional, substantial dilution to you. The current shareholders will benefit
from a substantial increase in the net tangible book value of their shares. See
"Dilution."
LACK OF A PUBLIC MARKET FOR OUR SECURITIES WOULD LIMIT YOUR ABILITY TO RESELL
THESE SECURITIES.
If you purchase units, in the absence of any readily available secondary
market for our securities, you will likely experience great difficulty in
selling your securities at or near the price you originally pay, if at all.
Prior to the offering, there has been no public market for our units, common
stock or warrants. Although our securities will be listed for trading on the
Pacific Stock Exchange, we do not know the extent to which investor interest in
us will lead to the development of a trading market or how liquid that market
might be. In addition, you may not trade the common stock and warrants
separately from the units until six months from the effective date of this
offering unless we agree with underwriter that trading may begin sooner.
WE HAVE A LIMITATION ON OUR DIRECTORS' AND OFFICERS' LIABILITY FOR BREACH OF
FIDUCIARY DUTY.
If you purchase units, you will have a limited right to recover against our
directors and officers' for their breach of fiduciary duty. Our Articles of
Incorporation and our By-laws limit the liability of our directors and officers
to LearnSat.Com or our shareholders for monetary damages for breach of fiduciary
duty except as may be permitted under Florida Law. See "Management -- Limitation
of Liability and Indemnification Matters."
THE UNDERWRITER'S WARRANTS MAY RESTRICT OUR ABILITY TO RAISE ADDITIONAL CAPITAL.
Upon consummation of the offering we will sell to the underwriter and/or
its designees, for nominal consideration, warrants to purchase up to 266,800
shares of common stock at $1.80 per share, 266,800 C non-redeemable warrants and
133,400 D non-redeemable warrants. For the life of the underwriter's warrants,
the holders will have, at a nominal cost, the opportunity to profit from a rise
in the market price of our common stock with a resulting dilution in the
interest of our existing security holders. As long as the underwriter's warrants
remain unexercised, our ability to obtain additional financing may be limited.
The underwriter may
11
<PAGE> 14
exercise its warrants at a time when we would, in all likelihood, be able to
obtain any needed capital by a new offering of securities on terms more
favorable than those provided for by the warrants.
YOU CANNOT SELL THE SHARES UNDERLYING THE WARRANTS IF WE DO NOT HAVE AN
EFFECTIVE REGISTRATION STATEMENT.
The warrants cannot be exercised and the underlying shares sold unless a
prospectus is kept effective and the shares underlying the warrants are
qualified or exempt in the states in which exercising warrant holders reside. We
have registered these shares and have qualified them in the states where we plan
to sell the units unless this qualification has not been required. We have also
filed an undertaking with the SEC to maintain a current prospectus relating to
these shares until the expiration of the warrants. However, we cannot assure
that we will be able to satisfy this undertaking. If we fail to do so the
warrants may be deprived of any value. The common stock and warrants are
detachable and separately transferable six months after the effective date of
this offering unless sooner agreed to by us and the underwriter. Purchasers may
buy warrants in the aftermarket 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 that event, we would be unable to issue
shares to those persons desiring to exercise their warrants, and warrant holders
would have no choice but to offer to sell the warrants in a jurisdiction where a
sale is permitted or allow them to expire unexercised.
YOU COULD LOSE YOUR RIGHT TO EXERCISE YOUR WARRANTS IF WE EXERCISE OUR RIGHT TO
REDEEM THE WARRANTS.
Under some circumstances, we may redeem all of the warrants at nominal
cost. If you are a warrant holder and we call for redemption, to the extent we
redeem your warrants, you will lose your right to purchase shares pursuant to
your warrants. Furthermore, the threat of redemption could force you to:
- exercise your warrants at a time when it may be disadvantageous for you
to do so;
- sell your warrants at the then current market price when you might
otherwise wish to hold them; or
- accept the redemption price which will be substantially less than the
market value of your warrants at the time of redemption.
See "Description of Securities -- Warrants" for the conditions under which we
may redeem the warrants. We will not call the warrants for redemption if a
current prospectus is not available for the exercise of the warrants.
OUR ABILITY TO ISSUE PREFERRED STOCK MAY DIMINISH YOUR RIGHTS AS A COMMON
SHAREHOLDER AND BE USED AS AN ANTI-TAKEOVER DEVICE.
Our Articles of Incorporation authorize our board of directors to issue up
to 20 million shares of preferred stock without approval from our shareholders.
If you purchase our common stock, this means that the board of directors has the
right, without your approval as a common shareholder, to fix the relative rights
and preferences of the preferred stock. This would affect your rights as a
common shareholder regarding, among other things, dividends and liquidation. We
could also use the preferred stock to deter or delay a change in control of
LearnSat.Com that may be opposed by our management even if the transaction might
be favorable to you as a common shareholder. See "Description of
Securities -- Preferred Stock."
FLORIDA CORPORATE LAW ANTI-TAKEOVER PROVISIONS COULD IMPEDE ACTIONS, SUCH AS THE
REMOVAL OF DIRECTORS, A CHANGE IN CONTROL OR A MERGER, WHICH COULD BE BENEFICIAL
TO YOUR INTERESTS AS A SHAREHOLDER.
Some provisions of the Florida Business Corporation Act could delay or
frustrate the removal of incumbent directors or a change in control of
LearnSat.Com. They also could discourage, impede, or prevent a merger, tender
offer or proxy contest, even if such an event would be favorable to the
interests of our shareholders. See "Description of Securities -- Corporate Law
Anti-Takeover Provisions" for a discussion of these provisions.
12
<PAGE> 15
UNREGISTERED SHARES ELIGIBLE FOR FUTURE SALE MAY AFFECT THE MARKET PRICE OF
COMMON STOCK SHOULD A PUBLIC MARKET DEVELOP.
If a market for our common stock should develop in the future, the price of
our common stock could drop as a result of sales of a large number of shares of
common stock in the market after the offering, or the perception that these
sales could occur. These factors also could make it more difficult for us to
raise funds through future offerings of common stock. Mr. and Mrs. Brewer have
agreed with Dirks not to sell or otherwise transfer their restricted securities
until 13 months after the date of this prospectus unless earlier permitted by
Dirks. See "Shares Eligible for Future Sale."
THE UNDERWRITER'S ACTIVITIES MAY INFLUENCE THE MARKET FOR OUR SECURITIES.
Although it is under no obligation to do so, the underwriter intends to
make a market in our common stock and may otherwise effect transactions in our
securities. This market-making activity can be discontinued at any time. The
exercise of the warrants may depress the price of our common stock. If this
should occur, the underwriter may choose to discontinue its market-making
activities. Moreover, if the underwriter exercises the underwriter's warrants,
or acts as a warrant solicitation agent for the warrants, it may be required
under the Exchange Act to temporarily suspend its market-making activities. The
prices and liquidity of our securities may be significantly affected by the
degree, if any, of the underwriter's market-making participation.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering these forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including some risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
13
<PAGE> 16
USE OF PROCEEDS
The net proceeds to LearnSat.Com from the sale of the units in this
offering are estimated to be approximately $3.1 million, or approximately $3.6
million if the underwriter's over-allotment option is exercised in full, after
payment of underwriting discounts and commissions and estimated offering
expenses.
The following table sets forth our estimated use of these proceeds.
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
PURPOSE NET PROCEEDS NET PROCEEDS
- ------- ------------ -------------
<S> <C> <C>
Completion of ED-WEB(TM) system development................. $1,100,000 35.6
Initial installation and marketing of the ED-WEB(TM)
system.................................................... 1,300,000 42.0
Purchase of equipment for our current business.............. 100,000 3.2
Repayment of bank line of credit............................ 275,000 8.9
Working capital and general corporate purposes.............. 318,000 10.3
---------- ------
TOTAL....................................................... $3,093,000 100.00
========== ======
</TABLE>
The above table represents our best estimate of how we will allocate the
net proceeds of the offering, based on our current operations, plans, and
economic conditions. The amount and timing of expenditures will vary depending
on factors that include our progress in developing and marketing our new
ED-WEB(TM) system and services, and changes in competitive conditions. We
reserve the right to modify the percentage of net proceeds used for any one
purpose to the extent that we determine advisable. Accordingly, we will have
broad discretion as to application of these proceeds. Shareholders may disagree
with our determination of the best use of proceeds. We cannot assure that the
proceeds will be invested to yield a favorable return.
We believe that the net proceeds from the sale of the units and cash
generated by our operations will suffice to satisfy our contemplated cash
requirements for at least 12 months after the date of this prospectus. In the
event that we do require additional financing, we cannot assure that this
financing will be available to us on acceptable terms, if at all.
We plan to invest the proceeds that we do not immediately use principally
in United States government securities, short-term certificates of deposit,
money market funds or other short-term interest bearing investments.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We currently intend
to retain any earnings our operations may generate to finance the development
and expansion of our business. We do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Future cash dividends, if any, will
be paid at the discretion of our board of directors. Any future determination to
pay cash dividends will depend on:
- the results of our operations;
- our financial condition;
- our capital requirements;
- our contractual restrictions; and
- other factors deemed relevant at the time by our board of directors.
14
<PAGE> 17
DILUTION
If you purchase securities in this offering, you will experience immediate
and substantial dilution in the net tangible book value of the common stock from
the initial public offering price. Our net tangible book value per share as of
June 30, 1999 was approximately $.03 per share of common stock. Net tangible
book value per share is determined by dividing our tangible net worth, that is
our total tangible assets less our total liabilities, by the total number of
outstanding shares of common stock.
As of June 30, 1999, our tangible assets consisted of all of our assets as
shown on our balance sheet, except for intangible assets amounting to $83,928.
After giving effect to our sale of 2,668,000 shares of common stock in this
offering, excluding the underwriter's over-allotment option, without giving
effect to the shares issuable upon the exercise of any warrants, our adjusted
net tangible book value per share as of June 30, 1999 would have been
approximately $.22. This represents an immediate increase in the adjusted net
tangible book value per share of $.19 to existing common shareholders and an
immediate dilution, the difference between the $ 1.50 per share price to the
public, assuming that the entire price of the units is allocated to the shares,
and the adjusted net tangible book value per share after the offering, in the
adjusted tangible book value of $1.28 per share, representing a dilution
percentage of approximately 85%, to new investors.
The following table illustrates this per share of common stock dilution:
<TABLE>
<S> <C> <C>
The initial price of a share of common stock paid by new
investors................................................. $1.50
Net tangible book value per share of common stock before the
offering.................................................. $ .03
Increase in adjusted net tangible book value per share of
common stock attributable to new investors................ .19
-----
Adjusted net tangible book value per share of common stock
after the offering........................................ .22
-----
Dilution of adjusted net tangible book value per share of
common stock to new investors............................. $1.28
=====
</TABLE>
If the over-allotment option is exercised in full, the adjusted net
tangible book value per share of common stock after the offering would have been
$.25, resulting in dilution to new investors of $1.25 per share of common stock.
15
<PAGE> 18
PRIVATE FINANCING
In March 1999, we completed the sale of 12.5 units at a price of $50,000
per unit in a private financing transaction. Each private financing unit
consisted of 100,000 shares of common stock, 100,000 class A redeemable common
stock purchase warrants, and 50,000 class B redeemable common stock purchase
warrants. Each class A redeemable warrant entitles the holder to purchase one
share of common stock at a price of $2.50 per share and each class B redeemable
warrant entitles the holder to purchase one share of common stock at a price of
$4.00 per share. The class A redeemable warrants are exercisable through
December 31, 2002 and the class B redeemable warrants are exercisable through
December 31, 2004. The shares of common stock underlying the private financing
units and the shares of common stock issuable upon exercise of the class A
redeemable warrants and the class B redeemable warrants have been registered for
public sale and are being sold by selling shareholders under another prospectus.
Charles and Linda Brewer purchased one half unit which they paid for with a
promissory note. The note, together with interest at the annual rate of 7.75%,
is due on March 5, 2000. On September 26, 1999, Mr. and Mrs. Brewer prepaid
$15,000 of the principal.
Barry W. Blank purchased two units in the private financing and his mother
purchased one half unit. Mr. Blank is employed by Dirks as a registered
representative. He participated in the sale of the private financing units and
will participate in the sale of the units in this offering.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth, as of June 30, 1999, the capitalization of
LearnSat.Com
- on an actual basis; and
- on an as adjusted basis to reflect receipt of the estimated net proceeds
from sale of units in this offering at an initial offering price of $3.00
per unit, excluding the over-allotment option, after deducting
underwriter's discounts and commissions and our offering expenses. See
also "Use of Proceeds."
Shares of common stock does not include: (i) 1,500,000 shares of common
stock reserved for issuance under our stock option plan, of which 585,000 shares
will be subject to outstanding options upon completion of this offering; (ii)
underwriter's warrants to purchase up to 667,000 shares of common stock; and
(iii) 2,062,500 shares of common stock issuable upon exercise of outstanding
warrants owned by purchasers in the private financing. See "Private Financing"
and "Management -- Stock Option Plan." You should read this table in conjunction
with our financial statements and related notes included elsewhere in the
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Short term borrowings and current portion of long-term
debt...................................................... $414,398 $ 414,398
======== ==========
Long-term debt.............................................. $155,418 $ 155,418
-------- ----------
Shareholders' equity:
Preferred stock, $0.001 par value; 20,000,000 shares
authorized; no shares issued and outstanding, actual and
as adjusted............................................... -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 13,690,677 shares issued and outstanding,
actual; 16,358,677 shares issued and outstanding, as
adjusted.................................................. 13,691 16,359
Additional paid-in-capital.................................. 503,743 3,593,848
Retained earnings........................................... 11,267 11,267
Less stock subscription receivable.......................... (25,621) (25,621)
-------- ----------
Total shareholders' equity........................ 503,080 3,595,853
-------- ----------
Total capitalization.............................. $658,498 $3,751,271
======== ==========
</TABLE>
17
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the related notes of LearnSat.Com and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in the prospectus. The selected financial data presented
below under the caption "Statement of Operations Data" for the years ended
December 31, 1997 and 1998 are derived from our financial statements which have
been audited by Goldstein Golub Kessler LLP, independent certified public
accountants. The balance sheet as of December 31, 1998 and the statement of
operations for the years ended December 31, 1997 and 1998 and the related report
are included elsewhere in this prospectus. The selected financial data presented
below under the caption "Pro Forma Statement of Operations Data" are unaudited
and are derived from the financial statements of LearnSat.Com included elsewhere
in this prospectus. The selected financial data presented below as of June 30,
1999 and for the six months ended June 30, 1998 and 1999 are derived from the
unaudited financial statements appearing in this prospectus. In the opinion of
management, the unaudited financial statements for the interim periods include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the results for such periods. The results of operations for
the six months ended June 30, 1999 are not necessarily indicative of the results
expected for the full year. No cash dividends, other than S Corporation
distributions, were paid for any years presented.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------------
1997 1998 1998 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................. $2,576,230 $2,144,169 $1,072,451 $ 896,820
Cost of sales............................. 2,076,336 1,914,482 922,870 830,767
---------- ---------- ---------- ---------
Gross profit.............................. 499,894 229,687 149,581 66,053
Selling, general and administrative
expenses................................ (282,721) (409,970) (237,806) (252,218)
Net gain on settlement of litigation...... 215,691
---------- ---------- ---------- ---------
Operating income (loss)................... 217,173 (180,283) (88,225) 29,526
Other expenses -- net..................... (42,000) (58,611) (26,954) (15,359)
---------- ---------- ---------- ---------
Income (loss) before provision for
income taxes............................ 175,173 (238,894) (115,179) 14,167
Provision for income taxes................ 2,900
---------- ---------- ---------- ---------
Net Income (loss)......................... $ 175,173 $ (238,894) $ (115,179) $ 11,267
========== ========== ========== =========
</TABLE>
The following table provides pro forma income statement data as if
LearnSat.Com had entered into employment agreements with two of its officers as
of the first day of each period and as if LearnSat.Com was being taxed as a C
Corporation during each of these periods.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS
DATA:
Income (loss) before pro forma
adjustment for employment agreements
and pro forma provision (credit) for
income taxes........................ $ 175,173 $ (238,894) $ (115,179) $ 11,267
Pro forma adjustment for employment
agreements.......................... (55,000) (55,000) (27,500)
----------- ----------- ----------- -----------
Pro forma income (loss) before
provision (credit) for income
taxes............................... 120,173 (293,894) (142,679) 11,267
----------- ----------- ----------- -----------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pro forma provision (credit) for
income taxes:
Federal.......................... 27,300 (27,300) (13,650)
State............................ 7,200 ( 7,200) (3,600)
----------- ----------- ----------- -----------
34,500 (34,500) (17,250)
----------- ----------- ----------- -----------
Pro forma net income (loss)........... $ 85,673 $ (259,394) $ (125,429) $ 11,267
=========== =========== =========== ===========
Basic pro forma net income (loss) per
common share........................ $ 0.01 $ (0.02) $ (0.01) $ 0.00
=========== =========== =========== ===========
Weighed average number of common
shares outstanding -- basic......... 12,440,677 12,440,677 12,440,677 13,248,688
=========== =========== =========== ===========
Diluted pro forma net income (loss)
per common share.................... $ 0.01 $ (0.02) $ (0.01) $ 0.00
=========== =========== =========== ===========
Weighted average number of common
shares outstanding -- diluted....... 12,474,011 12,440,677 12,440,677 13,260,474
=========== =========== =========== ===========
</TABLE>
The following table provides a summary of our balance sheet at June 30,
1999:
- on an actual basis; and
- on an adjusted basis to reflect the sale of 1,334,000 units in this
offering, using an initial offering price of $3.00 per unit and the
receipt of the estimated net proceeds.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 277,968 $3,451,241
Total assets................................................ 1,530,211 4,597,984
Short-term debt............................................. 414,398 414,398
Long-term debt.............................................. 155,418 155,418
Shareholders' equity........................................ 503,080 3,595,853
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, we explain the financial condition and results of
operations of LearnSat.Com for the fiscal years ended December 31, 1998 and 1997
and the six-month periods ended June 30, 1999 and 1998. We also discuss the
anticipated capital requirements for our planned new business
segment -- providing high-speed two-way satellite communications services. As
you read this section, you may find it helpful to refer to our financial
statements and the notes to those statements at the end of this prospectus.
RESULTS OF OPERATION
In this section, we discuss our earnings for the periods indicated and the
factors affecting them that resulted in changes from one period to the other.
Comparison of Six Months ended June 30, 1999 to Six Months ended June 30, 1998
Net Sales
Net sales consists of sales of products and services net of any discounts
and allowances. Net sales decreased to $896,820 for the six months ended June
30, 1999 from $1,072,451 for the six months ended June 30, 1998. We believe that
this decrease of $175,631, or 16.4%, was primarily due to a decrease in decoder
sales.
Cost of Sales
Cost of sales consists primarily of equipment and materials purchased for
resale. Cost of sales decreased by $92,103, or 10.0%, to $830,767 for the six
months ended June 30, 1999 from $922,870 for the six months ended June 30, 1998.
However, as a percentage of net sales, cost of sales increased to 92.6% for the
six months ended June 30, 1999 from 86.1% for the six months ended June 30,
1998. We believe the increase in cost of sales as a percentage of net sales was
due primarily to an increase in subcontractor expenses incurred by us to rectify
an unexpected malfunction of equipment installed in a 1998 project on a fixed
fee basis.
As a result, gross profit decreased by $83,528, or 55.8%, to $66,053 for
the six months ended June 30, 1999 from $149,581 for the six months ended June
30, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of such items as
salaries, professional fees, depreciation and amortization, travel and
insurance. Selling, general and administrative expenses increased by
approximately 6.1% to $252,218 for the six months ended June 30, 1999 from
$237,806 for the first six months ended June 30, 1998.
Selling expenses decreased to $5,817 for the first six months of 1999 from
$20,527 for the first six months of 1998. This decrease of $14,710, or 71.2%,
reflects the fact that during the six months ended June 30, 1998 we premarketed
ED-WEB(TM) to potential customers.
General and administrative expenses increased by 29,122% to $246,401 for
the first six months of 1999 from $217,279 for the first six months of 1998.
This approximately 13.4% increase primarily represents salaries paid during the
six months ended June 30, 1999 that were not paid during the six months ended
June 30, 1998 because of our S corporation status.
Net Gain on Settlement on Litigation
In September 1999, we settled a lawsuit between us and two suppliers. The
net effect of this settlement to us was a one time gain of $215,691 recorded in
the quarter ended June 30, 1999. For more detailed information on the
computation of this gain, see footnote 6 to our audited financial statements at
the end of this prospectus.
20
<PAGE> 23
Operating Loss
As a result of the factors discussed above, our operating income increased
$117,751, or 133.5%, to $29,526 for the first six months of 1999 from an
operating loss of $88,225 for the first six months of 1998. However, excluding
the one time gain of $215,691 related to the settlement of litigation, our
operating loss increased $97,940, or 111.0%, to $186,165 for the six months
ended June 30, 1999 compared to the six months ended June 30, 1998.
Interest Expense
Interest expense, excluding interest income of $4,311, increased 11.8%, to
$30,130 for the first six months of 1999 from $26,954 for the first six months
of 1998. This increase primarily was due to the fact that we had larger turnkey
projects during the six months ended June 30, 1999 which required us to fund
inventory for longer periods.
Comparison of Fiscal Year ended December 31, 1998 to Fiscal Year ended
December 31, 1997
Net Sales
Net sales decreased to $2,144,169 for fiscal 1998 from $2,576,230 for
fiscal 1997. We believe that the primary reason for this decrease of $432,061,
or 16.8%, was a delay in the delivery of two encoders by the manufacturer until
after December 31, 1998. Had these encoders been timely delivered, net sales for
fiscal 1998 would have increased by approximately $225,000, which represents
approximately 52% of the decrease in net sales from fiscal 1997 to fiscal 1998.
We believe that another significant factor in the decrease in net sales was a
reduction in orders for decoders during the last quarter of fiscal 1998. We do
not believe that this decrease is a long-term trend, although we can give no
assurance to this effect.
Cost of Sales
Cost of sales decreased by $161,854, or 7.8%, to $1,914,482 for fiscal 1998
from $2,076,336 for fiscal 1997. However, as a percentage of net sales, cost of
sales increased to approximately 89.3% for fiscal 1998 from approximately 80.6%
for fiscal 1997. We believe the increase in cost of sales as a percentage of net
sales primarily was due to a tightening of the labor market for skilled
satellite installers which required us to rely on subcontractors rather than
employees for satellite installations.
As a result, gross profit decreased by $270,207, or 54.1%, to $229,687 for
fiscal 1998 from $499,894 for fiscal 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $127,249, or 45.0%,
to $409,970 for fiscal 1998 from $282,721 for fiscal 1997.
Selling expenses decreased $3,795, or 17.3%, to $18,091 for fiscal 1998
from $21,886 for fiscal 1997.
General and administrative expenses increased to $391,879 for fiscal 1998
from $260,835 for fiscal 1997. We believe that this increase of $131,044, or
50.2%, resulted primarily from our commencement of activities related to our
proposed new business segment. We began to explore the feasibility of entering
the Internet communications services business in December 1997.
Operating Income (Loss)
As a result of the factors discussed above, our operating income decreased
by $397,456, or 183.0%, to a $(180,283) loss for fiscal 1998 from income of
$217,173 for fiscal 1997.
Interest Expense
Interest expense increased to $58,611 for fiscal 1998 from $42,000 for
fiscal 1997. We believe that this increase of $16,611, or 39.6%, resulted
primarily from increased carrying costs related to inventory that was
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already in the field but was not installed, due to delays mainly related to
obtaining satellite installers. We generally do not bill a client until
installation is completed or certain major milestones have been met. As a
result, we were required to finance the cost of this equipment for a longer than
usual period of time. In this regard, see the discussion of our credit line
below in "Liquidity and Capital Resources."
Through December 31, 1998, we elected to be treated as an S corporation.
This means that we were able to pass through the income or loss of LearnSat.Com
directly to our shareholders. We were required to terminate S corporation status
prior to the commencement of our private offering in January 1999. The private
offering is discussed below in "Liquidity and Capital Resources" and in the
"Private Financing" section of this prospectus. As a result, all future income
taxes will be LearnSat.Com's responsibility. As reflected in the Statement of
Operations and Note 11 of our financial statements, if we had terminated S
corporation status prior to January 1, 1997, our net income after taxes in
fiscal 1997 would have been $85,673, rather than $175,173 and our net loss after
taxes in fiscal 1998 would have been $259,394, rather than $238,894. This pro
forma data assumes that, in lieu of the S corporation distributions these
shareholders took, we had paid salaries to our shareholder-officers during these
two fiscal years in amounts equal to their first year's salary, as set forth in
their employment agreements.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had working capital of $277,968 compared to working
capital of $263,656 at December 31, 1998. This increase in working capital
resulted primarily from our receipt of net proceeds from the sale of units
consisting of stock and warrants in a private financing transaction completed in
March 1999 primarily offset by a shift of a significant amount of long-term debt
to short-term debt, the purchase of equipment and building construction.
Net Cash Flow From Operating Activities
We had a negative cash flow from operating activities for the first six
months of fiscal 1999 in the amount of $140,964 compared to a positive cash flow
from operating activities for the first six months of fiscal 1998 of $90,757.
Cash flow for the first six months of fiscal 1999 was negative primarily due to
a significant loss from operations, excluding the non-cash gain from the
settlement of litigation, and a significant decrease in accounts payable and
accrued expenses offset by a significant decrease in accounts receivable. Cash
flow from operations was positive for the first six months of fiscal 1998
primarily due to decreases in accounts receivable of $283,117 and costs in
excess of billings on uncompleted contracts of $244,834, offset by a decrease of
$313,309 in accounts payable and accrued expenses. The significant decrease in
accounts receivable during the first six months of fiscal 1998 was due to our
receipt of payment for decoders shipped in December 1997.
We had a positive cash flow from operating activities for the 1998 fiscal
year in the amount of $54,019 compared to a negative cash flow from operating
activities for the 1997 fiscal year of $9,616. Cash flow for fiscal 1998 was
positive primarily due to a significant decrease in accounts receivable, offset
primarily by a decrease in accounts payable and accrued expenses and a net loss
from operations. Accounts receivable decreased by $389,252 during fiscal 1998
compared to an increase in accounts receivable of $514,215 during fiscal 1997.
Similarly, accounts payable decreased by $253,894 during fiscal 1998 compared to
an increase in accounts payable of $146,175 during fiscal 1997. We believe that
the increase in accounts payable and the decrease in the accounts receivable are
both due to timing issues related to shipment and payment; we made a $508,560
shipment of decoders in December 1997, but we did not receive payment until
February 1998.
Net Cash Used in Investing Activities
Our investing activities during the first six months of fiscal 1999
primarily related to the construction of our expanded corporate office building.
Cash flows used in investing activities increased to $63,501 during the first
six months of fiscal 1999 from $45,320 during the first six months of fiscal
1998. This increase of $18,181 or approximately 40.1% primarily was primarily
due to building construction, offset by a non-recurring event -- a minor
insurance recovery related to one of our vehicles -- during the first six months
of fiscal 1999.
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During the 1998 fiscal year, our investing activities consisted primarily
of remodeling our facilities and purchasing a company vehicle. Cash flows used
in investing activities decreased to $64,858 during fiscal 1998 from $173,305
during fiscal 1997. This decrease of $108,447 or approximately 62.6% primarily
was due to the fact that we purchased land and a mobile up-link in fiscal 1997
and did not make comparable purchases during fiscal 1998.
Net Cash Provided by or Used in Financing Activities
We received net cash from financing activities of $309,580 during the first
six months of fiscal 1999. We used $31,001 in financing activities during the
first six months of fiscal 1998. This significant increase in net cash provided
by financing activities was due primarily to the receipt of approximately
$503,750 of net cash proceeds from our private financing transaction, referred
to below.
Net cash received from financing activities decreased to $56,384 during
fiscal 1998 from $164,189 for fiscal 1997. This decrease of $107,805 or
approximately 65.7% primarily resulted from a decrease in the net amount of
proceeds from short-term borrowings and long-term debt, less payments of
short-term borrowings and long-term debt to $154,252 for fiscal 1998 from
$246,513 for fiscal 1997. A $15,544 or approximately 18.9% increase in S
corporation distributions to shareholders also contributed to the decrease in
net cash from financing activities. As discussed above in "Results of
Operation -- Comparison of Fiscal Year ended December 31, 1998 to Fiscal Year
ended December 31, 1997; Interest Expense," we terminated our S corporation
status in December 1998.
In April 1999, we refinanced our existing line of credit with a line of
credit from BancFirst that permits us to borrow up to $450,000. As of October 1,
1999, our outstanding principal balance under the credit line was approximately
$443,593. Outstanding principal under this credit line bears interest at an
annual rate equal to the Chase New York Prime Rate plus 1%. Interest is payable
monthly and all principal and accrued unpaid interest is due on April 8, 2000.
Funds due under this credit line are secured by substantially all of our assets,
including accounts receivable and inventory, and part of the credit line is
secured by the personal guarantees of Linda and Charles Brewer. We will use a
portion of the proceeds from this offering to repay a part of this credit line.
If we default on the credit line or any other debt that we owe to the bank,
the bank can:
- declare the outstanding balance plus all accrued interest immediately
due;
- increase the annual interest rate to the lesser of 21% or the maximum
permitted under Oklahoma law; and
- seize and sell the collateral.
Events of default include:
- our failure to make a payment when due;
- our breach of a promise or our misrepresentation to the bank;
- our failure to perform any other covenants or obligations under the
credit line;
- our default under any other agreement that materially affects our
property or our ability to repay the credit line;
- our becoming insolvent or entering into bankruptcy, insolvency or some
other similar transaction;
- if any creditor of ours attempts to take any of our assets that are
pledged as security under the credit line;
- defective collateralization;
- if either Linda or Charles Brewer, the guarantors of the credit line,
dies or is the subject of any of the other events of default discussed in
this paragraph; or
- if we experience a materially adverse change in our financial condition
or the bank, in good faith, no longer deems itself secured.
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We are required to provide the bank with periodic financial information and
we cannot incur any additional debt without the bank's permission, except for
trade debt incurred in the ordinary course of our business. The amount of any
future advance under the credit line that we may request is limited to 80% of
our eligible finished contract receivables plus 50% of inventory; however, no
advances will be made on work in process.
In April 1999, we refinanced other loans with two term notes from
BancFirst, one for $79,663 and the other for $52,625. As of October 1, 1999, our
outstanding principal balance under the $79,663 note was approximately $72,822
and under the $52,625 note was approximately $46,254. These notes bear interest
at an annual rate equal to the Chase New York Prime Rate plus 1%. Principal and
interest are payable in monthly installments. The final payment under the
$79,663 note is due on April 15, 2003 and the final payment under the $52,625
note is due on April 15, 2002. Funds due under these notes are secured by all of
our equipment, vehicles, furniture, and fixtures. The other material terms of
these notes are similar to those in our credit line with BancFirst discussed
above.
In March 1999, we raised gross proceeds of $625,000 from the sale of units
consisting of stock and warrants in a private financing transaction. $25,000 of
this amount is represented by a note receivable from Mr. and Mrs. Brewer.
FUNDING FOR OUR PLANNED OPERATIONS AS A BROAD BAND INTERNET SERVICE PROVIDER
We believe that we will require approximately $2.4 million to complete the
development of our new ED-WEB system and to begin generating revenues from
sales. We anticipate that we may need an additional $200,000 to $1.2 million to
expand the high-speed two-way satellite communications services system during
the first year and an additional $3.5 million to $31 million to support an
expanded system by the end of our fifth year of operating this new business
segment. The large variation in potential expenditures will depend on how many
remote sites are established, where the sites are located, and the amount of
equipment required at each site.
Each remote site will use some standard ED-WEB(TM) site satellite equipment
but some sites may also require connectivity equipment if an existing
communications infrastructure is not available. Additional equipment could
consist of some or all of the following:
- a dial in 56 KBPS hub;
- data subscriber line equipment; and
- local wireless two-way equipment.
If the site requires all three types of connectivity equipment, our cost could
increase by as much as $100,000 per site. However, to the extent that we lease
rather than purchase the equipment, the amount of funds that we will require
could decrease by up to 75%.
We expect, but we cannot assure, that the net proceeds from this offering
will be sufficient to complete development and begin generating revenues. Our
actual future liquidity and capital requirements will depend on numerous factors
discussed under the sections entitled "Risk Factors" and "Business." We will
need additional funding to continue our expansion plans. In addition, we do not
anticipate that revenues from operations will be sufficient to generate positive
cash flow from then existing operations for at least 18 to 24 months. We hope to
obtain this additional financing from the exercise of warrants, future equity
and/or debt offerings and, possibly, bank or other traditional forms of funding.
We cannot assure you that this funding will be available when required on terms
acceptable to us, or at all. In the event that we are unable to obtain needed
future financing, we may be forced to limit or curtail our expansion plans and
focus on maximizing revenues and reducing costs related to then ongoing
operations.
YEAR 2000 ISSUES
Many currently installed computer systems and software products use two
digits rather than four to define the applicable year, which means that
date-sensitive software may recognize a date using "00" as the year
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1900 rather than the year 2000. Our failure to address potential year 2000
malfunctions in our computer and non-information technology equipment and
systems and those of our business partners could result in our suffering
business interruptions, financial loss, harm to our reputation and legal
liability.
The proprietary software to be used in our ED-WEB(TM) system is being
developed with four digit year recognition. We do not anticipate year 2000
problems with this software although we can give no assurance to this effect.
The hardware in our system will be standard, off-the-shelf personal computers.
Year 2000 compliance of equipment and software provided by third-party vendors
is not within our control. We plan to obtain assurances from our vendors that
any hardware and software that we use to construct the ED-WEB(TM) system will be
year 2000 compliant. However, in the event that this hardware or software is not
year 2000 compliant, our ED-WEB(TM) system may not operate properly. If a year
2000 problem should develop, we may have to overhaul our hardware and software
and, possibly, suspend providing satellite communications services which would
materially reduce revenues generated by our satellite communications services
operations.
Literature on the equipment that we currently sell and install indicates
that this equipment is year 2000 compliant. We are in the process of making oral
and written inquiries to manufacturers of this equipment to obtain certification
of their year 2000 compliance. We have only received a small percentage of
responses to our inquiries thus far. As a result, we have not received year 2000
compliance assurances from many of these parties nor do we expect to. We
anticipate that some entities with whom we have or will have third-party
relationships may not respond to our request for year 2000 assurances because
they have not completed their year 2000 compliance efforts or they may lack
sufficient incentive to respond to our inquiries. We do not plan to
independently verify any of the assurances we receive. In addition, these
parties are reliant upon other companies' applications, some of which may
contain or rely upon software that is not year 2000 compliant and that may not
be revealed through our inquiries. To the extent that year 2000 issues do arise
with regard to this equipment, purchasers will be required to look to the
manufacturer rather than to us for resolution of the problem. There are a number
of back-up suppliers of equipment for most of the equipment that we sell.
However, there are no back-up suppliers of encoders or decoders should there be
year 2000 problems with these devices.
Should we identify any problem with respect to our year 2000 readiness, we
will seek to develop a remedy, test the proposed remedy and prepare a
contingency plan, if necessary. We intend to develop contingency plans to
resolve our most reasonably likely worst case year 2000 problems, which have not
yet been identified. If any of our third-party suppliers are not year 2000
compliant, we will attempt to replace them with a year 2000 compliant supplier.
We intend to complete our determination of the worst case scenarios after we
have received and analyzed responses to our inquiries of third parties. We
expect to complete our contingency plan by the end of October 1999.
We do not have any material contracts with external contractors to assist
us in completing our year 2000 compliance effort. In addition, no employees have
been hired or reassigned to complete our year 2000 compliance.
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BUSINESS
GENERAL
We have marketed and installed satellite communications equipment since our
inception in 1991. We have provided satellite-delivered services that supply
video and audio links between teachers and remote classrooms. We have offered
these satellite communication services by providing our customers with the
products, installation, training and warranties relating to these services. We
have also been a reseller of many telecommunications products.
Based on our experience in the telecommunications market, we plan to expand
into the market for satellite broad band Internet access services. Broad band
Internet service is Internet data operating or transmitting at 256 KBPS or
Kilobits per second and above, which is a data transmitting rate expressed in
thousands of bits per second. Broad band technology allows for the transmission
of video, audio, data and other services over the Internet at 256 KBPS and
above.
We will offer Internet access services via satellite from our own Internet
service provider or from other Internet service providers. In September 1999, we
acquired a local Internet service provider with the domain name of "Cowboy.Net."
Cowboy.Net has been in operation since 1995. Cowboy.Net provides local
connection to the Internet with multiple dial-in hubs and a complete
uninterruptible power source back up in the event of a power loss. We will also
offer Intranet service as a provider of virtual private networks, where the
Internet is not fast enough or the quality of service is unacceptable. A virtual
private network is a data communications network that by-passes public networks
such as the Internet.
We plan to utilize our existing FCC-licensed satellite transmitting
facility to offer high-speed Internet satellite services through a new delivery
system that we are developing called ED-WEB(TM). These satellite Internet
services will be offered using existing hardware and software platforms. We will
augment these platforms with software that we are developing and for which we
have filed a patent. We initially intend to establish high-speed Internet access
services, and then offer ED-WEB(TM) as a licensed product.
We believe the rural and global marketplace presents a business opportunity
because most service providers consider it too costly to provide rural areas
with the infrastructure for telecommunications services that will support the
services we intend to provide through the ED-WEB(TM) system. We have identified
rural and global communities under served by other telecommunication providers
for our planned new services. Schools, libraries, hospitals, businesses and
government agencies in these areas generally lack high-speed Internet access.
We believe that ED-WEB(TM) will provide potential customers in these
communities with improved communication services that support new applications
in:
- distance learning -- the use of electronic media to connect teachers and
remote classrooms;
- desktop and group videoconferencing;
- telemedicine -- the use of electronic media to connect medical
practitioners and patients;
- Internet access;
- surveillance -- the use of electronic media to enable monitoring of
remote sites;
- process control -- the use of electronic media to allow control of remote
sites; and
- virtual private networks.
Distance Learning applications include:
- teacher training;
- literacy training;
- citizenship programs;
- job skills training; and
- curriculum development.
Telemedicine applications include:
- diagnostic analysis;
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- tumor treatment;
- patient monitoring;
- patient care;
- clinical treatment for prisoners; and
- clinical treatment for patients in remote locations.
Telemedicine applications will provide direct and immediate contact between
doctors. They will not provide contact between a doctor and a patient unless a
doctor, or other medical professional, is present with the patient. In all
cases, these applications will comply with applicable medical regulation
requirements.
Internet access applications include:
- web hosting -- storage and retrieval services for customer web sites;
- local wireless transmissions;
- multimedia portals -- the ability to provide a group of video, data and
voice application services to markets such as medical practitioners;
- corporate and multi-family access -- the ability to send more than one
signal to a building and then to distribute these signals throughout the
building; and
- global connections for undersea cable providers.
Virtual Private Networks access applications include:
- corporate infrastructure for secure multimedia -- the ability to scramble
satellite signals to prevent unauthorized access;
- private training networks;
- resort and cruise ship multimedia; and
- online test and repairs of specialized equipment.
We also hope to attract businesses, including corporate extension offices
and manufacturing facilities, and government agencies such as correctional
facilities to use our high-speed Internet services. These sites are often
excluded from high-speed Transmission Control Protocol/Internet Protocol,
TCP/IP, based communications systems. TCP/IP is the protocol, or standard, used
to transmit data, video and voice over the Internet.
We cannot assure, however, that the ED-WEB(TM) system and related products
and services will be accepted by the marketplace at a level which will make our
new business profitable because we have not begun to offer these products and
services and have no direct experience on which to base an estimate of
acceptance. We also cannot assure that if the ED-WEB(TM) system is accepted in
the marketplace, others will not enter the market and significantly restrict our
ability to compete.
CURRENT PRODUCTS AND SERVICES
Products
We provide hardware as well as installation and maintenance services for
universities, colleges, and K-12 schools for distance learning courses taught
via satellite. Traditionally, we have focused our efforts on providing sales,
network installation services and products that transmit and receive data
primarily by satellite.
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The general categories in which we currently sell products and services include:
- DIGITALLY ENCODED SATELLITE UP-LINK EARTH STATIONS. These are facilities
located at colleges and universities employed to transmit courses to
satellites using the new compressed digital technology based on ISO
standards. These standards permit equipment manufactured by different
vendors to operate together. ISO, the International Standards
Organization, is a multi-national group that set standards for data
acquisition and transmission.
- DECODER-EQUIPPED SATELLITE DOWN-LINK EARTH STATIONS. These are
television receive-only satellite systems that can decode digitally
transmitted signals.
- STAND-ALONE SATELLITE DECODERS. These are decoders manufactured by
General Instruments. Approximately ten states as well as the Public
Broadcasting System and its affiliates transmit signals that require each
receiving site to use at least one decoder.
- SATELLITE TRANSMISSION SERVICES. These are one-way, scheduled
transmission services.
- TRANSPORTABLE EARTH STATIONS. These are satellite up-links -- one way
connections from earth stations to satellites -- that can be delivered to
remote sites to provide up-link services for specific courses or
programs.
- VIDEO/AUDIO TELECONFERENCING SYSTEMS. These are distance learning
classrooms that include cameras, microphones and other aids to teach
courses from remote locations.
Some of the specific products we distribute include:
- satellite antennas;
- high power amplifiers and transceivers;
- video upconverters/modulators;
- digital satellite encoders;
- digital satellite decoders and receivers;
- low noise block converters;
- analog satellite receivers;
- satellite test equipment;
- antenna feeds;
- actuators; and
- classroom monitors, cameras, microfilm and control equipment.
We purchase products from various manufacturers, including:
- General Instruments Corporation;
- CPI, Inc. (formerly Varian);
- D.H. Satellite, Inc.;
- Panasonic;
- Andrew Corporation;
- Prodelin Corporation;
- Norsat International, Inc.; and
- Chaparral Communications, Inc.
We are a valued-added reseller, which means we provide services that add
capabilities to the products we market. We have arrangements with our vendors
that define the price at which we purchase items, specific
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terms and conditions, and a description of the products. Some agreements specify
minimum purchase order quantities and, therefore, require that we stock
inventory. For those agreements which do not require minimum quantities, we
purchase products against customer purchase orders. All agreements permit us to
sell individual pieces or integrate the pieces into a system.
We have approximately 20 vendors and written agreements with two of them:
General Instruments and Panasonic. General Instruments accounted for
approximately 41% of our purchases and provided products that generated
approximately 33% of our sales in 1998. It provided products that generated
approximately 60% of our sales for the six months ended June 30, 1999. We have
purchased products from General Instruments since 1996. No other single vendor
has accounted for more than 10% of our purchases. We do not have exclusive
arrangements with our vendors.
Our systems are typically warranted for one year for our workmanship in
building the system. Product warranties are passed through from the
manufacturer. Since inception, the cost of our warranties has approximated less
then 1% of our annual sales.
Sales and Marketing
Most of our sales are through short term arrangements to not-for-profit
organizations, such as schools, universities and Federal and state government
agencies, or to entities that sell to these institutions. We also distribute our
products to about 50 resellers. We have ongoing quantity and fixed price
agreements to sell satellite products to:
- Nebraska ETV; and
- South Carolina ETV.
The following three customers accounted for approximately 61% of our gross sales
for the fiscal year ended December 31, 1998:
- the Florida Department of Education;
- the State of Kentucky; and
- the University of New Mexico.
The work for these customers was performed under contracts which have been
completed.
The following three customers accounted for approximately 62% of our gross
sales for the six months ended June 30, 1999:
- the State of Kentucky;
- Total Video Products; and
- ADEC.
The State of Kentucky accounted for approximately 31% of our gross sales during
this period. The work for these customers was performed under contracts which
have been completed.
Not-for-profit institutions require competitive bidding. Thus,
approximately 90% of what we sell is competitively bid. Some agreements are
multi-year while others are based on dollar volume. In either case, these
institutions are generally restricted to annual or dollar volume budgets.
We sell our products and systems primarily in response to requests for bids
or requests for quotations submitted by our potential customers. We must be a
qualified vendor in order for our bid to be accepted. In order to be a qualified
vendor we must demonstrate that we can competently provide the services we offer
and, in a number of instances, satisfy certain financial requirements. We are
currently a qualified vendor for approximately 100 potential customers.
We market our services by advertising in trade publications such as the
annual Phillips Satellite Access Guide, Via Satellite and Satellite
Communications, monthly trade journals, and The Funding Sources for K-12
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Schools and Adult Basic Education published by the Oryx Press, an annual funding
source book for not-for-profit organizations. We also participate in industry
trade shows.
Competition
The market for satellite services and products is evolving rapidly. We
expect that competition will continue to intensify. Our major competitors
include:
- Convergent Media Systems;
- Dawn Satellite;
- Satellite Engineering Group;
- Miralite Communications; and
- Andrew Corporation.
Convergent Media Systems is our primary competitor for product sales. It is
a privately owned company located in Atlanta, Georgia. Dawn Satellite, located
in Lake Orion, Michigan, and Satellite Engineering Group, located in Kansas
City, Missouri, are also privately-owned companies that compete with us for
product sales.
Miralite Communications competes with us for product sales and is our
primary competitor for systems sales. It is a privately-owned company located in
Newport Beach, California. Miralite has a larger sales organization than we have
and builds antennas, which we do not. We believe these factors increase
Miralite's ability to compete against us.
Andrew Corporation, one of our antenna vendors, also competes with us for
systems sales. Andrew is a public corporation with annual sales in excess of
$500 million.
Some of our competitors have longer operating histories, larger customer
bases and significantly greater financial, marketing and other resources than we
have. In addition, some of our competitors may be able to secure merchandise
from vendors on more favorable terms, devote greater marketing resources, and
adopt more aggressive pricing policies.
Our customers generally require us, as a systems builder, to obtain
performance and completion bonds. Our current financial condition limits us to
bonding amounts of no more than approximately $1 million per contract.
Accordingly, we do not bid to build systems that will cost more than $1 million.
We believe, but cannot assure, that the proceeds of this offering will permit us
to compete more effectively in our current business by allowing us to raise the
amount of the bonds we can obtain and, thus, increase the number of products we
offer.
PLANNED OPERATIONS AS A TELECOMMUNICATIONS AND INTERNET SERVICE PROVIDER
We are currently expanding the scope of our services to become an Internet
service provider and telecommunications provider offering high-bandwidth
Internet services, which will allow us to provide broad band Internet access and
compressed digital video delivery. Our new telecommunications system will be
satellite-based and provide high-speed two-way data, voice and video
transmissions. We believe it will be unique in providing high bandwidths at
remote sites for transmitting as well as receiving this Internet data. We plan
to provide these services through a new delivery system we are developing called
ED-WEB(TM).
ED-WEB(TM)
ED-WEB(TM) is a satellite-based Internet telecommunications technology we
are creating to provide high-speed communication services to communities under
served by other telecommunication providers. We have a patent application
pending in the U.S. Patent and Trademark Office directed to aspects of this
technology. We plan to offer ED-WEB(TM) initially as a service, beginning in the
fourth quarter of 1999. Eventually, we plan to offer it as a licensed product.
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ED-WEB(TM) will permit customers with high-speed connection requirements
who are outside the infrastructure of a local telephone company to send and
receive data at speeds of from 9.6 KBPS to full T-1. T-1 is a bundle of digital
phone lines that operate at a combined bit rate of 1.544 MBPS or megabits per
second, which is a data transfer rate expressed in millions of bits of data per
second. ED-WEB(TM) will offer customers the following three transmission
configurations:
- FULLY INTERACTIVE TWO-WAY VIDEOCONFERENCING AND INTERACTIVE INTERNET. A
fully interactive connection allows the customer's data to be sent from the
site as well as received at the site.
- OUTBOUND ONLY, ALSO KNOWN AS DATA CASTING. Basic data casting allows
high-speed transmission of data to one or multiple nodes of a private, wide
area network. An outbound path transmits data from an earth station to a
satellite. It is designed for use in networks that have a pre-existing
return path or have no need of return path channeling.
- RETURN PATH ONLY, ALSO KNOWN AS BACK HAULS. A return path transmits data
from a customer's earth station to a satellite and back to an earth
station for further transmission.
How the ED-WEB(TM) Service Will Work
ED-WEB(TM) will consist initially of a GEO, or geosynchronous earth
orbital, satellite system with a central site and multiple remote customer
sites. A GEO satellite is a satellite traveling in a fixed orbital path that
allows it to synchronize its movements with the earth. The ED-WEB(TM) system
will transmit data to remote sites using currently available commercial
technologies based on the MPEG II standard. Return data transmissions will use
technologies, or logic, developed by us and defined in our patent application.
MPEG, the Motion Picture Experts Group, is an international organization that
sets standards for the quality of compressed digital data that can transmit
video signals.
The first central site will be located at our facility in Stillwater,
Oklahoma. We will initially locate our remote customer sites within the
satellite coverage of the U.S. domestic arc, which covers the lower 48 states
and also includes Mexico, Central America and South America. We are negotiating
for space with resellers of space segments on GEO satellites which cover these
areas.
We plan to begin operating ED-WEB(TM) within a partial GEO transponder and
later expand it to operate within a full GEO transponder. A transponder is the
circuit on a satellite that transmits and receives a signal from earth. We may
add additional GEO transponders if the ED-WEB(TM) network grows. Eventually, we
hope to expand the ED-WEB(TM) network to accommodate multiple satellites with
different GEO coverages. Ultimately, we hope to expand the ED-WEB(TM) system to
include low earth orbital, or LEO, satellites, at which point we envision this
system accommodating customer requirements for both GEO and LEO satellite
transponders. A LEO is a satellite orbiting the earth in a polar arc at an
altitude of 350 to 1,250 miles. To our knowledge, LEO earth station equipment
that fits our high speed access approach is not commercially available.
A remote site will consist of VSAT equipment. A VSAT, or very small
aperture terminal, is approximately 4' to 6' in diameter. The remote site
equipment will consist of a roof-mounted antenna and PC-based electronics to
support a Ku Band GEO satellite transmitting at a 14-14.5 Ghz frequency. Ku is a
frequency used by satellites that operates at 10 to 20 millionths of a second.
Ghz, or Gigahertz, is a frequency expressed in millionths of a second. We will
furnish, install and maintain this equipment. The ED-WEB(TM) system will also
include indoor equipment for remote sites that will connect to the customer's
internal network or our Internet service provider.
The ED-WEB(TM) central site in Stillwater will connect to a telephone
company-supplied high-speed fiber network connected to our Internet service
provider "Cowboy.Net." This connection will also provide other telephone company
services such as ISDN connections. ISDN, or Integrated Services Digital Network,
consists of two 64 KBPS telephone company digital lines. The Stillwater central
site will operate with a fully redundant configuration. That is, the ED-WEB(TM)
system will be capable of automatically switching to an alternate system in the
event of electronic failure. A back-up generator will supply continuous power in
the
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<PAGE> 34
event of power failure. A battery backup will supply continuous electric power
to enable the system to operate through unplanned power disturbances.
We have designed the central site and most of the remote site. We have
acquired some of the hardware for the central site. We have also designed the
software files to operate ED-WEB(TM). We will use the MPEG II DVB, or Digital
Video Broadcast, system for the outbound path which we will purchase from
General Instruments or another provider of proven products. DVB is a
European-adopted operating standard for the MPEG. We plan to write the
proprietary part of the software for the return path and may contract out the
writing of some of the non-proprietary part.
We estimate it will take approximately 9 to 12 months to complete the
development of ED-WEB(TM) and implement this system by installing the first 28
remote sites. During the first year of operations we hope to install about 200
sites. Thereafter, if customer demand warrants and necessary financing is
available, we plan to install from 500 to 700 sites per year. We estimate the
installation of these additional sites will cost between $1,000 and $6,000 per
site, depending on location and differing data transfer rates. We plan
eventually to support a minimum of 3,500 sites. We can give no assurance,
however, that the cost and/or time needed to complete and install the ED-WEB(TM)
system will not exceed our estimates, that customer support and/or financing
will be available to permit us to expand the system, or that it will attract
sufficient customers to make our business viable.
Internet Access for Internet service providers and Videoconferencing with
ED-WEB(TM)
We recently acquired all of the assets and the business of Cowboy
Communications, LLC, an Internet service provider operating under the name of
Cowboy.Net, from Randall Donahoo, our Vice President of Engineering. See
"Management" and "Certain Transactions." Cowboy.Net has approximately 400
customers in the Stillwater, OK area. We believe this acquisition will allow us
to expand the range of communications services we can offer to potential
ED-WEB(TM) customers. We plan to expand Cowboy.Net to other Oklahoma cities and
remote locations in the United States that require Internet connectivity.
In addition to developing Cowboy.Net, we will also offer remote Internet
access capability through ED-WEB(TM) to other Internet service providers. We
also plan to expand this service to other countries.
Videoconferencing via an Internet protocol will be the second service
ED-WEB(TM) will support. An Internet protocol is a protocol or standard that
allows data to be self-directed. We plan to offer three modes of
videoconferencing:
- A customer may select a dedicated, full-time service. This method will
provide the customer a continuous and uninterrupted video conferencing
connection. The system would operate as though connected to the network
by a telephone company supplied ISDN line. Whenever a customer needs a
connection, the circuit would be available.
- A customer may select a scheduled, time-specific connection. Following a
request for a prearranged time for a conference to the ED-WEB(TM) central
site, the central site would make a space segment available to the
customer for a specific period. Several sites can participate in the
video conference.
- A customer may request an "on demand" connection. This method would
assure the customer either a connection within five seconds of request or
an immediate acknowledgment that the system was seeking one for him.
However, the customer would be restricted to available time in 15 minute
increments.
Videoconferences may take place on a point-to-point basis via any of the
three connection options discussed above, or on a point-to-multi-point basis.
Real Time Internet
We plan to offer companies, government agencies and other institutions the
capability to monitor and control activities at remote sites. Using the
ED-WEB(TM) system, these entities can maintain continual contact with remote
sites through uninterrupted data transmissions via the Internet.
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ED-WEB(TM) Marketing
Initially, we intend to market ED-WEB(TM) to the following entities:
- healthcare providers;
- educational institutions;
- the Federal government, Federal contractors and Federal communications
consultants; and
- Internet service providers desiring to offer access to rural and
developing areas.
We have recently begun limited marketing at the National Association of
Broadcasters Telcom East and Telcom West trade shows. Our experience there
indicates that the customers interested in ED-WEB(TM) are in four general
categories:
- medical schools and hospitals in the U.S., Saudi Arabia, India and
Guatemala;
- U.S. government entities such as the Federal Bureau of Investigation, the
Internal Revenue Service, the Army, the Air Force and the Department of
Labor;
- commercial enterprises such as video conferencing suppliers, systems
integrators, service providers, and GEO and LEO satellite providers; and
- suppliers of distance learning educational material.
The potential customers who have the resources to purchase ED-WEB(TM)-type
services are primarily medical institutions and private businesses. The U.S.
government entities and the international governments that expressed interest
cannot proceed without a lengthy procurement process. We cannot assure, however,
that any expressions of interest in the ED-WEB(TM) system will ever result in
sales.
Based on our current estimate of the progress of ED-WEB(TM) development, we
will begin offering ED-WEB(TM) in the year 2000 as a basic service to include
hardware installation and Internet access. We plan to include medical,
educational and media related content and anticipate that educators and teaching
facilities unaffiliated with us will provide programming. Subject to compliance
with any applicable government medical licensing requirements, we will offer the
capability of transmitting specialized medical services to remote locations to
supplement available care. We will also provide public schools with the ability
to transmit courses taught via the Internet. We believe virtual private network
service could be put to such uses as specialized videoconferencing for plant
manufacturers in repairing complex equipment that cannot be moved. We will
emphasize the comprehensive nature of ED-WEB(TM) in our marketing to penetrate
the rural and global marketplace.
Another aspect of our marketing will be to focus on the availability of
government funding under the E-Rate provision of the 1996 Telecommunication Act.
This act allows educational institutions to obtain government reimbursement for
a portion of their telecommunications costs. We should be able to provide the
telecommunications services for which many schools, libraries and hospitals are
currently requesting grant discounts. Telephone companies are currently the
predominant providers of these telecommunications services.
An important feature of our marketing strategy will be to highlight the
benefits of broad band Internet service to our customers. Because science and
technology as well as business opportunities change rapidly, we believe it
essential that thoughts and ideas be exchanged quickly face-to-face. We believe
that ED-WEB(TM) will provide our customers convenient access to continuing
education without large investments and travel time.
We plan to charge a monthly fee for Internet access. Actual fees may vary
depending on our costs. Our pricing structure should allow flexibility for the
individual customer since cost will depend on the system requirement and the
usage time. Schools, hospitals and libraries will gain access to the ED-WEB(TM)
system at lower rates because they may qualify for as much as an 80% discount
under the government funded E-Rate provision. Because we have no experience
selling the ED-WEB(TM) service, we cannot assure you that our proposed rates
will be acceptable to potential customers.
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<PAGE> 36
ED-WEB(TM) Promotion and Sales
We recently began promoting ED-WEB(TM) to educational and medical
institutions by placing a full-page color ad with the Oryx Press. The ad
currently appears on the back cover of the 1998-1999 edition of the National
Funding Source Book, printed every two years.
We plan to contact Internet service providers in or near school districts
that have applied for E-Rate discounts and are least likely to have cable and
fiber optic networks in place. We also intend to continue to exhibit at
technology conferences and trade shows typically attended by potential
customers. The trade shows we plan to attend within the next year include:
- Telcon East;
- Telemedicine 2000;
- Satellite 2000; and
- Internet World East or West.
We are currently identifying additional national and regional conferences
for educators, business people, and the medical profession for future
presentations and exhibits. We also plan to conduct a road show to present
ED-WEB(TM) to select audiences.
Our sales staff will work with local school districts, hospitals,
businesses and government agencies to establish need and technical criteria for
ED-WEB(TM) by completing site-survey forms. Once the system is installed, sales
personnel will assist customers in connecting the site to the network. We plan
to hire additional sales personnel in several regions if and when sales of
ED-WEB(TM) services justify. We intend to use our own employees to install and
service the systems.
COMPETITION IN PROVIDING INTERNET SERVICES
Currently, the dominant telecommunications providers are telephone
companies. AT&T, Sprint and MCI/Worldcom all have major presence points through
which traffic may enter and leave the Internet. In major metropolitan areas,
these companies provide high-speed access using traditional telephone circuits.
These circuits are required to connect multiple computers from a local area
network to the Internet. In rural or global locations, however, these circuits
are often unavailable or too costly for most users.
Cable, computer and other high-technology companies seek to enter the
Internet market as well. They also tend to concentrate on urban areas. These
companies currently depend on telephone lines for some of their connections or
are able to transmit only very limited data streams.
Although there are a large number of firms in this industry, we believe we
can compete because we will be one of a limited number of providers of
high-speed two-way satellite-delivered Internet access to multiple locations in
the rural and global marketplace. We cannot know, however, whether other
companies are currently developing this or similar technology which would
restrict our ability to compete.
Although our target market has generally been ignored by the major
telecommunications companies, some competitors are directing their products to
our potential customer base. We believe the ED-WEB(TM) technology will be
superior to that used by our competitors. These companies, such as Scientific
Atlanta, approach the market with a traditional VSAT system.
Most other technologies, such as that used by Hughes Direct PC, provide
only one-way, satellite-delivered Internet access. We believe these systems do
not adequately serve our selected market because they still require telephone
lines to an Internet service provider to carry traffic from the site to the
Internet. For instance, if a large file needs to be transferred from the
customer's site, the transfer to the Internet will be very slow, clogging the
entire pipeline and making it difficult for other users to gain access. The flow
of information from the site will require greater bandwidth for highly
interactive distance learning uses.
Intellicom offers two-way satellite-delivered Internet access that could be
marketed to our planned customer base. However, to our knowledge, the highest
speed to the site is 2 MBPS. We believe we will be
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able to increase ED-WEB(TM) speed up to 50 MBPS to the site. In addition, to our
knowledge Intellicom offers only a limited return path from the site to the
Internet. We anticipate ED-WEB(TM) will deliver bandwidths in increments of one
thousand KBPS up to 50 MBPS.
The following is a non-exclusive list of our potential competitors in three
technology sectors:
<TABLE>
<S> <C>
- - One-way Internet Satellite............. Hughes Direct PC, Intelsat, Orion Network
Systems, NSN Network Services and Satcom
- - Traditional VSAT....................... Intellicom and Scientific Atlanta
- - Hybrid VSAT............................ Shiron Satellite Communications, Limited,
located in Israel, and Tachyon, a
recently-formed company in San Diego,
California.
</TABLE>
Many of these companies are multinational corporations and most of them are
substantially larger than we are, with significantly greater financial and
organizational resources and market recognition and acceptance.
PATENTS, TRADE SECRETS AND TRADEMARKS
We rely on trade secrets and copyright laws to protect our proprietary
technologies, but we cannot assure that these laws will provide us with
sufficient protection, that others will not develop technologies similar or
superior to ours, or that third parties will not copy or otherwise obtain or use
our technologies without our authorization. We have a patent application pending
in the U.S. Patent and Trademark Office for our ED-WEB(TM) technology. The
success of our new business will depend, in part, on our ability to successfully
obtain issuance of a patent directed to our ED-WEB(TM) technology, obtain
related patents, protect and enforce patents once issued and operate without
infringing the proprietary rights of others. Our success also will depend on our
ability to maintain exclusive rights to trade secrets and proprietary technology
we own, are currently developing and will develop. We can give no assurance that
any issued patents will provide us with competitive advantages or will not be
challenged by others, or that the patents of others will not restrict our
ability to conduct business.
We have filed an intent to use trademark application to register the mark
"ED-WEB" in the U.S. Patent and Trademark Office.
Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense. In addition, we
cannot assure that third parties will not bring claims of copyright or trademark
infringement against us or claim that our use of certain technologies violates a
patent. Any claims of infringement with or without merit could be time-consuming
to defend, result in costly litigation, divert management resources, require us
to enter into expensive royalty or licensing arrangements, or prevent us from
using important technologies, methods or trademarks, any of which could
materially increase our cost of operations and/or reduce the services and
products we may provide or the areas in which we do business.
GOVERNMENT LICENSING
We currently hold a license from the Federal Communications Commission
which permits us to operate solely in the domestic satellite arc. The license
covers a single channel transmitter for either analog or digital data. Our
proposed ED-WEB(TM) technology will require us to upgrade our license so that we
may transmit internationally and as a VSAT hub. We plan to operate in Mexico,
Central America and parts of South America in addition to the United States.
This international license is usually granted upon the successful transmission
of a test signal to the receiving site of the international satellite operator.
We do not anticipate any difficulty in obtaining the license and our satellite
equipment should satisfy any standards imposed by an international operator. We
have communicated with the owners of two satellites but will not apply to the
FCC to change our license until we have selected a satellite.
Antennas used for international traffic require certification with an agent
of INTELSAT, an international organization that regulates traffic in satellite
space in the countries where we are trying to add service. INTELSAT sets a
standard for antennas transmitting data internationally.
Licenses are granted for ten-year periods. Our current domestic license
expires in January 2006. We pay a nominal annual license which likely will
increase in the future. Each VSAT site which we establish in the
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U.S. will require an annual operating fee of $50. We cannot assure, however,
that other countries will not require confiscatory licensing fees. We intend to
quote fees for international service exclusive of applicable tariff charges.
All our existing and proposed operations are currently unregulated. We can
give no assurance, however, that regulations will not be imposed on our
operations in the future, in which event our cost of business could be
materially increased.
OUR LOCATIONS AND FACILITIES
Our corporate office building, which we recently increased to 2,600 square
feet, is located at 3819 South Perkins Road, Stillwater, Oklahoma 74074 on a
five acre parcel owned by us. This building now has expanded offices and space
for a new satellite operations center. We are also adding a natural gas powered
electrical back-up system for the operations center.
We also lease a warehouse and systems integration facility, where we
assemble our systems, in Stillwater, Oklahoma and an approximately 1,200 square
foot systems integration facility in Eustis, Florida, each from Charles and
Linda Brewer, two of our executive officers and directors, and our principal
shareholders.
Our Stillwater warehouse and integration facility, approximately one mile
from our corporate office, is approximately 4,000 square feet, of which
approximately 1,500 square feet are used for systems integration and 1,500
square feet for shop space. The remaining 1,000 square feet are used as a
storage area. The buildings are located on a 1.5 acre tract. The remainder of
the property is used for outside storage and parking. This property also houses
our satellite up-link facility which we will move to our satellite operations
center when it has been completed.
We lease the Eustis, Florida facility on an annual basis at $750 per month.
The Stillwater facility is leased at $1,000 per month. This lease terminates in
June 2000. We believe that the terms of our leases with Mr. and Mrs. Brewer are
comparable to those we would have obtained for comparable facilities with
parties unaffiliated with us.
We also lease a storage facility in Shelton, Washington from a third party,
consisting of approximately 560 square feet of inside storage space plus about
200 square feet of secured outside storage space. We pay $110 per month for
these facilities pursuant to a month-to-month written lease.
We own 17 motor vehicles in Oklahoma, Florida and Washington.
EMPLOYEES
As of October 1, 1999, we had ten full-time employees, including two in
general management, one in operations, two in administration, two in
engineering, one in system installation and integration and two in sales. We
also have an oral consulting agreement with an accountant who serves as our
controller on a full-time basis. None of our employees is a member of any union
or collective bargaining organization. We consider our relationship with our
employees satisfactory.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of our directors and executive officers are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles Brewer*.............................. 59 President, Chief Executive Officer, Chief
Operating Officer and Director
Linda Brewer+................................ 52 Chairman of the Board, Chief Financial Officer,
Treasurer and Secretary
Francois S. Warchala......................... 55 Vice President of Operations
Randall D. Donahoo........................... 37 Vice President of Engineering
Charles R. Hoover*+(1)....................... 69 Director
Kenneth G. Harple*+.......................... 70 Director
</TABLE>
- ---------------
* Member of audit committee.
+ Member of compensation committee.
(1) Mr. Hoover is a designee of the underwriter. See "Underwriting."
LearnSat.Com was founded in October 1991 by Linda and Charles Brewer who
are husband and wife.
CHARLES BREWER has served as President, Director and a full-time employee
of LearnSat.Com since our inception in 1991. He became our Chief Executive
Officer and Chief Operating Officer on January 1, 1999. Prior to joining
LearnSat.Com, from 1989 to 1991, Mr. Brewer served as Vice President of Sales
for Microdyne, a manufacturer of telemetry and satellite equipment. From 1988 to
1989, he was a sales and marketing consultant to Skycom LLC, a manufacturer of
satellite two-way VSAT systems. From 1986 to 1988, he served as Vice President
and General Manager of Analogic, a manufacturer of analog conversion and digital
instrumentation products. Mr. Brewer currently serves on the board of directors
of the United States Distance Learning Association and the Global Distance
Learning Association. He is also a former Chairman of the United States Distance
Learning Association's Advisory Board and currently serves as Vice President of
Western Technology for the Global Distance Learning Association.
LINDA BREWER has served as Chairman of the Board, Chief Financial Officer,
Secretary and Treasurer of LearnSat.Com since our inception in 1991. She was
Chief Executive Officer and Chief Operating Officer until January 1, 1999 when
Charles Brewer assumed these positions. From January 1991 to June 1994, Ms.
Brewer was also a material manager and later headed quality control for TRM
Transportation, Inc., a bonded warehouse owned by the Whirlpool Corporation and
located in Orlando, Florida.
FRANCOIS S. WARCHALA has served as Vice President of Operations of
LearnSat.Com since March 1, 1999. Prior to joining LearnSat.Com, from April 1998
to February 1999, Mr. Warchala was the owner and manager of Access
Communications, a marketer and servicer of commercial satellite systems. From
September 1996 to March 1998, he was employed as a senior installer of satellite
systems by ACC Satellite -- TV, a marketer of commercial satellite systems. From
June 1976 to September 1996, he was the owner and manager of Warchala Video
Systems, a marketer and servicer of commercial satellite systems and a video
productions company.
RANDALL D. DONAHOO became Vice President of Engineering of LearnSat.Com on
August 12, 1999. Since April 1987, Mr. Donahoo has been employed by Oklahoma
State University as a research engineer and instructor in electrical
engineering. In January 1998, he acquired Cowboy Communications, LLC, an
Internet service provider providing Internet access service in Stillwater,
Oklahoma. Since September 1987, he has been an executive officer of
Comprehensive Technology Group, Inc., a company that sells and installs computer
systems.
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CHARLES R. HOOVER has served as a Director of LearnSat.Com since April
1999. Mr. Hoover has been a partner with the law firm of Piccoli, Lester &
Hoover, LLP since August 1997. Prior to joining that firm he was a sole
practitioner for several years. He is also the President, Chief Operating
Officer and a director of Adrien Arpel, Inc., positions he has held since August
1998. Adrien Arpel is a developer, marketer and retail distributor of cosmetic
products. Mr. Hoover is also a director of several private corporations.
KENNETH G. HARPLE has served as a Director of LearnSat.Com since July 1999.
Since October 1995, Mr. Harple has served as the Chairman of the Board of Micro
Networks Corporation, a manufacturer of frequency and data acquisition products
located in Worcester, Massachusetts. Mr. Harple received a Bachelor of Science
in Electrical Engineering from Penn State University.
BOARD COMPOSITION
At each annual meeting of our shareholders, all of our directors will be
elected to serve from the time of election and qualification until the next
annual meeting following election. In addition, our bylaws provide that the
maximum authorized number of directors, which is currently seven, may be changed
by resolution of the shareholders or by resolution of the board of directors.
We have granted to the underwriter the right, for a period of five years
from the closing of this offering, to nominate a designee of the underwriter for
election to our board of directors. The underwriter has exercised its right by
designating Mr. Hoover. If in the future the underwriter elects not to exercise
this right, then the underwriter may designate one person to attend meetings of
our board of directors.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our affairs as is necessary to discharge their duties. There
are no family relationships among any of our directors, officers or key
employees except for Mr. and Mrs. Brewer who are husband and wife.
BOARD COMMITTEES
Messrs. Hoover, Brewer and Harple are members of the audit committee and
Linda Brewer and Messrs. Hoover and Harple are members of the compensation
committee. The audit committee makes recommendations to the board of directors
regarding the independent auditors for us, approves the scope of the annual
audit activities of our independent auditors, reviews audit results and has
general responsibility for all of our auditing related matters. The compensation
committee reviews and recommends to the board of directors the compensation
structure for our officers and other management personnel, including salary
rates, participation in incentive compensation and benefit plans, fringe
benefits, non-cash perquisites and other forms of compensation.
DIRECTORS' COMPENSATION
We intend to pay our directors who are not also our employees $250 for each
meeting attended by them in person and reimburse these directors for travel and
other expenses incurred in connection with attending board of directors and
committee meetings. All of our directors are eligible to receive options to
purchase shares of common stock pursuant to our stock option plan. We anticipate
that our board of directors will hold regularly scheduled meetings quarterly.
EXECUTIVE COMPENSATION
Until December 31, 1998, LearnSat.Com had elected to be treated as an S
Corporation under the provisions of Subchapter S of the Internal Revenue Code.
No salary was paid to the Chief Executive Officer or our President who were also
our only shareholders. In lieu of salary, they received distributions as
shareholders. The following table sets forth the total compensation which would
have been paid to the named Chief Executive Officer and the named President for
the fiscal years ended December 31, 1998, 1997 and 1996
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<PAGE> 41
if we had not elected to be treated as an S Corporation. During 1998, we did not
have any executive officers who earned $100,000 or more in salaries and bonuses.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY
- --------------------------- ---- ------
<S> <C> <C>
Linda Brewer
Chief Financial Officer................................... 1998 $25,000
1997 $25,000
1996 $25,000
Charles Brewer
President, Chief Executive Officer and Chief Operating
Officer................................................... 1998 $30,000
1997 $30,000
1996 $30,000
</TABLE>
Linda Brewer was Chief Executive Officer and Chief Operating Officer of
LearnSat.Com in 1996, 1997 and 1998. Charles Brewer assumed these positions on
January 1, 1999. Charles Brewer was President of LearnSat.Com in 1996, 1997 and
1998. The preceding table does not include rent paid by us to Mr. and Mrs.
Brewer for facilities owned by them. See "Business -- Our Locations and
Facilities" and "Certain Transactions." There were no options granted or
exercised by either Linda or Charles Brewer during 1996, 1997 or 1998.
STOCK OPTION AND INCENTIVE PLAN
We have adopted the LEARNSAT.COM, INC. 1999 LONG TERM INCENTIVE PLAN. The
stock option plan authorizes options to purchase 1.5 million shares of common
stock, subject to adjustment to cover stock splits, stock dividends,
recapitalizations and other capital adjustments for our employees, including our
officers, and directors and consultants. The plan provides that options to be
granted will be designated as incentive stock options or non-qualified stock
options by the board of directors or a compensation committee of the board,
which also will have discretion as to the persons to be granted options, the
number of shares subject to the options and the terms of the options. Options
designated as incentive stock options are intended to receive incentive stock
option tax treatment pursuant to Section 422 of the Internal Revenue Code of
1986, as amended. The plan also provides for the granting of stock appreciation
rights, restricted stock and long term performance awards by the board of
directors or a committee.
The stock option portion of the plan provides that:
- options granted shall be exercisable during a period of no more than ten
years and one month from the date of grant, but not more than ten years
from the date of grant for incentive stock options, and not more than
five years for incentive stock options granted to holders of more than
10% of the combined voting power of LearnSat.Com's securities, depending
upon the specific stock option agreement; and
- the option exercise price for incentive stock options shall be at least
equal to 100% of the fair market value of common stock on the date of
grant and at least 110% for options granted to holders of more than 10%
of the combined voting power of LearnSat.Com's Securities, depending upon
the specific stock option agreement.
Options are not transferable otherwise than by will or the laws of descent
and distribution (except for certain non-qualified stock options which, at the
committee's discretion, may be transferable to a member of the optionee's
immediate family or a family trust) and during the optionee's lifetime are
exercisable only by the optionee. Shares subject to options which expire or
terminate may be used for future options. The plan provides that no new options
may be granted by the board of directors after ten years from the establishment
of the plan.
Under the plan, we have granted options to purchase an aggregate of 585,000
shares of common stock to ten persons. The options granted to Linda Brewer are
exercisable at $1.65 per share. The options granted to the other holders are
exercisable at $1.50 per share. None of the options become exercisable before
April 21,
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2000. The following table sets forth the name, number of options granted and the
option termination date for each optionee.
<TABLE>
<CAPTION>
OPTION
NAME NUMBER OF OPTIONS TERMINATION DATE
- ---- ----------------- ----------------
<S> <C> <C>
Linda Brewer................................................ 100,000 April 20, 2003
Charles Brewer.............................................. 100,000 April 20, 2003
Charles R. Hoover........................................... 100,000 April 20, 2003
Kenneth G. Harple........................................... 100,000 April 20, 2003
Rashmi Mayur................................................ 25,000 Sept 27, 2003
Francois S. Warchala........................................ 30,000 April 20, 2004
Kevin Lampert............................................... 10,000 April 20, 2004
Keshore Kondragunta......................................... 30,000 May 9, 2004
Randall Donahoo............................................. 50,000 July 31, 2004
Dana Fisher................................................. 30,000 Sept 27,2004
Michelle Beesley............................................ 10,000 Sept 27,2004
</TABLE>
One third of the options owned by Ms. Brewer and Messrs. Brewer, Hoover,
Harple and Mayur are exercisable each year. One quarter of the options owned by
Messrs. Warchala, Lampert, Kondragunta, Donahoo, Fisher and Beesley are
exercisable each year.
EMPLOYMENT AGREEMENTS
We have entered into an employment contract with Charles Brewer, which
initially terminates on December 31, 2004. The terms of the agreement are as
follows:
- an annual salary commencing in 1999 of $30,000 which increases in 2000 to
$60,000 and by $10,000 each year thereafter;
- an annual bonus in 1999, and commencing in the year 2000, an annual bonus
based on goals to be determined by the board of directors;
- health insurance;
- life insurance in the amount of $150,000; and
- reimbursement for business expenses paid by Mr. Brewer.
We have entered into an employment contract with Linda Brewer which
initially terminates on December 31, 2004. The terms of the agreement are as
follows:
- an annual salary commencing in 1999 of $25,000 which increases to $40,000
in 2000 and by $10,000 each year thereafter;
- incentive stock options to purchase 100,000 shares of common stock in
1999, which vest over three years, and option grants consistent with
awards made to other senior executive in the future;
- an annual bonus in 1999, and commencing in the year 2000, an annual bonus
based on goals to be determined by the board of directors;
- health insurance;
- life insurance in the amount of $100,000; and
- reimbursement for business expenses paid by Ms. Brewer.
We have the right to terminate either employment agreement for cause in
which event the employee is entitled to receive salary through the date of
termination, any unpaid but earned bonuses, and all benefits then due under
stock option and other employee benefit plans. The agreements continue in effect
on a year-to-year
40
<PAGE> 43
basis beyond the initial termination dates unless one party gives written notice
to the other to terminate at least 90 days prior to the end of the term then in
effect.
Copies of our employment agreements with Mr. and Mrs. Brewer have been
filed as exhibits to our registration statement.
FLORIDA LAW AND ARTICLES OF INCORPORATION AND BY-LAW PROVISIONS
LearnSat.Com is subject to Chapter 607.0901 of the Florida Business
Corporation Act regulating corporate takeovers. This chapter prevents
LearnSat.Com from engaging, under some circumstances, in a business combination,
which includes a merger or sale of more than 5% of our assets, with any
interested shareholder, which is defined as a shareholder who owns 10% or more
of our outstanding voting stock, as well as affiliates and associates of the
interested shareholder, unless:
- the combination is approved by a majority of the board of directors not
affiliated with the interested shareholder;
- the combination is approved by holders of two-thirds of the common stock
not affiliated with the interested shareholder;
- the interested shareholder has been the beneficial owner of at least 80
percent of LearnSat.Com's outstanding voting shares for at least five
years preceding the date business combination is publicly announced;
- the interested shareholder is the beneficial owner of at least 90 percent
of the outstanding voting shares of LearnSat.Com, exclusive of shares
acquired directly from LearnSat.Com in a transaction not approved by a
majority of directors not affiliated with the interested shareholder; or
- the remaining shareholders receive the higher of either the fair market
value of the common stock or the highest per share price paid for shares
of common stock by the interested shareholder during the preceding two
years.
Some of the provisions of our Articles of Incorporation and By-laws could
discourage, delay or prevent an acquisition of LearnSat.Com at a premium price.
Our Articles of Incorporation and By-laws provide that any vacancy on the board
of directors may be filled by a majority of the directors then in office, even
if less than a quorum, or by a plurality of the votes cast at a meeting of
shareholders. Our By-laws provide that special meetings of shareholders may be
called only by our president, the board of directors or by the holders of not
less than one tenth of all of the shares outstanding and entitled to vote.
In addition, our Articles of Incorporation also authorizes the board of
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of LearnSat.Com.
41
<PAGE> 44
CERTAIN TRANSACTIONS
In April 1999, we refinanced our existing line of credit with a line of
credit from BancFirst that permits us to borrow up to $450,000. As of October 1,
1999, our outstanding principal balance under the credit line was $443,593. Mr.
and Mrs. Brewer have guaranteed a portion of this credit line.
We rent warehouse and systems integration facilities in Stillwater,
Oklahoma and Eustis, Florida from Mr. and Mrs. Brewer. The Stillwater facility,
which is approximately 4,000 square feet, is leased at the rate of $1,000 per
month. The Florida facility, which is approximately 1,200 square feet, is leased
at the rate of $750 per month. We believe that the terms of our leases with Mr.
and Mrs. Brewer are comparable to those which we would have obtained for
comparable facilities with parties unaffiliated with us.
On September 22, 1999, we purchased the assets and operations of Cowboy
Communications, LLC, an Internet service provider, for $25,000 and 22,600 shares
of our common stock, from Randall Donahoo, one of our officers. Under the
agreement, we also assumed a contract for telephone communications services with
Southwestern Bell, an Internet connectivity contract with Cable & Wireless, a
lease for hub and router equipment with First Sierra Financial, Inc. and an
equipment lease with a payoff balance of approximately $21,000.
42
<PAGE> 45
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of LearnSat.Com common stock as of September 20,1999 and as
adjusted to reflect this offering, assuming no exercise of the underwriter's
over-allotment option, by:
- each person known by us to be the beneficial owner of more than 5% of our
shares of common stock;
- each of our directors;
- each officer listed in the Summary Compensation Table; and
- all officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the
SEC which include voting or investment power with respect to shares. Unless
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to the number of shares beneficially owned by
them. The number of shares of outstanding common stock used in calculating
percentage ownership for each listed person includes the shares of common stock
underlying options or warrants held by the person and exercisable within 60 days
after September 20, 1999, but excludes shares of common stock underlying options
or warrants held by any other person.
The table includes 75,000 shares for Mr. and Mrs. Brewer, 75,000 shares for
Mr. Hoover, 600,000 shares for Mr. McConnaughy, and 300,000, for Mr. Blank, all
of which are issuable upon the exercise of the warrants as part of the units
purchased by these persons in the private financing. See "Private Financing."
The asterisk represents less than 1% of the outstanding shares. All addresses
for the officers and directors are c/o LearnSat.Com, Inc., 3819 South Perkins
Road, Stillwater, Oklahoma 74074. Mr. and Mrs. Brewer may each be deemed to be a
beneficial owner of the common stock set forth after their names because of
their marital relationship.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF SHARES PERCENTAGE OF SHARES
BENEFICIALLY BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME AND ADDRESS OWNED PRIOR TO OFFERING AFTER OFFERING
- ---------------- ------------ -------------------- --------------------
<S> <C> <C> <C>
Charles Brewer.............................. 1,255,971 9.12 7.64
Linda Brewer................................ 11,434,706 83.07 69.58
Francois S. Warchala........................ 0 0 0
Randall Donahoo............................. 0 0 0
Charles R. Hoover........................... 125,000 * *
Kenneth G. Harple........................... 0 0 0
John E. McConnaughy, Jr. ................... 1,000,000 7.00 5.90
637 Valley Road
New Canaan, Connecticut
06840
Barry W. Blank, Trustee(1).................. 718,750 5.06 4.26
Barry Blank Trust
5353 North 16th Street
Suite 190
Phoenix, Arizona 85016
All six officers and directors as a group... 14,409,427 96.32 81.74
</TABLE>
- ---------------
(1) Includes 218,750 shares issuable on exercise of warrants underlying a
warrant transferred by Dirks to Mr. Blank in connection with the private
financing. See "Private Financing."
Mr. and Mrs. Brewer may be deemed "parents" of LearnSat.Com as that term is
defined under the Securities Act because their positions as executive officers
and the percentage of their ownership of our common stock give them control of
LearnSat.Com.
43
<PAGE> 46
DESCRIPTION OF SECURITIES
The following statements are brief summaries of provisions of our Articles
of Incorporation, By-Laws and other documents. These summaries are qualified in
their entirety by reference to documents filed as exhibits to the registration
statement. Our capital stock is also governed by applicable provisions of
Florida law.
Our authorized stock consists of 50,000,000 shares of common stock, par
value $0.001 per share, and 20,000,000 shares of preferred stock, par value
$0.001 per share. Upon completion of the offering, there will be 16,381,277,
excluding the exercise of the underwriter's over-allotment option, shares of
common stock issued and outstanding, no shares of preferred stock outstanding,
1,250,000 class A redeemable warrants, 625,000 class B redeemable warrants,
2,668,000 class C redeemable warrants and 1,334,000 class D redeemable warrants
issued and outstanding.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the shareholders. There are no cumulative voting
rights. Holders of common stock are entitled to receive ratably dividends, if
any, as may be declared from time to time by the board of directors out of
legally available funds, except that holders of preferred stock issued after the
sale of the common stock in this offering may be entitled to receive dividends
before the holders of the common stock.
In the event of a liquidation, dissolution or winding up of LearnSat.Com,
holders of common stock would be entitles to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted the holders of any then outstanding shares of preferred stock. Holders
of common stock have no preemptive or conversion rights or other subscription
rights. In addition, there are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are, and
the shares of common stock offered by us in this offering, when issued and paid
for, will be fully paid and nonassessable.
The rights, preferences and privileges of the holders of common stock may
be diminished by the rights of the holders of shares of any series of preferred
stock that we designate in the future.
PREFERRED STOCK
The board of directors is authorized, without further action by the
shareholders, to issue up to 20 million shares of preferred stock in series from
time to time with designations, rights, preferences and limitations, including
but not limited to:
- dividend rights;
- conversion features;
- voting rights, which may be greater or lesser than the voting rights of
the common stock;
- rights and terms of redemption;
- liquidation preferences; and
- sinking fund terms.
Accordingly, we may issue preferred stock having voting, dividend and
liquidation preferences over the common stock without the consent of the common
shareholders. In addition, the ability of our board to issue preferred stock
also could be used as a means of resisting a change of control of LearnSat.Com
and, therefore, could be considered an anti-takeover device. We have no current
plans to issue any preferred stock.
WARRANTS
The warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement between LearnSat.Com and American
Stock Transfer & Trust Company as warrant agent.
44
<PAGE> 47
We have authorized the issuance of 3,068,200 Class C redeemable warrants
and 1,534,100 Class D redeemable warrants to purchase an aggregate of 4,602,300
shares of common stock, which includes 600,300 shares issuable upon exercise of
the warrants comprising part of the units issuable pursuant to the underwriter's
over-allotment option and the warrants included in the underwriter's warrants.
We have also reserved an equivalent number shares of common stock for issuance
upon exercise of these warrants.
Each warrant entitles the registered holder to purchase one share of common
stock. The exercise period commences on the date the shares of common stock and
the warrants become separately tradeable and terminates 42 months after the date
of this prospectus for the Class C warrants and 66 months after the date of this
prospectus for the Class D warrants. The Class C redeemable warrant exercise
price is price of $3.00 per share and the Class D redeemable warrant exercise
price is price of $6.50 per share. The warrant exercise prices and the number of
shares issuable upon exercise of the warrants are subject to adjustment as
described below.
Commencing on the date that the shares of common stock and the warrants
become separately tradable, we may redeem your warrants on 30 days notice at
$0.01 per warrant when the closing bid price of the common stock equals or
exceeds 150% of the then warrant exercise price for 30 consecutive trading days
ending three days prior to the mailing of the notice of redemption. You will
have the right to exercise your warrants until the close of business on the date
fixed for redemption. If we redeem any of the warrants, then we must redeem all
of the warrants remaining unexercised at the end of the redemption period.
The warrants contain provisions that protect against dilution by adjustment
of the exercise price and the number of shares issuable upon exercise in some
events. These events include, but are not limited to:
- stock dividends;
- stock splits;
- reclassifications;
- mergers; or
- a sale of substantially all of our assets.
We do not intend to issue fractional shares of common stock, but will round
any fractional share to the nearest whole share. Holders of warrants will not
possess any rights as a shareholder. The shares of common stock, when issued
upon the exercise of the warrants in accordance with their terms, will be
validly issued, fully paid and non-assessable.
The warrants will be exchangeable and transferable on our books at the
principal office of the warrant agent. Holders may exercise their warrants by
surrendering warrant certificates on or prior to the close of business on
, 2003 for the C warrants and , 2005 for the D
warrants, unless earlier redeemed as noted above, at the offices of the warrant
agent. A holder must complete and execute the form of "Election to Purchase" on
the reverse side of the warrant certificate and make payment of the full
exercise price for the number of warrants being exercised. The exercise price
must be paid by cash, or by bank check, certified check or money order payable
to the order of the warrant agent. After warrants are exercised they will become
completely void and of no value. If a market develops for the warrants, 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, if
developed, will be sustained. No amendment adversely affecting warrant holders'
rights may be made without the approval of the holders of a majority of the then
outstanding warrants.
CORPORATE LAW ANTI TAKEOVER PROVISIONS
The Florida Business Corporation Act may subject us to "fair price"
provisions which, subject to some exceptions, require that, in any merger of
LearnSat.Com with a corporation affiliated with a 10% or greater shareholder,
which is defined in the Act as an "Interested Shareholder," shareholders receive
the higher of:
- the highest price paid by the Interested Shareholder for shares of common
stock during the preceding two years; or
45
<PAGE> 48
- the fair market value of the common stock;
unless the merger is approved by:
- a majority of the directors not affiliated with the Interested
Shareholder; or
- holders of two-thirds of the common stock not affiliated with the
Interested Shareholder.
As a result, the "fair price" provisions of the Florida Business Corporation Act
could:
- delay or frustrate the removal of incumbent directors or a change in
control of LearnSat.Com; or
- discourage, impede, or prevent a merger, tender offer or proxy contest,
even if this event would be favorable to the interests of our
shareholders.
Some of the provisions of our Articles of Incorporation and By-laws could
discourage, delay or prevent an acquisition of LearnSat.Com at a premium price.
Our Articles of Incorporation and By-laws provide that any vacancy on the board
of directors may be filled by a majority of the directors then in office, even
if less than a quorum, or by a plurality of the votes cast at a meeting of
shareholders. Our By-laws provide that special meetings of the shareholders may
be called only by our president, the board of directors or by the holders of not
less than one tenth of all of the shares outstanding and entitled to vote.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer agent and registrar for the common stock, units and warrants
and the warrant agent for the warrants will be American Stock Transfer & Trust
Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for LearnSat.Com's
common stock. Future sales of substantial amounts of common stock in the public
market or the availability of shares for sale, could hurt the prevailing market
price and restrict the ability of LearnSat.Com to raise equity capital in the
future.
At the date of the prospectus, we have 13,713,277 unregistered shares of
common stock outstanding, assuming no exercise of outstanding options and
warrants or the underwriter's over-allotment option. Upon completion of this
offering, LearnSat.Com will have 16,381,277 shares of common stock outstanding,
assuming no exercise of outstanding options and warrants or the underwriter's
over-allotment option. The 12,440,667 unregistered shares are owned by Mr. and
Mrs. Brewer and are "restricted securities" as that term is defined by Rule 144
of the Securities Act. These restricted securities may only be sold commencing
90 days after the date of this prospectus in compliance with the provision of
Rule 144 unless otherwise registered by us. Ordinarily, under Rule 144 as
currently in effect, a person holding restricted securities for a period of one
year may, every three months thereafter, sell in ordinary brokerage transactions
or in transactions directly with a market maker, an amount of shares equal to
the greater of one percent of the then outstanding common stock or the average
weekly trading volume in the same securities during the four calendar weeks
prior to this sale. For non-affiliated persons who own our securities for at
least two years, the aforementioned volume restrictions are not applicable to
sales by that person. Mr. and Mrs. Brewer have agreed with Dirks not to,
directly or indirectly, offer, sell transfer, pledge, assign, hypothecate or
otherwise transfer their restricted securities until 13 months after the date of
this prospectus unless earlier permitted by Dirks.
46
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the form
of which is filed as an exhibit to the registration statement of which this
prospectus is a part, Dirks & Company, Inc., the underwriter, has agreed to
purchase from us, and we have agreed to sell to Dirks, the aggregate number of
units set forth below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- ----------- ---------
<S> <C>
Dirks & Company, Inc........................................ 1,334,000
---------
Total............................................. 1,334,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriter
are subject to conditions precedent, including the absence of any material
adverse change in our business and the receipt of certain certificates, opinions
and letters from our counsel and our independent public accountants. The
underwriter is committed to take and to pay for all of the units offered, if any
are purchased.
The underwriter has advised us that it proposes to offer all or part of the
units offered directly to the public initially at the price set forth on the
cover page of this prospectus. The underwriter has also advised us that it may
offer units to certain dealers at a price that represents a concession of not
more than $. per unit, and that it may allow, and these dealers may reallow,
a concession of not more than $. per unit to certain other dealers. After
the commencement of this offering, the price to the public and the concessions
may be changed.
We have granted to the underwriter an option, exercisable within 45 days
after the date of this prospectus, to purchase up to an additional 200,100 units
at the same price per unit as the initial 1,334,000 units to be purchased by the
underwriter. The underwriter may exercise this option only to cover
over-allotments, if any.
We have agreed to indemnify the underwriter and its controlling persons
against some liabilities, including liabilities under the Securities Act. We
have agreed to pay the underwriter a non-accountable expense allowance equal to
3% of the gross proceeds of this offering, of which $50,000 has already been
paid as of the date of this prospectus. We have also agreed to pay all expenses
in connection with qualifying the securities under the laws of those states the
underwriter may designate, including fees and expenses of counsel retained for
such purposes by the underwriter and the costs and disbursements in connection
with qualifying the offering with the National Association of Securities
Dealers, Inc.
We have also granted the underwriter the right, for a period of three years
from the closing of this offering, to nominate a designee of the underwriter for
election to our board of directors. Dirks has designated Charles R. Hoover to
serve as a director. We have agreed to reimburse the underwriter's designee for
all out-of-pocket expenses incurred in connection with the designee's attendance
at meetings of the board of directors.
Dirks acted as the placement agent for the private financing. We paid Dirks
a fee of $62,500, which was equal to 10% of the aggregate purchase price of the
units sold, and a non-accountable expense allowance of $18,750, which was equal
to 3% of the aggregate purchase price of the units sold.
We issued to Dirks, as part of its consideration for acting as the
placement agent for the private financing, a warrant, terminating on March 5,
2004, to purchase 125,000 shares of common stock at $0.60 per share, class A
non-redeemable warrants and class B non-redeemable warrants. In connection with
this offering, we have also agreed to issue to Dirks, for nominal consideration,
underwriter's warrants to purchase 266,800 shares of common stock at $1.62 per
share, class C non-redeemable warrants and class D non-redeemable warrants. The
Class C non-redeemable warrants and the Class D non-redeemable warrants have
substantially the same terms and conditions as the Class C redeemable warrants
and Class D redeemable warrants, except they are not redeemable by us. The
underwriter's warrants are exercisable for a period of four years commencing one
year after the effective date of the registration statement of which this
prospectus is a part. The following table sets forth the material terms of the
Class A through Class D non-redeemable warrants.
47
<PAGE> 50
<TABLE>
<CAPTION>
EXERCISE
WARRANT CLASS NO. OF WARRANTS PRICE TERMINATION DATE
- ------------- --------------- -------- -----------------
<S> <C> <C> <C>
A non-redeemable warrant........................ 125,000 $3.00 December 31, 2002
B non-redeemable warrant........................ 62,500 $4.80 December 31, 2004
C non-redeemable warrant........................ 266,800 $3.60 , 2002
D non-redeemable warrant........................ 133,400 $7.80 , 2004
</TABLE>
The placement agent warrants and underwriter's warrants contain the
anti-dilution provisions providing for automatic adjustments of the exercise
price and number of shares issuable on exercise of the warrants upon the
occurrence of some events, including stock dividends, stock splits, mergers,
acquisitions and recapitalization. The shares underlying the securities acquired
by Dirks as placement agent have been registered for public sale and are
included in this prospectus. The holders of the underwriter's warrants and
underlying common stock and warrants have certain rights of registration
relating to these securities. The underwriter's warrants are restricted from
sale, transfer, assignment or hypothecation for the one year period from the
date of this prospectus, except to officers or partners of the underwriter and
members of the selling group and/or their officers and partners.
The underwriter has informed us that it does not expect sales of the units
offered by this prospectus to discretionary accounts controlled by it to exceed
five percent of the units offered.
In connection with this offering, the underwriter and its affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
prices of the units, common stock and warrants. These transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation M,
under which persons may bid for or purchase the common stock and/or warrants for
the purpose of stabilizing their respective prices.
The underwriter also may create a short position by selling more units in
connection with the offering than it is committed to purchase from us, and in
this case may purchase common stock and warrants in the open market following
completion of the offering to cover all or a portion of a short position. The
underwriter may also cover all or a portion of a short position by exercising
the over-allotment option referred to above. In addition, the underwriter may
impose "penalty bids" under contractual arrangements and reclaim from a dealer
participating in the offering, for its account, the selling concession with
respect to the common stock and warrants that are distributed in the offering
but subsequently purchased for its account in the open market. Any of the
transactions described in this paragraph and the preceding paragraph may result
in the maintenance of the prices of the common stock and warrants at a level
above that which might otherwise prevail in the open market. None of the
transactions described in either paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
Prior to this offering, there has been no established market in the United
States or elsewhere for our securities. The public offering price of the units
and terms of the redeemable common stock purchase warrants will be determined by
us in consultation with the underwriter. It is expected that the price
determination will take several factors into account, including our results of
operations, our future prospects and the prevailing market and economic
conditions at the time of this offering. There can be no assurance that an
active market will develop for any of the securities offered by this prospectus,
or that any such securities will trade in the public market subsequent to this
offering at or above the initial public offering price, or at all.
48
<PAGE> 51
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
LearnSat.Com by Barry Feiner, Esq., 170 Falcon Court, Manhasset, New York 11030.
Certain legal matters will be passed upon for Dirks by Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, 18th Floor, New York, New York 10103. Janet
Portelly, Mr. Feiner's wife, purchased 50,000 shares, 50,000 A warrants and
25,000 B warrants in the private financing. See "Private Financing."
EXPERTS
Our financial statements as of December 31, 1998 and for each of the two
years in the period ended December 31, 1998 included in this prospectus, have
been so included in reliance on the report of Goldstein Golub Kessler LLP,
independent auditors, given upon the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act with respect to the securities offered hereby. This prospectus,
which forms part of the registration statement, does not contain all of the
information set forth in the registration statement, as permitted by the rules
and regulations of the SEC. For further information with respect to LearnSat.Com
and the securities offered hereby, reference is made to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document that has been filed as an exhibit to the registration
statement are qualified in their entirety by reference to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the SEC's Public Reference Room at
450 Fifth Street N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC.
Upon effectiveness of the registration statement, we will be subject to the
reporting and other requirements of the Exchange Act and we intend to furnish
our shareholders with annual reports containing financial statements audited by
our independent auditors and to make available quarterly reports including
unaudited financial statements for each of the first three quarters of each
year.
49
<PAGE> 52
LEARNSAT.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................ F-2
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1998 (audited) and June
30, 1999 (unaudited)...................................... F-3
Statements of Operations for the Years Ended December 31,
1997 and 1998 (audited) and for the Six-month Periods
Ended June 30, 1998 and June 30, 1999 (unaudited)......... F-4
Statements of Shareholders' Equity (deficiency) for the
Years Ended December 31, 1997 and 1998 (audited) and for
the Six-month Period Ended June 30, 1999 (unaudited)...... F-5
Statements of Cash Flows for the Years Ended December 31,
1997 and 1998 (audited) and for the Six-month Periods
Ended June 30, 1998 and June 30, 1999 (unaudited)......... F-6
Notes to Financial Statements............................... F-7 - F-13
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
LearnSat.Com, Inc.
We have audited the accompanying balance sheet of LearnSat.Com, Inc. as of
December 31, 1998, and the related statements of operations, shareholders'
equity (deficiency), and cash flows for each of the two years in the period
ended December 31, 1998. 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 LearnSat.Com, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 16, 1999
F-2
<PAGE> 54
LEARNSAT.COM, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 47,300 $ 152,415
Accounts receivable, less allowance for doubtful accounts
of $23,525 and $40,757, respectively................... 639,398 414,910
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 180,021 90,993
Inventory................................................. 412,350 445,981
Prepaid expenses and other current assets................. 6,619 45,382
---------- ----------
TOTAL CURRENT ASSETS.............................. 1,285,688 1,149,681
Property, Plant and Equipment -- at cost, less accumulated
depreciation of $241,225 and $258,822, respectively....... 217,168 259,352
Deferred Offering Costs..................................... -- 80,500
Other....................................................... 29,742 40,678
---------- ----------
TOTAL ASSETS...................................... $1,532,598 $1,530,211
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses..................... $ 800,479 $ 421,029
Income taxes payable...................................... -- 2,900
Short-term borrowings and current portion of long-term
debt................................................... 186,604 414,398
Unearned revenue.......................................... 34,949 33,386
---------- ----------
TOTAL CURRENT LIABILITIES......................... 1,022,032 871,713
Long-term Debt.............................................. 521,882 155,418
---------- ----------
TOTAL LIABILITIES................................. 1,543,914 1,027,131
---------- ----------
Shareholders' Equity (Deficiency):
Preferred stock -- $.001 par value; authorized 20,000,000
shares, none issued.................................... -- --
Common stock -- $.001 par value; authorized 50,000,000
shares, issued 12,440,677 and 13,690,677 shares,
respectively........................................... 12,441 13,691
Additional paid-in capital................................ 58,569 503,743
Retained earnings (accumulated deficit)................... (82,326) 11,267
Less stock subscription receivable........................ -- (25,621)
---------- ----------
SHAREHOLDERS' EQUITY (DEFICIENCY)................. (11,316) 503,080
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY).................................... $1,532,598 $1,530,211
========== ==========
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 55
LEARNSAT.COM, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $2,576,230 $2,144,169 $1,072,451 $ 896,820
Cost of sales............................. 2,076,336 1,914,482 922,870 830,767
---------- ---------- ---------- ----------
Gross profit.............................. 499,894 229,687 149,581 66,053
Selling, general and administrative
expenses................................ (282,721) (409,970) (237,806) (252,218)
Net gain on settlement of litigation...... -- -- -- 215,691
---------- ---------- ---------- ----------
Operating income (loss)................... 217,173 (180,283) (88,225) 29,526
Interest income........................... -- -- -- 4,311
Interest expense.......................... (42,000) (58,611) (26,954) (30,130)
Other income.............................. -- -- -- 10,460
---------- ---------- ---------- ----------
Income (loss) before provision for income
taxes................................... 175,173 (238,894) (115,179) 14,167
Provision for income taxes................ -- -- -- 2,900
---------- ---------- ---------- ----------
Net income (loss)......................... $ 175,173 $ (238,894) $ (115,179) $ 11,267
========== ========== ========== ==========
Pro forma financial information
(unaudited):
Income (loss) before pro forma
adjustment for employment agreements
and pro forma provision (credit) for
income taxes......................... $ 175,173 $ (238,894) $ (115,179) $ 11,267
Pro forma adjustment for employment
agreements........................... (55,000) (55,000) (27,500) --
---------- ---------- ---------- ----------
Pro forma income (loss) before provision
(credit) for income taxes............ 120,173 (293,894) (142,679) 11,267
---------- ---------- ---------- ----------
Pro forma provision (credit) for income
taxes:
Federal.............................. 27,300 (27,300) (13,650) --
State................................ 7,200 (7,200) (3,600) --
---------- ---------- ---------- ----------
34,500 (34,500) (17,250) --
---------- ---------- ---------- ----------
Pro forma net income (loss)............. $ 85,673 $ (259,394) $ (125,429) $ 11,267
========== ========== ========== ==========
Basic pro forma net income (loss) per
common share............................ $ .01 $ (.02) $ (.01) $ .00
========== ========== ========== ==========
Weighted-average number of common shares
outstanding -- basic.................... 12,440,677 12,440,677 12,440,677 13,248,688
========== ========== ========== ==========
Diluted pro forma net income (loss) per
common share............................ $ .01 $ (.02) $ (.01) $ .00
========== ========== ========== ==========
Weighted-average number of common shares
outstanding -- diluted.................. 12,474,011 12,440,677 12,440,677 13,260,474
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 56
LEARNSAT.COM, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS STOCK SHAREHOLDERS'
-------------------- PAID-IN (ACCUMULATED SUBSCRIPTIONS EQUITY
SHARES AMOUNT CAPITAL DEFICIT) RECEIVABLE (DEFICIENCY)
---------- ------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997.................... 12,440,677 $12,441 $ 37,569 $ 161,587 -- $ 211,597
Net income................ -- -- -- 175,173 -- 175,173
Shareholder
contribution --
forgiveness of rent..... -- -- 21,000 -- -- 21,000
Shareholder
distributions........... -- -- -- (82,324) -- (82,324)
---------- ------- -------- --------- -------- ---------
Balance at December 31,
1997.................... 12,440,677 12,441 58,569 254,436 -- 325,446
Net loss.................. -- -- -- (238,894) -- (238,894)
Shareholder
distributions........... -- -- -- (97,868) -- (97,868)
---------- ------- -------- --------- -------- ---------
Balance at December 31,
1998.................... 12,440,677 12,441 58,569 (82,326) -- (11,316)
(Unaudited):
Reclassification of
accumulated deficit
related to termination
of S Corporation
status.................. -- -- (82,326) 82,326 -- --
Net income.............. -- -- -- 11,267 -- 11,267
Issuance of common stock
in connection with
private placement.... 1,250,000 1,250 527,500 -- $(25,621) 503,129
---------- ------- -------- --------- -------- ---------
Balance at June 30, 1999
(unaudited)............. 13,690,677 $13,691 $503,743 $ 11,267 $(25,621) $ 503,080
========== ======= ======== ========= ======== =========
</TABLE>
See Notes to Financial Statements
F-5
<PAGE> 57
LEARNSAT.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------------
1997 1998 1998 1999
----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 175,173 $ (238,894) $(115,179) $ 11,267
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Net gain on settlement of litigation.............. -- -- -- (215,691)
Provision for bad debts........................... 600 10,000 -- --
Rent expense not paid in cash..................... 21,000 -- -- --
Depreciation and amortization..................... 50,915 60,680 29,447 23,157
Other income...................................... -- -- -- (10,460)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........ (514,215) 389,252 283,117 193,456
(Increase) decrease in costs and estimated
earnings in excess of billings on uncompleted
contracts....................................... (34,444) 99,181 244,834 89,028
(Increase) decrease in inventory.................. 154,293 12,408 (38,053) (33,631)
(Increase) decrease in prepaid expenses and other
current assets.................................. (9,113) 4,742 (100) (38,763)
Increase in other assets.......................... -- (25,105) -- (10,936)
Increase (decrease) in accounts payable and
accrued expenses................................ 146,175 (253,894) (313,309) (149,728)
Increase in income taxes payable.................. -- -- -- 2,900
Increase (decrease) in unearned revenue........... -- 34,949 -- (1,563)
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts..... -- (39,300) -- --
----------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................. (9,616) 54,019 90,757 (140,964)
----------- ----------- --------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment........... (173,305) (64,858) (45,320) (74,781)
Cash received on insurance settlement............... -- -- -- 11,280
----------- ----------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES........ (173,305) (64,858) (45,320) (63,501)
----------- ----------- --------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings and long-term
debt.............................................. 2,009,746 2,681,036 963,731 1,388,662
Payments of short-term borrowings and long-term
debt.............................................. (1,763,233) (2,526,784) (960,455) (1,527,332)
S Corporation distributions paid.................... (82,324) (97,868) (34,277) --
Proceeds from private placement..................... -- -- -- 600,000
Payment of costs relating to private placement...... -- -- -- (96,250)
Payment of deferred offering costs.................. -- -- -- (55,500)
----------- ----------- --------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................. 164,189 56,384 (31,001) 309,580
----------- ----------- --------- -----------
Net increase (decrease) in cash....................... (18,732) 45,545 14,436 105,115
Cash at beginning of period........................... 20,487 1,755 1,755 47,300
----------- ----------- --------- -----------
Cash at end of period................................. $ 1,755 $ 47,300 $ 16,191 $ 152,415
=========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............ $ 41,792 $ 57,340 $ 26,482 $ 31,820
=========== =========== ========= ===========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 58
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Learnsat Systems, Inc. (the "Company") was incorporated in the State of
Florida in 1991. Effective December 31, 1998, the Company changed its name to
LearnSat.Com, Inc. The Company's main headquarters is located in Oklahoma.
The accompanying unaudited interim financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim periods. The results of
operations for the six-month periods ended June 30, 1998 and 1999 are not
necessarily indicative of the results to be expected for the entire year.
The Company resells telecommunication products to and also installs
satellite-based learning systems at educational and governmental institutions
throughout the United States. Contracts with these institutions are generally
obtained through a competitive bidding process and are generally short-term in
nature. However, some contracts may overlap accounting periods.
On the Company's stand-alone equipment sales, the Company recognizes
revenue when the equipment is shipped to customers. The Company normally accepts
returns on equipment sales only during the related manufacturer's warranty
period and, therefore, the cost of returns is not material to the Company's
operations.
On its contract sales, the Company reports earnings on the
percentage-of-completion method, measured by the cost incurred to date to
estimated total cost. Contracts normally provide for billing upon completion of
specific site installations rather than progress billing. Costs and estimated
earnings in excess of billings on uncompleted contracts represent revenue
recognized in excess of amounts billed.
Contract costs consist of direct material, labor, subcontract cost, and
other direct costs involved in the completion of a contract. General and
administrative costs are charged to period expense as incurred. Provision for
estimated losses on uncompleted contracts is made in the period in which such
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and
final contract settlements, may result in revisions to cost and income and are
recognized in the period in which the revisions are determined.
These financial statements have been prepared in conformity with generally
accepted accounting principles, which require the use of estimates by
management. Actual results could differ from these estimates.
The Company had elected to be treated as an S Corporation under the
provisions of Subchapter S of the Internal Revenue Code. Effective January 1,
1999, the Company terminated its S Corporation status. Accordingly, there is no
provision for federal or state income taxes for the years ended December 31,
1997 and 1998 and for the six-month period ended June 30, 1998 because such
liability is the responsibility of the individual shareholders.
The Company maintains cash in bank accounts which, at times, may exceed
federally insured limits. The Company has not experienced any loss on these
accounts.
The Company normally maintains an inventory of supplies and materials
commonly used on jobs. Inventory is stated at the lower of cost, determined by
the first-in, first-out, method, or market.
Depreciation of property, plant and equipment is provided for by the
straight-line and accelerated methods over the estimated useful lives of the
related assets. Leasehold improvements are amortized on a straight-line basis
over the estimated useful lives of the assets, assuming the continuation of the
related party leases described in Note 4.
F-7
<PAGE> 59
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
Basic pro forma net income (loss) per common share has been computed using
the weighted-average number of common shares outstanding, adjusted for the stock
split described below. Diluted pro forma net income per common share for the
year ended December 31, 1997 and the six-month period ended June 30, 1999 has
been computed giving retroactive effect to the issuance of 50,000 shares on
March 5, 1999 to officers of the Company in conjunction with the private
placement described in Note 9. Using the treasury stock method, the effect of
these shares results in an increase of 33,333 shares and 11,786 shares at
December 31, 1997 and June 30, 1999, respectively, of common stock to
weighted-average shares outstanding. Diluted pro forma net loss per common share
has not been computed for other periods as the result would be antidilutive.
Effective December 31, 1998, the Company amended its Articles of
Incorporation and became authorized to issue up to 50,000,000 shares of common
stock, $.001 par value and up to 20,000,000 shares of preferred stock, $.001 par
value. As part of this amendment, each share of the Company's common stock was
split into 28,274.266 shares of common stock. All references to number of shares
and per share data give retroactive effect to this stock split.
Deferred offering costs represent expenses attributable to the proposed
offering of the Company's common stock (see Note 10). The Company intends to
offset these expenses against the future proceeds of the public offering. In the
event that the offering is not completed, these expenses will be charged to
operations.
The Company elected to measure compensation cost using Accounting
Principles Board Opinion No. 25 as is permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation,
and has elected to comply with other provisions and the disclosure-only
requirements of SFAS No. 123 (see Note 12).
The Company does not believe that any recently-issued but not-yet-effective
accounting standards will have a material effect on the Company's financial
position, results of operations or cash flows.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Prepayment for merchandise.................................. -- $28,777
Due from officers........................................... -- 8,660
Other....................................................... $6,619 7,945
------ -------
$6,619 $45,382
====== =======
</TABLE>
F-8
<PAGE> 60
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, ESTIMATED
1998 1999 USEFUL LIFE
------------ ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment..................... $209,079 $ 209,793 5 to 10 years
Vehicles.................................... 147,735 132,735 3 to 5 years
Leasehold improvements...................... 17,023 17,023 10 to 39 years
Building and building improvements.......... 67,556 141,623 39 years
Land........................................ 17,000 17,000
-------- -----------
458,393 518,174
Less accumulated depreciation and
amortization.............................. (241,225) (258,822)
-------- -----------
$217,168 $ 259,352
======== ===========
</TABLE>
4. COMMITMENTS:
The Company leases a warehouse in Oklahoma from two of its shareholders
under a five-year lease ending June 30, 2000, with annual lease payments
totaling $12,000. In addition, the Company leases office space in Florida from
these shareholders on a year-to-year basis. Total rent expense under these
leases amounted to $21,000 for each of the years ended December 31, 1997 and
1998 and to $10,500 for each of the six-month periods ended June 30, 1998 and
1999. In 1997, the shareholders waived the right to receive the rentals earned
and, therefore, this amount has been included as a shareholder contribution to
additional paid-in capital for the year ended December 31, 1997.
The future aggregate minimum rental commitments, exclusive of required
payments for operating expenses and real estate taxes, are:
<TABLE>
<S> <C>
Six-month period ending December 31, 1999................... $10,500
Year ending December 31, 2000............................... 6,000
-------
$16,500
=======
</TABLE>
Effective January 1, 1999, the Company entered into employment agreements
expiring December 31, 2003 with two shareholders who are also officers of the
Company. The approximate aggregate commitment for future salaries, excluding
bonuses, under these employment agreements is as follows:
<TABLE>
<S> <C>
Six-month period ending December 31, 1999................... $ 27,500
Year ending December 31:
2000...................................................... 100,000
2001...................................................... 120,000
2002...................................................... 140,000
2003...................................................... 160,000
--------
$547,500
========
</TABLE>
F-9
<PAGE> 61
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
The Company is obligated under financing agreements with financial
institutions which provide for the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
At the balance sheet dates, the Company was liable to a bank
under a line of credit not to exceed the lesser of
$350,000 or prescribed levels of eligible accounts
receivable and inventory, as defined. In April 1999, this
line of credit was refinanced with another bank into a new
line of credit not to exceed the lesser of $450,000 or
prescribed levels of eligible accounts receivable and
inventory, as defined. Borrowings under this new line of
credit bear interest at the new bank's prime lending rate
(7.75% at December 31, 1998 and June 30, 1999) plus 1% and
such interest is payable monthly. The new line of credit
is payable in full on April 8, 2000....................... $347,598 $377,820
A note payable bearing interest at a bank's prime lending
rate plus 2% with interest payable monthly. The note was
due and was repaid in May 1999............................ 150,000 --
Term note originally payable to a bank in 60 monthly
installments commencing February 2, 1997. This note was
refinanced with another bank in April 1999. The new note
is payable in 48 monthly installments through April 15,
2003 and bears interest at the new bank's prime lending
rate plus 1% with interest payable monthly................ 84,862 77,119
Other term notes payable in monthly installments aggregating
approximately $1,800 plus interest. These notes mature at
various dates through July 22, 2013. The notes bear
interest at various rates ranging from 4.8% to 8.75%...... 126,026 114,877
-------- --------
708,486 569,816
Less current portion........................................ 186,604 414,398
-------- --------
LONG-TERM PORTION......................................... $521,882 $155,418
======== ========
</TABLE>
The obligations described above are collateralized by substantially all of
the Company's assets. The line of credit is also collateralized by personal
guarantees by two of the Company's officers aggregating $200,000. These
guarantees are secured through the assignment of $200,000 of face value of life
insurance on the life of one of these officers.
Because the interest rates will change with changes in the prime rate, the
fair value of the bank debt is equal to the carrying amount.
F-10
<PAGE> 62
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
Maturities of short-term borrowings and long-term debt, which give effect
to the refinancings described above, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Year (period) ending December 31, 1999..................... $186,604 $ 18,001
Year ending December 31,
2000....................................................... 385,874 415,807
2001....................................................... 41,489 41,489
2002....................................................... 31,388 31,388
2003....................................................... 10,658 10,658
Thereafter................................................. 52,473 52,473
-------- --------
$708,486 $569,816
======== ========
</TABLE>
6. PENDING LITIGATION MATTERS:
The Company was involved in a litigation matter with two of its suppliers.
In 1996, the Company purchased equipment from these suppliers and was invoiced a
total of approximately $786,000. The Company recorded this amount as a purchase
in 1996. The equipment purchased was to be used as materials for two contracts,
the Company entered into during 1996. In 1996 and 1997, the Company concluded
that some of this equipment did not meet certain technical requirements and was
not working properly. The Company therefore withheld payment of a portion of the
invoiced amounts. The Company alleged that it incurred significant additional
costs to complete its contracts due to the difficulties it incurred with this
equipment. In April 1997, one of the suppliers sued the Company to collect the
remaining balance. This lawsuit was dismissed on jurisdictional grounds in 1998.
In August 1998, the Company sued the suppliers for breach of contract, fraud and
other related claims. One of the suppliers filed a counterclaim that asserted
that the supplier had delivered equipment to the Company, on which the Company
had an outstanding balance of approximately $351,000. The supplier asserted that
the Company was in breach of contract for that amount.
At December 31, 1998, the Company included the $351,000 in accounts payable
and accrued expenses in the accompanying balance sheet. In addition, accounts
receivable included a balance of approximately $91,000 due from the Company's
customers who were the end users of the equipment.
In August 1999, the Company collected approximately $60,000 of this
accounts receivable balance and received returned equipment (which the Company
deems to be fully usable and saleable) which had been sold to these customers
for approximately $14,000.
In September 1999, there was a settlement of the lawsuit between the
Company and the two suppliers. The settlement resulted in a net payment by the
Company to the suppliers of $25,000. During 1999, the Company incurred legal
fees amounting to approximately $93,000 in relation to this litigation.
As a result of the above, the Company has recorded a net gain on the
settlement of this litigation of approximately $216,000 at June 30, 1999.
The Company is also involved in another legal action arising in the
ordinary course of business. Management is of the opinion that the ultimate
outcome of this matter would not have a material adverse impact on the financial
position of the Company or its results of operations.
F-11
<PAGE> 63
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. MAJOR CUSTOMERS AND SUPPLIERS:
During the year ended December 31, 1997, sales to three customers accounted
for approximately 31%, 28% and 19% of net sales. During the year ended December
31, 1998, sales to three customers accounted for approximately 28%, 22% and 11%
of net sales. These customers comprise approximately 3%, 54% and 16%,
respectively, of the Company's combined accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts at December
31, 1998. During the six-month period ended June 30, 1998, sales to three
customers accounted for approximately 26%, 18% and 16% of net sales. During the
six-month period ended June 30, 1999, sales to three customers accounted for
approximately 31%, 19% and 12% of net sales. These customers comprise
approximately 14%, 20% and 0%, respectively, of the Company's combined accounts
receivable and costs and estimated earnings in excess of billings on uncompleted
contracts at June 30, 1999.
One supplier is the sole supplier of the Company's digital encoders and
decoders. Although the Company believes that its relationship with this supplier
is satisfactory, the loss of this supplier would have a materially adverse
effect on its business and results of operations.
8. INCOME TAXES:
The provision for income taxes at June 30, 1999 consists of the following
components:
<TABLE>
<CAPTION>
CURRENT:
- --------
<S> <C>
Federal..................................................... $2,000
State....................................................... 900
------
$2,900
======
</TABLE>
The total provision for income taxes differs from that amount which would
be computed by applying the U.S. federal income tax rate to income before
provision for income taxes primarily because of the effect of state income
taxes.
9. PRIVATE PLACEMENT:
The Company completed a private placement offering aggregating $625,000.
The private placement offering was for 12 1/2 units at a price of $50,000 per
unit. Each unit consisted of 100,000 shares of common stock, 100,000 class A
warrants and 50,000 class B warrants. Each class A warrant is exercisable until
December 31, 2002 and entitles the holder to purchase one share of common stock
at $2.50 per share. Each class B warrant is exercisable until December 31, 2004
and entitles the holder to purchase one share of common stock at $4.00 per
share. The Company received net proceeds of $503,750, after deducting expenses
of the offering of $96,250. In addition, a stock subscription receivable in the
amount of $25,000, in the form of a note, is due from two officers of the
Company. This note bears interest at 7.75% and is payable on March 5, 2000.
Interest income recorded on this loan amounted to $621 for the six-month period
ended June 30, 1999. The stock subscription receivable has been reflected as a
reduction of stockholders' equity in the accompanying financial statements. The
warrants are subject to redemption by the Company at the redemption price of
$.05 per warrant on 30 days' notice, provided that the reported closing price of
the common stock, as defined, equals or exceeds 150% of the exercise price for a
period of 30 consecutive trading days.
In connection with the private placement, the Company's placement agent
(who is contemplated to be the Company's underwriter in the proposed public
offering described in Note 10) was granted, for nominal consideration, a warrant
exercisable over a five-year period commencing March 5, 1999, to purchase 10% of
the number of units sold in the private placement offering at an exercise price
equal to 120% of the unit offering price (or $60,000 per unit).
F-12
<PAGE> 64
LEARNSAT.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION PERTAINING TO THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. SUBSEQUENT EVENTS:
The Company intends to file a Registration Statement on Form SB-2 under the
Securities Act of 1933. The Registration Statement contemplates an offering of
1,334,000 units at a proposed offering price of $3.00 per unit. Each unit will
consist of two shares of common stock, $.001 par value, two Class C redeemable
warrants and one Class D redeemable warrant. The Class C redeemable warrants
will entitle the holder to purchase one share of common stock at a price of
$3.00 per share and will be exercisable for six years commencing six months from
the effective date of the Registration Statement. The Class D redeemable
warrants will entitle the holder to purchase one share of common stock at a
price of $6.50 per share and will be exercisable for five years commencing six
months from the effective date of the Registration Statement. The offering would
provide proceeds of approximately $3,093,000 to the Company, after expenses
estimated to be $909,000. The proceeds of this offering are expected to be used
for purchasing and leasing equipment, sales and technical support and marketing,
general and administrative expenses and for working capital.
In connection with the offering, the Company's underwriter will be granted,
for nominal consideration, warrants to purchase up to 266,800 shares of common
stock at $1.62 per share, 266,800 Class C non-redeemable warrants and 133,400
Class D non-redeemable warrants. These warrants will be exercisable for four
years commencing one year from the effective date of the Registration Statement.
In September 1999, the Company purchased from one of the Company's officers
certain assets and assumed certain liabilities of Cowboy Communications, LLC for
$25,000 in cash and 22,600 shares of common stock. The assets acquired amounted
to approximately $58,000 and the liabilities assumed amounted to approximately
$21,000.
11. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The pro forma financial information is unaudited and reflects the
operations of the Company as if the employment agreements described in Note 4
had been entered into at the beginning of the periods presented and as if the
Company had not elected Subchapter S Corporation status.
Pro forma financial information for the six-month period ended June 30,
1999 is not required to be calculated because the employment agreements were
entered into effective January 1, 1999 and the Company terminated its S
Corporation status effective January 1, 1999.
The pro forma provision for income taxes differs from the amount of pro
forma income tax determined by applying the applicable federal statutory rates
primarily because of the effect of state income taxes.
12. STOCK OPTION PLAN:
Effective in April 1999, the Company adopted the 1999 Long-Term Incentive
Plan (the "Plan"), under which 1,500,000 shares of common stock have been
reserved for future issuance. The Plan provides for the sale of shares through
incentive stock options (to employees of the Company only) or through
nonqualified stock options at a price not less than the fair market value of the
shares on the date of the option grant provided that the exercise price of any
option granted to an employee owning more than 10% of the outstanding common
stock of the Company may not be less than 110% of the fair market value of the
shares on the date of the option grant. The term of each option and the manner
of exercise is to be determined by a committee of the board of directors, but in
no case can the incentive stock options be exercisable in excess of 10 years
beyond the date of grant and in no case can the nonqualified stock options be
exercisable in excess of 10 years and 1 month beyond the date of grant. The
stock option committee has the right upon grant of a stock option to award a
stock appreciation right. Upon adoption of the Plan, options to purchase 585,000
shares of common stock, excluding canceled shares, were granted to both
employees and directors of the Company at the fair value at the date of grant.
F-13
<PAGE> 65
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current only as of the date of this prospectus.
[LOGO]
LEARNSAT.COM, INC.
1,334,000 UNITS
(EACH UNIT CONSISTING OF
TWO SHARES OF COMMON STOCK,
TWO CLASS C REDEEMABLE WARRANTS AND
ONE CLASS D REDEEMABLE WARRANT)
DIRKS & COMPANY, INC.
, 1999
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 66
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 OR ANY APPLICABLE STATE SECURITIES 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.
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1999
LEARNSAT.COM, INC.
------------------------
3,437,500 SHARES OF COMMON STOCK
------------------------
This prospectus relates to 1,375,000 shares of common stock of LearnSat.Com
which are being offered for sale by selling shareholders and an additional
2,062,500 shares of common stock which we will issue to them if they exercise
warrants currently held by them. The securities were issued to the selling
shareholders in a private financing conducted by LearnSat.Com. We will not
receive any of the proceeds from the sales of the shares by the selling
shareholders.
On the date of this prospectus, a registration statement under the
Securities Act of 1933 with respect to an underwritten public offering by
LearnSat.Com of 1,334,000 units and up to an additional 200,100 units to cover
over-allotments, if any, was declared effective by the Securities and Exchange
Commission. Each unit consisted of two shares of common stock, two class C
redeemable common stock purchase warrants and one class D redeemable common
stock purchase warrant. Sales of securities by LearnSat.Com or the selling
shareholders, or even the potential of sales, would likely have an adverse
effect on the market price of the common stock and warrants.
No public market currently exists for the units, the common stock or the
warrants. We anticipate that the initial public offering price of the
underwritten public offering will be $3.00 per unit, which consists of $1.35 per
share, $0.10 per C warrant and $0.10 per D warrant. We have applied to list the
units, common stock and the warrants on Tier II of the Pacific Stock Exchange
under the symbols LSN __, LSN __, LSN __ and LSN __, respectively.
BEFORE BUYING THE UNITS, CAREFULLY READ THIS PROSPECTUS, ESPECIALLY THE
RISK FACTORS BEGINNING ON PAGE 7. THE PURCHASE OF OUR SECURITIES INVOLVES A HIGH
DEGREE OF RISK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 67
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
Forward-Looking Statements.................................. 13
Dividend Policy............................................. 14
Private Financing........................................... 16
Capitalization.............................................. 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 26
Management.................................................. 37
Certain Transactions........................................ 42
Principal Shareholders...................................... 43
Selling Shareholders and Plan of Distribution............... 44
Description of Securities................................... 46
Shares Eligible for Future Sale............................. 48
Legal Matters............................................... 49
Experts..................................................... 49
Additional Information...................................... 49
Financial Statements........................................ F-1
</TABLE>
3
<PAGE> 68
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
THE OFFERING
Securities Offered.................. This prospectus relates to the offering
of 1,375,000 shares of common stock
which are being offered for sale by
selling shareholders and an additional
2,062,500 shares of common stock which
we will issue to them if they exercise
the warrants currently held by them.
See "Description of Securities" and
"Selling Shareholders and Plan of
Distribution."
Common Stock Outstanding After
the Offering...................... 16,381,277 shares; assumes that the
shares of common stock registered under
the concurrent underwritten public
offering have been sold by
LearnSat.Com; excludes outstanding
options, underwriter's over-allotment
option and warrants from the concurrent
offering.
Proceeds............................ We will not receive any of the proceeds
from the sale of shares by the selling
shareholders.
Risk Factors........................ You should read the "Risk Factors"
section as well as the other cautionary
statements throughout the entire
prospectus, so that you understand the
risks associated with an investment in
our securities.
Proposed Pacific Stock Exchange
Symbol
for Units LSN __
for Common Stock LSN __
for Class C Redeemable Warrants LSN __
for Class D Redeemable Warrants LSN __
<PAGE> 69
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
PRIVATE FINANCING
In March 1999, we completed the sale of 12.5 units at a price of $50,000
per unit in a private financing transaction. Each private financing unit
consisted of 100,000 shares of common stock, 100,000 class A redeemable common
stock purchase warrants, and 50,000 class B redeemable common stock purchase
warrants. Each class A redeemable warrant entitles the holder to purchase one
share of common stock at a price of $2.50 per share and each class B redeemable
warrant entitles the holder to purchase one share of common stock at a price of
$4.00 per share. The class A redeemable warrants are exercisable through
December 31, 2002 and the class B redeemable warrants are exercisable through
December 31, 2004. The shares of common stock underlying the private financing
units and the shares of common stock issuable upon exercise of the class A
redeemable warrants and the class B redeemable warrants have been registered for
public sale and are being sold by the selling shareholders under this
prospectus. Charles and Linda Brewer purchased one half unit which they paid for
with a promissory note. The note, together with interest at the annual rate of
7.75%, is due on March 5, 2000 but Mr. and Mrs. Brewer prepaid $15,000 of the
principal on September 26, 1999. See "Selling Shareholders and Plan of
Distribution" for information relating to the shareholders who are offering
these securities for sale.
Barry W. Blank purchased two units in the private financing and his mother
purchased one half unit. Mr. Blank is employed by Dirks & Company, Inc. as a
registered representative. He participated in the sale of the private financing
units.
Dirks acted as the placement agent for the private financing. We paid Dirks
a fee of $62,500, which was equal to 10% of the aggregate purchase price of the
units sold, and a non-accountable expense allowance of $18,750, which was equal
to 3% of the aggregate purchase price of the units sold. We also granted Dirks,
for nominal consideration, a placement agent warrant, exercisable over a
five-year period which commenced on the closing date of the private financing,
to purchase 125,000 shares of common stock, a like number of class A
non-redeemable warrants and 62,500 class B non-redeemable warrants, which
equaled 10% of the number of shares and class A and B redeemable warrants sold
in the private financing. The exercise price for the common stock equals 120% of
the placement unit offering price. The class A and class B non-redeemable
warrants acquired by Dirks are exercisable at 120% of the exercise prices of the
warrants sold to the purchasers in the private financing. The shares underlying
the securities acquired by Dirks as placement agent have been registered for
public sale and are included in this prospectus. Dirks has granted Barry Blank,
who assisted in marketing the private financing, 70% of the shares of common
stock and warrants underlying the placement agent warrant.
<PAGE> 70
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
The registration statement, of which this prospectus forms a part, relates
to the registration by LearnSat.Com for the account of selling shareholders, of
an aggregate of 3,437,500 shares of common stock. The table below sets forth
information with respect to the selling shareholders as of October 1, 1999.
LearnSat.Com will not receive any of the proceeds from the sale of these shares.
LearnSat.Com will receive proceeds only for shares sold by us to the selling
shareholders pursuant to warrants exercised by them. There are no material
relationships between LearnSat.Com or our affiliates and any of the selling
shareholders except for Mr. and Mrs. Brewer and Mr. Hoover and except as
disclosed in the in the next succeeding paragraph. Based on information provided
to us by the selling shareholders, all shares are beneficially owned. Beneficial
ownership after the offering will depend upon the number of shares sold by each
selling shareholder.
The asterisk represents less than 1% of the outstanding shares. The shares
to be offered for sale by Mr. and Mrs. Brewer are owned jointly by them. These
shares and the shares owned by Mr. Hoover will not be sold except in compliance
with the provisions of Section 16(b) of the Exchange Act. The table includes the
shares issuable on exercise of each selling shareholder's private financing
warrants. Ms. Portelly is the wife of our counsel, Barry Feiner. Mr. Feiner
disclaims any beneficial ownership in these securities. See "Legal Matters."
Mr. Blank is employed by Dirks as a registered representative. He
participated in the sale of the private financing and will participate in the
sale of the units offered by LearnSat.Com. These shares include 87,500 shares
issuable upon exercise of the placement warrant received by Dirks as placement
agent and transferred to Mr. Blank as well as the 131,250 shares issuable upon
exercise of the private financing warrants underlying the placement warrant also
transferred by Dirks to Mr. Blank. See "Private Financing." Violet Blank is the
mother of Barry Blank. The shares owned by Dirks are issuable upon exercise of
the placement warrant and include the shares issuable upon exercise of the
warrants underlying the placement warrant.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OWNED BEFORE NUMBER OF
NAME BEFORE OFFERING OFFERING SHARES OFFERED
---- --------------- ---------- --------------
<S> <C> <C> <C>
Charles Brewer........................................ 1,255,971 9.12 125,000
Linda Brewer.......................................... 11,434,706 83.07
Charles R. Hoover..................................... 125,000 * 125,000
Joseph Giamanco....................................... 250,000 1.81 250,000
Kenneth Moore......................................... 125,000 * 125,000
Robert and Barbara Oliver............................. 125,000 * 125,000
William and Joan Quinn................................ 125,000 * 125,000
Janet M. Portelly..................................... 125,000 * 125,000
John E. McConnaughy, Jr. ............................. 1,000,000 7.00 1,000,000
Barry W. Blank, Trustee............................... 718,750 5.06 718,750
Barry Blank Trust
Joseph Marinelli...................................... 125,000 * 125,000
Violet Blank Trust.................................... 125,000 * 125,000
Gary Herman........................................... 250,000 1.81 250,000
Robert Wahl........................................... 125,000 * 125,000
Dirks & Company, Inc. ................................ 93,750 * 93,750
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares.
The sale of the shares by the selling shareholders may be effected from
time to time in transactions, which may include block transactions by or for the
account of the selling shareholder, on the Pacific Stock Exchange, in the
over-the-counter market or in negotiated transactions, or through the writing of
options on these shares, a combination of these methods of sale, or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices.
<PAGE> 71
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
Selling shareholders may effect these transactions by selling their shares
directly to purchasers, through broker-dealers acting as agents for the selling
shareholders, or to broker-dealers who may purchase shares as principals and
thereafter sell the shares from time to time on the Pacific Stock Exchange, in
the over-the-counter market, in negotiated transactions, or otherwise.
Broker-dealers, if any, may receive compensation in the form of discounts,
concessions, or commissions from the selling shareholders and/or the purchasers
for whom these broker-dealers may act as agents or to whom they may sell as
principals or both, which compensation as to a particular broker-dealer may be
in excess of customary commissions.
The selling shareholders and broker-dealers, if any, acting in connection
with these sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission received by them and any
profit on the resale of these shares might be deemed to be underwriting
discounts and commissions, under the Securities Act.
At the time a particular offer of the shares is made by or on behalf of a
selling shareholder, to the extent required, a prospectus supplement will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers,
or agents, the purchase price paid by any underwriter for shares purchased from
the selling stockholder and any discounts, commissions, or concessions allowed
or reallowed or paid to dealers, and the proposed selling price to the public.
Under the Exchange Act and its regulations, any person engaged in the
distribution of shares of common stock, or securities convertible into common
stock, offered by this prospectus may not simultaneously engage in market-making
activities with respect to the common stock during the applicable "cooling off"
period prior to the commencement of this distribution. In addition, and without
limiting the foregoing, the selling shareholders will be subject to applicable
provisions of the Exchange Act and its rules and regulations, including without
limitation Regulation M promulgated under the Exchange Act, in connection with
transactions in the shares, which provisions may limit the timing of purchases
and sales of shares of common stock by the selling shareholders.
Sales of any shares of common stock by the selling shareholders may depress
the price of the common stock in any market that may develop for these
securities.
<PAGE> 72
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
LearnSat.Com by Barry Feiner, Esq., 170 Falcon Court, Manhasset, New York 11030.
Janet Portelly, Mr. Feiner's wife, purchased 50,000 shares, 50,000 A warrants
and 25,000 B warrants in the private financing and is one of the selling
shareholders. See "Private Financing" and "Selling Shareholders and Plan of
Distribution."
<PAGE> 73
ALTERNATE PAGE OF SELLING SHAREHOLDER PROSPECTUS -- (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
LEARNSAT.COM, INC.
------------------------
3,437,500 SHARES OF COMMON STOCK
------------------------
, 1999
------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current only as of the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Florida Business Corporation Act, a shareholder is able to
prosecute an action against a director for monetary damages only if he can show
that the director committed a knowing violation of criminal law, engaged in a
transactions in which he derived an improper personal benefit as defined in the
Act, participated in an "unlawful distribution" as defined in the Act, acted in
conscious disregard for the best interests of the corporation, or committed
willful misconduct.
Article X of LearnSat.Com's Articles of Incorporation and Article X of
LearnSat's By-Laws provide for indemnification of officers, directors and
authorized agents to the maximum extent permitted under Florida law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with this offering, other than underwriting
commissions and non-accountable expense allowance are set forth below. All
amounts are estimates except the SEC registration fee, the Pacific Stock
Exchange listing fee and the NASD fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 10,115.22
Pacific Stock Exchange listing fee.......................... 20,000.00
NASD fees................................................... 3,852.18
Accounting fees and expenses................................ 150,000.00
Legal fees and expenses..................................... 100,000.00
Blue Sky fees and expenses.................................. 20,000.00
Printing and engraving...................................... 56,500.00
Warrant Agent, Transfer Agent and Registrar fees............ 3,500.00
Miscellaneous expenses...................................... 25,000.00
-----------
TOTAL....................................................... $388,967.40
===========
</TABLE>
LearnSat.Com will bear all expenses shown above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1999, LearnSat.Com completed the sale of 12.5 units at a price of
$50,000 per unit in a private financing transaction. Each unit consisted of
100,000 shares of common stock, 100,000 class A redeemable common stock purchase
warrants, and 50,000 class B redeemable common stock purchase warrants. Each
class A redeemable warrant entitles the holder to purchase one share of common
stock at a price of $2.50 per share and each class B redeemable warrant entitles
the holder to purchase one share of common stock at a price of $4.00 per share.
The class A redeemable warrants are exercisable through December 31, 2002 and
the class B redeemable warrants are exercisable through December 31, 2004. These
securities were sold pursuant to the exemption from the registration provisions
of the Securities Act provided by Rule 506 of Regulation D promulgated under
Section 4(2) of the act. The shares of common stock underlying the units and the
shares of common stock issuable upon exercise of the class A warrants and the
class B warrants are being registered for public sale and are included in this
registration statement.
II-1
<PAGE> 75
The names of the private financing unit purchasers and the number of units
purchased and amount invested by each purchaser is set forth in the following
table:
<TABLE>
<CAPTION>
NO. OF $ AMOUNT
NAME AND ADDRESS UNITS OF PURCHASE
- ---------------- ------ -----------
<S> <C> <C>
Robert and Barbara Oliver................................... 1/2 $ 25,000
Robert Wahl................................................. 1/2 25,000
John E. McConnaughy, Jr. ................................... 4 200,000
Joseph Giamanco............................................. 1 50,000
Charles R. Hoover........................................... 1/2 25,000
Barry Blank Trustee......................................... 2 100,000
Barry Blank Trust Gary Herman............................... 1 50,000
Violet Blank Trust.......................................... 1/2 25,000
Joseph Marinelli............................................ 1/2 25,000
William and Joan Quinn...................................... 1/2 25,000
Janet M. Portelly........................................... 1/2 25,000
Charles and Linda Brewer.................................... 1/2 25,000
Kenneth Moore............................................... 1/2 25,000
</TABLE>
Charles and Linda Brewer paid for their one half unit with a promissory
note. The note, together with interest at the annual rate of 7.75%, is due on
March 5, 2000. Mr. and Mrs. Brewer prepaid $15,000 of the principal on September
27, 1999.
Dirks & Company, Inc. acted as the placement agent for the private
financing. LearnSat.Com paid Dirks a fee of $62,500, which was equal to 10% of
the aggregate purchase price of the units sold, and a non accountable expense
allowance of $18,750, which was equal to 3% of the aggregate purchase price of
the units sold. LearnSat.Com also granted Dirks, for nominal consideration, a
warrant, exercisable over a five year period which commenced on the closing date
of the private financing, to purchase 125,000 shares of common stock, a like
number of class A non-redeemable warrants and 62,500 class B non-redeemable
warrants, which equaled 10% of the number of shares and class A and class B
redeemable warrants sold in the private financing. The exercise price for the
common stock equals 120% of the placement unit offering price. The class A and
class B non-redeemable warrants acquired by Dirks are exercisable at 120% of the
exercise prices of the warrants sold to the purchasers in the private financing.
Dirks has granted Barry Blank, who is employed by Dirks as a registered
representative and assisted in the sale of the private financing units, 70% of
the shares and the warrants LearnSat.Com granted to it as part of the
compensation described above for effecting the private financing.
ITEM 27. EXHIBITS.
All Exhibits have been previously filed herewith unless otherwise noted.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation as amended**
3.2 By-Laws**
4.1 Specimen Common Stock certificate**
4.2 Form of Class A Redeemable Warrant*
4.3 Form of Class B Redeemable Warrant*
4.4 Form of Class C Redeemable Warrant (attached to Exhibit 4.6
as Exhbit A)
4.5 Form of Class D Redeemable Warrant (attached to Exhibit 4.6
as Exhibit B)
4.6 Form of Warrant Agent's Agreement
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
4.7 Form of Underwriter's Warrant Agreement
5.1 Opinion of Barry Feiner, Esq.**
10.1 Lease for Stillwater, Oklahoma warehouse between
LearnSat.Com and Charles and Linda Brewer dated July 1,
1995*
10.2 Lease for Eustis, Florida integration facility between
LearnSat.Com and Charles and Linda Brewer dated July 1,
1992*
10.3 Lease for Shelton, Washington storage facility between
LearnSat.Com and J-D. Mini-Storage dated August 10, 1998*
10.4 Employment contract between LearnSat.Com and Charles Brewer
dated as of January 1, 1999**
10.5 Employment contract between LearnSat.Com and Linda Brewer
dated as of January 1, 1999**
10.6 Learnsat.Com, Inc. 1999 Long Term Incentive Plan**
10.7 Agreement with General Instruments**
10.8 Agreement with Panasonic**
23.1 Consent of Goldstein Golub Kessler LLP
23.2 Consent of Barry Feiner, Esq. (included in Exhibit 5.1)**
27.1 Financial Data Schedule -- June 30, 1999
27.2 Financial Data Schedule -- December 31, 1998
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering
LearnSat will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
LearnSat.Com 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.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of LearnSat.Com
pursuant to the provisions referred to in Item 24 of this
II-3
<PAGE> 77
Registration Statement or otherwise, LearnSat.Com has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by LearnSat.Com of expenses incurred or paid by a
director, officer or controlling person of LearnSat.Com in the successful
defense of any action, suite or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, LearnSat.Com 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.
II-4
<PAGE> 78
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
the requirements for filing on Form SB-2, and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Stillwater, State of Oklahoma, on this 14th day of October, 1999.
LEARNSAT.COM, INC.
By: /s/ CHARLES BREWER
------------------------------------
President, Chief Executive and
Chief Operating Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CHARLES BREWER President, Chief Executive and October 14, 1999
------------------------------------------------ Chief Operating Officer,
Charles Brewer Director
/s/ LINDA BREWER Chief Financial and Accounting October 14, 1999
------------------------------------------------ Officer, Treasurer,
Linda Brewer Secretary and Director
/s/ KENNETH G. HARPLE* Director October 14, 1999
------------------------------------------------
Kenneth G. Harple
/s/ CHARLES R. HOOVER* Director October 14, 1999
------------------------------------------------
Charles R. Hoover
*By: /s/ CHARLES BREWER
--------------------------------------------
Charles Brewer
Attorney-in-Fact, pursuant to the power of
attorney previously filed as part of this
registration statement.
</TABLE>
II-5
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.4 Form of Class C Redeemable Warrant (attached to Exhibit 4.6
as Exhibit A)
4.5 Form of Class D Redeemable Warrant (attached to Exhibit 4.6
as Exhibit B)
4.6 Form of Warrant Agent's Agreement
4.7 Form of Underwriter's Warrant Agreement
23.1 Consent of Goldstein Golub Kessler LLP
27.1 Financial Data Schedule -- June 30, 1999
27.2 Financial Data Schedule -- December 31, 1998
</TABLE>
<PAGE> 1
Exhibit 1.1
1,334,000 UNITS, EACH UNIT CONSISTING OF
TWO SHARES OF COMMON STOCK,
TWO CLASS C REDEEMABLE WARRANTS AND
ONE CLASS D REDEEMABLE WARRANT
LEARNSAT.COM, INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 1999
DIRKS & COMPANY, INC.
520 Madison Avenue, 10th Floor
New York, New York 10022
Ladies and Gentlemen:
LearnSat.Com, Inc., a Florida corporation (the "Company"),
confirms its agreement with Dirks & Company, Inc. ("Dirks") (hereinafter
referred to as "you" or the "Underwriter"), with respect to the sale by the
Company and the purchase by the Underwriter of 1,334,000 units (the "Units"),
each Unit consisting of two (2) shares of the Company's common stock, $.001 par
value (the "Common Stock"), two (2) Class C redeemable warrants and one (1)
Class D redeemable warrant (collectively, the "Redeemable Warrants"). Each
Redeemable Warrant is exercisable for one share of Common Stock. The Common
Stock and Redeemable Warrants will be separately tradeable six months from the
effective date of this offering and are hereinafter referred to as the "Firm
Units."
The Redeemable Warrants are exercisable commencing on the date
they become separately tradeable, unless previously redeemed by the Company. The
initial exercise price of the Class C redeemable warrant is $3.00 per share,
subject to adjustment, and the initial exercise price of the Class D redeemable
warrant is $6.50 per share, subject to adjustment. The Redeemable Warrants may
be redeemed by the Company, in whole, and not in part, at a redemption price of
one cent ($.01) per Redeemable Warrant at any time commencing on the date that
the shares of common stock and warrants become separately tradeable on 30 days'
prior written notice provided that the closing bid price of the Common Stock
equals or exceeds 150% of the then exercise price per share (subject to
adjustment) for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending three (3) days prior to the date of the notice
of redemption.
<PAGE> 2
Upon the Underwriter's request, as provided in Section 2(b) of
this Agreement, the Company shall also issue and sell to the Underwriter up to
an additional 200,100 Units for the purpose of covering over-allotments, if any.
Such 200,100 Units are hereinafter collectively referred to as the "Option
Units." The shares of Common Stock issuable upon exercise of the Redeemable
Warrants are hereinafter referred to as the "Warrant Shares." The Company also
proposes to issue and sell to the Underwriter or its designees warrants (the
"Underwriter's Warrants"), pursuant to the underwriter's warrant agreement (the
"Underwriter's Warrant Agreement"), for the purchase of an additional 133,400
Units. The common stock purchase warrants issuable upon exercise of the
Underwriter's Warrants are hereinafter sometimes referred to herein as the
"Underwriter's Redeemable Warrants." The shares of Common Stock issuable upon
exercise of the Underwriter's Warrants and the shares of Common Stock issuable
upon exercise of the Underwriter's Redeemable Warrants are hereinafter
collectively referred to as the "Underwriter's Shares." The Underwriter's
Redeemable Warrants and the Underwriter's Shares are sometimes referred to
herein as the "Underwriter's Securities."
Further, 1,250,000 shares of Common Stock and an additional
1,875,000 shares of Common Stock that may be issued if the selling shareholders
exercise certain warrants held by them (collectively, the "Selling Security
Holders' Securities") are being registered for the account of certain selling
security holders in connection with this offering which are not being
underwritten by the Underwriter. The Firm Units, the Option Units, the
Underwriter's Warrants, the Underwriter's Redeemable Warrants, the Underwriter's
Shares, the Warrant Shares and the Selling Security Holders' Securities are
hereinafter collectively referred to as the "Securities" and are more fully
described in the Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as of
the date hereof, and as of the Closing Date (hereinafter defined) and each
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. 333-_______), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Underwriter shall
have objected to in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time it becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or that information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the rules and regulations under the
Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and
2
<PAGE> 3
Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus and the
Registration Statement and the Prospectus, at the time of filing thereof,
conformed with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement nor the
Prospectus, at the time of filing thereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements made in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or the Prospectus. The Company has filed all reports,
forms or other documents required to be filed under the Act and the Exchange Act
and the respective Rules and Regulations thereunder, and all such reports, forms
or other documents, when so filed or as subsequently amended, complied in all
material respects with the Act and the Exchange Act and the respective Rules and
Regulations thereunder.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each 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 a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter expressly for use in
the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations require such
qualification or licensing. The Company does not own, directly or indirectly, an
interest in any corporation, partnership, trust, joint venture or other business
entity. The Company has all requisite power and authority (corporate and other),
and has obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
3
<PAGE> 4
having jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the Prospectus; the
Company is and has been doing business in compliance in with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and with all federal, state, local and foreign laws, rules and
regulations to which it is subject; and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the condition, financial or
otherwise, or the earnings, prospects, shareholders' equity, value, operations,
properties, business or results of operations of the Company. The disclosure in
the Registration Statement concerning the effects of federal, state, local and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all respects and do not omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(ff) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company. The Securities to be
sold by the Company hereunder and pursuant to the Underwriter's Warrant
Agreement and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities,
when delivered by the Company, will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof and the Underwriter's Warrant
Agreement and the Warrant Agreement of the Securities to be sold by the Company
hereunder and thereunder to the Underwriter, the Underwriter will acquire good
and marketable title to such Securities, free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever asserted against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the Company.
4
<PAGE> 5
(f) The audited financial statements of the Company and the
notes thereto included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in cash flow, changes in shareholders' equity and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply. Such financial statements have been examined by Goldstein
Golub Kessler LLP, who are independent certified public accountants within the
meaning of the Act and the Rules and Regulations, as indicated in their reports
filed herewith. Such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. There has been no change
or development involving a material adverse prospective change in the condition,
financial or otherwise, or in the earnings, prospects, shareholders' equity,
value, operations, properties, business or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus;
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information (including, without limitation, any pro forma financial information)
set forth in the Prospectus under the headings "Prospectus Summary,"
"Capitalization," "Selected Financial Data" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" fairly presents, on
the basis stated in the Prospectus, the information set forth therein and such
financial information has been derived from or compiled on a basis consistent
with that of the audited financial statements included in the Prospectus; and in
the case of pro forma information, if any, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriter of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement or the Underwriter's Warrant Agreement, or (iv)
resales of the Securities in connection with the distribution contemplated
hereby.
(i) The Company maintains insurance policies, including, but
not limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any matter, including but not limited to the Company's business,
property or employees, under any insurance policy or surety bond in a due and
timely manner, (ii) does not have any disputes or claims against any underwriter
of such insurance policies or surety
5
<PAGE> 6
bonds, nor has the Company failed to pay any premiums due and payable
thereunder, or (iii) has not failed to comply with all conditions contained in
such insurance policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement or of
any action taken or to be taken by the Company pursuant to or in connection with
this Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement,
(ii) is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (iii) might materially and
adversely affect the condition, financial or otherwise, earnings, prospects,
shareholders' equity, value, operations, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement and to consummate
the transactions provided for in such agreement; and each of this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement have been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms. None of the Company's issue
and sale of the Securities, execution or delivery of this Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement, its performance
hereunder and thereunder, its consummation of the transactions contemplated
herein and therein, or the conduct of its business as described in the
Registration Statement and the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
articles of incorporation or by-laws of the Company, (ii) any license, contract,
indenture, mortgage, lease, deed of trust, voting trust agreement, shareholders'
agreement, note, loan or credit agreement or other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which its properties or assets (tangible or intangible) are or may be
subject, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any
6
<PAGE> 7
arbitrator, court, regulatory body, administrative agency, government
agency or other body, domestic or foreign, is required for the issuance of the
Securities pursuant to the Prospectus and the Registration Statement, this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement, the
performance of this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive right, first refusal
or other rights that any entity or person may have for the issue and/or sale of
any of the Securities, except such as have been obtained under the Act, state
securities laws and the rules of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the Underwriter's purchase and distribution
of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2; and there are no agreements, contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required; and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may otherwise be disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities of the Company or any material change in the
condition, financial or otherwise, earnings, prospects, shareholders' equity,
value, operations, properties, business or results of operations of the Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, shareholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship and the Company is in compliance with all
federal, state, local and foreign laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours. There are no pending investigations involving the Company
7
<PAGE> 8
by the United States Department of Labor or any other governmental agency
responsible for the enforcement of any federal, state, local or foreign laws,
rules and regulations relating to employment. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company, or any predecessor
entity, and none has ever occurred. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists or is imminent.
(q) The Company does not maintain, sponsor or contribute to
any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company nor any of its employees, directors,
shareholders or affiliates (within the meaning of the Rules and Regulations),
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act or otherwise, the stabilization or manipulation of the price of any
security of the Company, whether to facilitate the sale or resale of the
Securities or otherwise.
(s) None of the trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and none of the
licenses and rights to the foregoing, presently owned or held by the Company are
in dispute or are in conflict with the right of any other person or entity. The
Company (i) owns or has the right to use, free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever, all trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and licenses and
rights with respect to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any trademark, trade name, service mark, service name, copyright, patent or
patent application. There is no action, suit, proceeding, inquiry,
8
<PAGE> 9
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or threatened (or circumstances that may give rise
to the same) against the Company which challenges the exclusive rights of the
Company with respect to any trademarks, trade names, service marks, service
names, copyrights, patents, patent applications or licenses or rights to the
foregoing used in the conduct of its business, or which challenge the right of
the Company to use any technology presently used or contemplated to be used in
the conduct of its business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information that are material to the development,
manufacture, operation and sale of all products and services sold or proposed to
be sold by the Company, free and clear of and without violating any right, lien,
or claim of others, including, without limitation, former employers of its
employees.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Goldstein Golub Kessler LLP, whose reports are filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(w) All officers and directors and holders of the securities
of the Company (except holders of the securities issued in connection with the
Company's January 1999 Private Placement of 12.5 units) have executed an
agreement (collectively, the "Lock-Up Agreements") pursuant to which he, she or
it has agreed, (i) for a period extending thirteen (13) months following the
effective date of the Registration Statement, not to, directly or indirectly,
offer, offer to sell, sell, grant an option for the purchase or sale of,
transfer, assign, pledge, hypothecate or otherwise encumber (whether pursuant to
Rule 144 of the Rules and Regulations or otherwise) any securities issued or
issuable by the Company, whether or not owned by or registered in the name of
such persons, or dispose of any interest therein, without the prior written
consent of the Underwriter and the Company, and, (ii) for a period extending
eighteen (18) months following the effective date of the Registration Statement,
that all sales of such securities issued by the Company shall be made through
the Underwriter in accordance with its customary brokerage policies. The Company
will cause its transfer agent to mark an appropriate legend on the face of stock
certificates representing all of such securities and place "stop transfer"
orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD.
9
<PAGE> 10
(y) The Units, the Common Stock, and the Redeemable Warrants
have been approved for quotation on The Pacific Stock Exchange.
(z) Neither the Company nor any of its directors, officers,
shareholders, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign), (ii) if not
given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
shareholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, shareholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(bb) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, and no affiliate or associate (as these
terms are defined in the Rules and Regulations) of any of the foregoing persons
or entities, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which the Company may be bound. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer, director or any person listed in the "Principal Shareholders"
section of the Prospectus or any affiliate or associate of any of the foregoing
persons or entities.
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(cc) The minute books of the Company have been made available
to the Underwriter, contain a complete summary of all meetings and actions of
the directors and shareholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(dd) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. No person or entity holds any anti-dilution
rights with respect to any securities of the Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in Section
4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(ff) The Company has as of the effective date of the
Registration Statement (i) entered into employment agreements with Charles and
Linda Brewer, in the form filed as an Exhibit to the Registration Statement and
(ii) purchased term key-man insurance on the life of Charles in the amount of
$1,000,000, which policy names the Company as sole beneficiary thereof.
(gg) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit 4.6 to the Registration Statement
(the "Warrant Agreement"), with American Stock Transfer & Trust Company, in form
and substance satisfactory to the Underwriter, with respect to the Redeemable
Warrants and providing for the payment of warrant solicitation fees contemplated
by Section __ hereof. The Warrant Agreement has been duly and validly authorized
by the Company and, assuming due execution by the parties thereto other than the
Company, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm
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<PAGE> 12
Units at a price equal to $_____ per Unit [90% of the public offering price].
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Units at a price equal to
$______ per Unit [90% of the public offering price]. The option granted hereby
will expire forty-five (45) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Units upon notice by the Underwriter to the Company
setting forth the number of Option Units as to which the Underwriter is then
exercising the option and the time and date of payment and delivery for any such
Option Units. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Underwriter, but shall not be later than seven (7)
full business days after the exercise of said option, nor in any event prior to
the Closing Date, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to exercise the
option granted hereby. No Option Units shall be delivered unless the Firm Units
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Units shall be made at the offices of the Underwriter
at 520 Madison Avenue, 10th Floor, New York, New York 10022, or at such other
place as shall be agreed upon by the Underwriter and the Company. Such delivery
and payment shall be made at 10:00 a.m. (New York City time) on _________, 1999
or at such other time and date as shall be agreed upon by the Underwriter and
the Company but not less than three (3) nor more than seven (7) full business
days after the effective date of the Registration Statement (such time and date
of payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Units are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for, such Option
Units shall be made at the above mentioned office of the Underwriter or at such
other place as shall be agreed upon by the Underwriter and the Company. Delivery
of the certificates for the Firm Units and the Option Units, if any, shall be
made to the Underwriter against payment by the Underwriter of the purchase price
for the Firm Units and the Option Units, if any, to the order of the Company by
New York Clearing House funds. Certificates for the Firm Units and the Option
Units, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriter may request in writing at least two (2) business days
prior to the Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Units and the Option Units, if any, shall be
made available to the Underwriter at such offices or such other place as the
Underwriter may designate for inspection, checking and packaging no later than
9:30 a.m. on the last business day prior to the Closing Date or the relevant
Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per
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<PAGE> 13
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of an additional 133,400 Units. The Underwriter's Warrants shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at a price equaling one hundred and
twenty percent (120%) of the initial public offering price of the Units. The
Underwriter's Warrant Agreement and the form of the certificates for the
Underwriter's Warrant shall be substantially in the form filed as Exhibit _____
to the Registration Statement. Payment for the Underwriter's Warrants shall be
made on the Closing Date.
3. Public Offering of the Units. As soon after the
Registration Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall make a public offering of the Firm Units and such of the
Option Units as the Underwriter may determine (other than to residents of or in
any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Underwriter, in its sole discretion, deems advisable. The
Underwriter may enter into one or more agreements as the Underwriter, in its
sole discretion, deems advisable with one or more broker-dealers who shall act
as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriter of which the Underwriter shall not
previously have been advised and furnished with a copy, or to which the
Underwriter shall have objected or which is not in compliance with the Act, the
Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or
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<PAGE> 14
any state securities regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriter
or Orrick, Herrington & Sutcliffe LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the
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<PAGE> 15
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriter's Counsel and the Company will furnish to the Underwriter copies of
such amendment or supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the Underwriter,
an earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least twelve (12) consecutive
months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its shareholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly report of earnings and will deliver to the
Underwriter:
i) concurrently with furnishing such quarterly reports
to the Commission statements of income of the Company for such
quarter in the form furnished to the Company's shareholders
and certified by the Company's principal financial and
accounting officer;
ii) concurrently with furnishing such annual reports to
its shareholders, a balance sheet of the Company as at the end
of the preceding fiscal year, together with statements of
operations, shareholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders;
iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of
the Company or its affairs which was released or prepared by
or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Underwriter may
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<PAGE> 16
request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Units,
the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without
charge and at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may reasonably request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Underwriter. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of twelve (12)
months commencing on the effective date of the Registration Statement, and
except as contemplated by this Agreement, it and its present and future
subsidiaries will not, without the prior written consent of the Underwriter
issue, sell, contract or offer to sell, grant an option for the purchase or sale
of, assign, transfer, pledge, distribute or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any option, right or warrant with
respect to any shares of Common Stock or any type of capital stock having voting
or dividend rights on a parity with or superior to the Common Stock, except
pursuant to stock options or warrants issued on the date hereof, for cash at
less than the greater of the initial public offering price of shares of Common
Stock or the then market value of such shares.
(m) Neither the Company nor any of its officers, directors,
shareholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No
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<PAGE> 17
portion of the net proceeds will be used, directly or indirectly, to
acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(k) hereof.
(q) The Company shall cause the Units, the Common Stock and
the Redeemable Warrants to be listed on the Pacific Stock Exchange and, for a
period of seven (7) years from the date hereof, use its best efforts to maintain
the Pacific Stock Exchange listing of the Units, the Common Stock and the
Redeemable Warrants to the extent outstanding.
(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Underwriter, furnish or cause to be
furnished to the Underwriter and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty
(30) days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in the
Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to
continue such inclusion for a period of not less than seven (7) years.
(u) Until the completion of the distribution of the Units to
the public and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Underwriter, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
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<PAGE> 18
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(v) For a period of four (4) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Underwriter, subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Underwriter. In the event the Underwriter shall not have designated such
individual at the time of any meeting of the Board or such person has not been
elected or is unavailable to serve, the Company shall notify the Underwriter of
each meeting of the Board. An individual selected by the Underwriter shall be
permitted to attend all meetings of the Board and to receive all notices and
other correspondence and communications sent by the Company to members of the
Board. The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(w) Commencing one year from the date hereof, to pay the
Underwriter a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the exercise
thereof on terms provided in the Warrant Agreement. The Company will not solicit
the exercise of the Redeemable Warrants through any solicitation agent other
than the Underwriter. The Underwriter will not be entitled to any warrant
solicitation fee unless the Underwriter provides bona fide services in
connection with any warrant solicitation and the investor designates, in
writing, that the Underwriter is entitled to such fee.
(x) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Forms SB-2 or S-1 (or other appropriate form)
for the registration under the Act of the Underwriter's Securities.
(y) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after the
date hereof.
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<PAGE> 19
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment
to be made, at the discretion of the Underwriter, on the Closing Date and any
Option Closing Date (to the extent not paid on the Closing Date or a previous
Option Closing Date)) all expenses and fees (other than fees of Underwriter's
Counsel) incident to the performance of the obligations of the Company under
this Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement, and agreements with selected dealers, and
related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriter and such dealers as the
Underwriter may request, in such quantities as the Underwriter may reasonably
request, (iii) the printing, engraving, issuance and delivery of the Securities,
including transfer taxes, if any, (iv) the qualification of the Securities under
state or foreign securities or "blue sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including, but not limited to costs and expenses in connection with "road
shows," information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including, but not limited to, the
fees of any independent counsel or consultants, (vii) fees and expenses of a
transfer and warrant agent and registrar for the Securities, (viii) applications
for assignments of a rating of the Securities by qualified rating agencies, (ix)
the fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the listing of the Securities on the Pacific Stock
Exchange and any other exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the Underwriter
on the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds of the offering of the Firm
Units, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of the Firm Units, fifty
thousand dollars ($50,000) of which has been paid to date by the Company. In the
event the Underwriter
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<PAGE> 20
elects to exercise the overallotment option described in Section 2(b) hereof,
the Company further agrees to pay to the Underwriter on each Option Closing
Date, by certified or bank cashier's check, or, at the Underwriter's election,
by deduction from the proceeds of the Option Units purchased on such Option
Closing Date, a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of such Option Units.
6. Conditions of the Underwriter's Obligations. The
obligations of the Underwriter hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits to
state a fact which, in the Underwriter's opinion, is material and is required to
be stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
20
<PAGE> 21
papers and information as they may request in order to enable them to pass upon
such matters.
(d) The Underwriter shall have received the favorable opinion
of Barry Feiner, Esq., counsel to the Company, dated the Closing Date, addressed
to the Underwriter, in form and substance satisfactory to Underwriter's Counsel,
to the effect that:
i) the Company (A) has been duly organized and is a
validly existing corporation in good standing under the laws
of its jurisdiction of incorporation, (B) is duly qualified
and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite power
and authority (corporate and other) and has obtained any and
all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its
properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in
compliance in with all such authorizations, approvals, orders,
licenses, certificates and permits obtained by it from
governmental or regulatory officials and agencies and all
federal, state, local and foreign laws, rules and regulations
to which it is subject; and the Company has not received any
notice of proceedings relating to the revocation or
modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects,
shareholders' equity, value, operations, properties, business
or results of operations of the Company. The disclosure in the
Registration Statement concerning the effects of federal,
state, local and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated
is correct in all respects and does not omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading;
ii) the Company does not own, directly or indirectly, an
interest in any corporation, partnership, joint venture, trust
or other business entity;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and
any amendment or supplement thereto, under "Capitalization"
and "Description of Securities" and except as set forth in the
Prospectus, the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement and as described
in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform, or when issued and
paid for, will conform, in all respects to the descriptions
thereof contained in the Registration Statement and the
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<PAGE> 22
Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no
rights of rescission with respect thereto and are not subject
to personal liability by reason of being such holders; and
none of such securities were issued in violation of the
preemptive rights of any holders of any security of the
Company or any similar contractual right granted by the
Company. The Securities to be sold by the Company hereunder
and under the Underwriter's Warrant Agreement and the Warrant
Agreement are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in
accordance with the terms hereof and thereof, will be validly
issued, fully paid and non-assessable and conform to the
descriptions thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such
holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly
and validly taken; and the certificates representing the
Securities are in due and proper form. The Redeemable Warrants
and Underwriter's Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company hereunder and
thereunder, the Underwriter will acquire good and marketable
title to such Securities, free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever. No transfer tax
is payable by or on behalf of the Underwriter in connection
with (A) the issuance by the Company of the Securities, (B)
the purchase by the Underwriter of the Securities from the
Company, (C) the consummation by the Company of any of its
obligations under this Agreement, the Underwriter's Warrant
Agreement or the Warrant Agreement, or (D) resales of the
Securities in connection with the distribution contemplated
hereby;
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or
supplements thereto (other than the financial statements and
schedules and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act
and the Rules and Regulations;
vi) (A) there are no agreements, contracts or other
documents required
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<PAGE> 23
by the Act to be described in the Registration Statement (or
required to be filed under the Exchange Act if upon such
filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits to
the Registration Statement other than those described in the
Registration Statement and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
agreements, contracts and other documents to which the Company
is a party or by which it is bound are accurate and fairly
represent the information required to be shown by Form SB-2;
(C) there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give
rise to the same) or involving the properties or business of,
the Company which (I) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (II) questions
the validity of the capital stock of the Company or of this
Agreement, the Underwriter's Warrant Agreement or the Warrant
Agreement or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no
statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as
required; and (E) there is no action, suit or proceeding
pending or threatened against or affecting the Company before
any court, arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which there is
a reasonable possibility of a decision which may result in a
material adverse change in the condition, financial or
otherwise, or the earnings, prospects, shareholders' equity,
value, operation, properties, business or results of
operations of the Company, which could adversely affect the
present or prospective ability of the Company to perform its
obligations under this Agreement, the Underwriter's Warrant
Agreement or the Warrant Agreement or which in any manner
draws into question the validity or enforceability of this
Agreement, the Underwriter's Warrant Agreement or the Warrant
Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement and
to consummate the transactions provided for herein and
therein; and each of this Agreement, the Underwriter's Warrant
Agreement and the Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of the
Underwriter's Warrant Agreement and the Warrant Agreement
certain provisions of this Agreement assuming due
authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance
with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and
23
<PAGE> 24
the application of equitable principles in any action,
legal or equitable, and except as obligations to indemnify or
contribute to losses may be limited by applicable law). None
of the Company's execution or delivery of this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement, its
performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, or the conduct
of its business as described in the Registration Statement and
the Prospectus and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result
in any breach or violation of any of the terms or provisions
of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company
pursuant to the terms of (A) the certificate of incorporation
or bylaws of the Company, (B) any license, contract,
indenture, mortgage, lease, deed of trust, voting trust
agreement, shareholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is
or may be bound or to which its properties or assets (tangible
or intangible) are or may be subject, (C) any statute
applicable to the Company or (D) any judgment, decree, order,
rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction
over the Company or any of their activities or properties;
viii) no consent, approval, authorization or order of, and
no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws and the rules of the NASD, as to which no
opinion need be rendered), is required in connection with the
issuance of the Securities pursuant to the Prospectus, the
Registration Statement, this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement, or the
performance of this Agreement, the Underwriter's Warrant
Agreement and the Warrant Agreement and the transactions
contemplated hereby and thereby;
ix) the properties and business of the Company conform
to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property stated in
the Prospectus to be owned or leased by it, in each case free
and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable;
x) the Company is not in breach of, or in default
under, any term or provision of any license, contract,
indenture, mortgage, lease, deed of trust,
24
<PAGE> 25
voting trust agreement, shareholders' agreement, note,
loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by
which it is or may be bound or to which its property or assets
(tangible or intangible) are or may be subject; and the
Company is not in violation of any term or provision of (A)
its certificate of incorporation or by-laws, (B) any
authorization, approval, order, license, certificate,
franchise or permit of any governmental or regulatory official
or body, or (C) any judgement, decree, order, statute, rule or
regulation to which it is subject;
xi) the Units, the Common Stock and the Redeemable
Warrants have been accepted for quotation on the Pacific Stock
Exchange;
xii) the statements in the Prospectus under "Prospectus
Summary," "The Company," "Risk Factors," "Business,"
"Management," "Principal Shareholders," "Certain
Transactions," "Shares Eligible For Future Sale," and
"Description of Securities" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
xiii) the persons listed under the caption "Principal
Shareholders" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in Rule 13d-3 under the
Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
xiv) the Company owns or possess, free and clear of all
liens or encumbrances and right thereto or therein by third
parties, the requisite licenses or other rights to use all
trademarks, service marks, copyrights, service names,
tradenames, patents, patent applications and licenses
necessary to conduct its business (including without
limitation any such licenses or rights described in the
Prospectus as being owned or possessed by the Company) and
there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the
exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade
names, patents, patent applications and licenses used in the
conduct of the Company's business (including, without
limitation, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company);
xv) neither the Company nor any of their respective
directors, officers, stockholders, employees, agents or any
other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in
the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or any official
or employee of any governmental agency or instrumentality of
any government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who
was, is or may be
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<PAGE> 26
in a position to help or hinder the business of the
Company (or assist it in connection with any actual or
proposed transaction) which (A) might subject the Company or
any such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or
foreign), (B) if not given in the past, might have had
material and adverse effect on the condition, financial or
otherwise, or the earnings, prospects, shareholders' equity,
value, operations, properties, business or results of
operations of the Company taken as a whole, or (C) if not
continued in the future, might materially and adversely affect
the condition, financial or otherwise, or the earnings,
prospects, shareholders' equity, value, operations,
properties, business or results of operations of the Company
taken as a whole;
xvi) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD;
xvii) the minute books of the Company contain a complete
summary of all meetings and actions of the directors and
shareholders of the Company since the time of its
incorporation and reflect all transactions referred to in such
minutes accurately in all material respects;
xviii) no person, corporation, trust, partnership,
association or other entity has the right to include and/or
register any securities of the Company in the Registration
Statement, require the Company to file any registration
statement or, if filed, to include any security in such
registration statement;
xix) assuming due authorization, execution and delivery
by the parties thereto, the Lock-Up Agreements are legal,
valid and binding obligations of the parties thereto,
enforceable against such parties and any subsequent holder of
the securities subject thereto in accordance with their terms;
xx) except as described in the Prospectus, the Company
does not (A) maintain, sponsor or contribute to an ERISA
Plans, (B) maintain or contribute, now or at any time
previously, to a defined benefit plan, as defined in Section
3(35) of ERISA, and (C) has never completely or partially
withdrawn from a "multiemployer plan"; and
xxi) none of the Company or an of its affiliates shall be
subject to the requirements of or shall be deemed an
"Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public
26
<PAGE> 27
accountants for the Company, at which conferences such counsel made
inquiries of such officers, representatives and accountants and discussed the
contents of the Preliminary Prospectus, the Registration Statement, the
Prospectus and related matters and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Preliminary Prospectus, the
Registration Statement or the Prospectus, on the basis of the foregoing, no
facts have come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective, or the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, as of the
date of the Preliminary Prospectus and the Prospectus, and as of the date of
such opinion, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or the Prospectus, or any supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriter's
Counsel) of other counsel acceptable to Underwriter's Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel, if requested. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord. The opinion
of such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriter and
they are justified in relying thereon. Such opinion shall also state that
Underwriter's Counsel is entitled to rely thereon.
(e) The Underwriter shall have received the favorable opinion
of __________________, patent counsel to the Company, dated the Closing Date,
addressed to the Underwriter, in substantially the form attached as Schedule A
to this Agreement.
(f) At each Option Closing Date, if any, the Underwriter shall
have received the favorable opinions of Barry Feiner, Esq., counsel to the
Company, and _______________, patent counsel to the Company, dated the relevant
Option Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel confirming, as of the Option Closing Date,
the statements made by Barry Feiner, Esq. and _________________, in their
respective opinions delivered at the Closing Date.
(g) On or prior to each of the Closing Date and each Option
Closing Date, if
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<PAGE> 28
any, Underwriter's Counsel shall have been furnished with such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in Section 6(c)
hereof, or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions of the Company herein
contained.
(h) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or the earnings, shareholders' equity, value, operations, properties, prospects,
business or results of operations of the Company, whether or not in the ordinary
course of business, from the latest dates as of which such matters are set forth
in the Registration Statement and the Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there shall not
have been any change in the capital stock, debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) from the
latest dates as of which such matters are set forth in the Registration
Statement and the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, shareholders' equity, value,
operations, properties, business or results of operations of the Company, except
as set forth in the Registration Statement and Prospectus; and (vii) no stop
order shall have been issued under the Act with respect to the Registration
Statement and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(i) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of
the Closing Date or the Option Closing Date, as the case may
be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
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<PAGE> 29
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the
Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital
stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company; (E) the
Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G)
there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(i)
are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Goldstein Golub Kessler LLP:
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<PAGE> 30
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in
the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations and that the Underwriter may
rely upon the opinion of Goldstein Golub Kessler LLP with
respect to such financial statements and supporting schedules
included in the Registration Statement;
iii) stating that, on the basis of a limited review which
included a reading of the latest unaudited interim financial
statements of the Company, a reading of the latest available
minutes of the shareholders and board of directors and the
various committees of the board of directors of the Company,
consultations with officers and other employees of the Company
responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the
unaudited financial statements and supporting schedules of the
Company included in the Registration Statement do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company included in the Registration
Statement, or (B) at a specified date nor more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the
shareholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the ______, 1999
balance sheet included in the Registration Statement, other
than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during
the period from ______, 1999 to a specified date not more than
five (5) days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net
earnings or net earnings per share of Common Stock, in each
case as compared with the corresponding period beginning
_______, 1998, other than as set forth in or contemplated by
the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers
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<PAGE> 31
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 audit in accordance with
generally accepted auditing standards) set forth in the letter
and found them to be in agreement; and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may
request.
(l) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received from Goldstein Golub Kessler LLP a letter,
dated as of the Closing Date or the relevant Option Closing Date, as the case
may be, to the effect that (i) it reaffirms the statements made in the letter
furnished pursuant to Section 6(k), (ii) if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that Goldstein
Golub Kessler LLP has carried out procedures as specified in clause (v) of
Section 6(k) hereof with respect to certain amounts, percentages and financial
information as specified by the Underwriter and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(m) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number of
Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to Section 4(e) hereof shall
have been issued on either the Closing Date or the Option Closing Date, if any,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Underwriter the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit ____
to the Registration Statement. On or before the Closing Date, the Company shall
have executed and delivered to the Underwriter the Underwriter's Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(p) On or before Closing Date, the Securities shall have been
duly approved for listing on the Pacific Stock Exchange, subject to official
notice of issuance.
(q) On or before Closing Date, there shall have been delivered
to the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
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<PAGE> 32
(r) On or before the effective date of the Registration
Statement, the Company and American Stock Transfer & Trust Company shall have
executed and delivered to the Underwriter the Warrant Agreement, substantially
in the form filed as Exhibit ____ to the Registration Statement.
(s) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Underwriter the unaudited interim financial statements
required to be so delivered pursuant to Section 4(p) of this Agreement.
If any condition to the Underwriter's obligations hereunder to
be fulfilled prior to or at the Closing Date or at any Option Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
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<PAGE> 33
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Underwriter (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries and suits in respect thereof), whatsoever (including
but not limited to any and all costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit, commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, the NASD, Nasdaq or any securities
exchange; (B) the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (in the case of the Prospectus, in light of the circumstances in
which they were made); or (C) any breach of any representation, warranty,
covenant or agreement of the Company contained herein or in any certificate by
or on behalf of the Company or any of its officers delivered pursuant hereto,
unless, in the case of clause (A) or (B) above, such statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
any Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be. The indemnity agreement in this Section 7(a)
shall be in addition to any liability which the Company may have at common law
or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors and officers and each person, if any, who
controls the Company within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Underwriter but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
33
<PAGE> 34
Prospectus, the Registration Statement or the Prospectus directly relating to
the transactions effected by the Underwriter in connection with the offering
contemplated hereby. The Company acknowledges that the statements with respect
to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, an indemnified party shall
have the right to employ its own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of such action,
investigation, inquiry, suit or proceeding at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to one or all of the indemnifying parties (in which event the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. An indemnifying party will not, without
the prior written consent of the indemnified parties, settle, compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action, investigation, inquiry,
suit or proceeding), unless such settlement, compromise or consent (i) includes
an unconditional release of each indemnified party from all liability arising
out of such claim, action, investigation, suit or proceeding and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act by or on
34
<PAGE> 35
behalf of any indemnified party. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigation, inquiry, suit or proceeding in respect thereof) (A) in
such proportion as is appropriate to reflect the relative benefits received by
each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriter is the indemnified party, the relative benefits received by
the Company, on the one hand, and the Underwriter, on the other, shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriter hereunder, in each case as set forth in the table on
the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriter, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions, investigation, inquiry, suit or proceeding in respect
thereof) referred to in the first (1st) sentence of this Section 7(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7(d), the Underwriter
shall not be required to contribute any amount in excess of the underwriting
discount applicable to the Securities purchased by the Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
12(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7(d),
each person, if any, who controls the Company or the Underwriter within the
meaning of the Act, each officer of the Company who has signed the registration
statement and director of the Company shall have the same rights to contribution
as the Company or the Underwriter, as the case may be, subject in each case to
this Section 7(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, investigation, inquiry, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this Section 7(d), notify such
party or parties from whom
35
<PAGE> 36
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
Section 7(d), or to the extent that such party or parties were not adversely
affected by such omission. Notwithstanding anything in this Section 7 to the
contrary, no party will be liable for contribution with respect to the
settlement of any action, investigation, inquiry, suit or proceeding effected
without its written consent. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, any controlling person of any
Underwriter or the Company, and shall survive the termination of this Agreement
or the issuance and delivery of the Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
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<PAGE> 37
10. Termination.
(a) Subject to Section 10(b) hereof, the Underwriter shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Underwriter's opinion will in the immediate future materially adversely disrupt,
the financial markets; or (ii) if any material adverse change in the financial
markets shall have occurred; or (iii) if trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any state or federal authority;
or (vii) if a moratorium in foreign exchange trading shall have been declared;
or (viii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Underwriter's opinion, make it inadvisable to proceed with the delivery
of the Securities; or (ix) if there shall have been such a material adverse
change in the conditions or prospects of the Company, or if there shall have
occurred any outbreak or escalation of hostilities or any calamity or crisis or
there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in the
Underwriter's judgment would make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6 or Section 10(a) hereof, the Company
shall promptly reimburse and indemnify the Underwriter for all its actual
out-of-pocket expenses, including the reasonable fees and disbursements of
Underwriter's Counsel, less amounts previously paid pursuant to Section 5(c)
hereof. In addition, the Company shall remain liable for all reasonable "blue
sky" counsel fees and expenses and "blue sky" filing fees. In addition, the
Company shall remain liable for all "blue sky" counsel fees and expenses and
"blue sky" filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6 and 10(a) hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way be affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Units to be purchased on an Option Closing Date, the Underwriter may,
at its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Units from the Company on such date)
without any
37
<PAGE> 38
liability on the part of any non-defaulting party other than pursuant to Section
5, Section 7 and Section 10 hereof. No action taken pursuant to this Section 11
shall relieve the Company from liability, if any, in respect of such default.
12. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at Dirks & Company, Inc., 520 Madison Avenue, 10th Floor, New York,
NY 10038, Attention: Jessy Dirks, with a copy to Orrick, Herrington & Sutcliffe,
666 Fifth Avenue, New York, New York 10103, Attention: Lawrence Fisher, Esq.
Notices to the Company shall be directed to the Company at LearnSat.Com, Inc.,
3819 South Perkins Road, Stillwater, Oklahoma 74074, Attention: Charles Brewer,
President and Chief Executive Officer, with a copy to Barry Feiner, Esq., 190
Willis Avenue, Mineola, NY 11501, Attention: Barry Feiner, Esq.
13. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Units from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement and the
Underwriter's Warrant Agreement constitute the entire agreement of the parties
hereto and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof and thereof. This
Agreement may not be amended except in a writing signed by the Underwriter and
the Company.
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<PAGE> 39
If the foregoing correctly sets forth the understanding
between the Underwriter and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
LEARNSAT.COM, INC.
By:_____________________________________
Charles Brewer
President and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
DIRKS & COMPANY, INC.
By:_______________________________________
Name:
Title:
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<PAGE> 40
Schedule A
[FORM OF INTELLECTUAL PROPERTY OPINION]
____________________________, 1999
DIRKS & COMPANY, INC.
520 Madison Avenue, 11th Floor
New York, New York 10022
Re: Public Offering of LearnSat.Com, Inc.
Gentlemen:
We have acted as special counsel to LearnSat.Com, Inc., a Florida
corporation (the "Company"), in connection with the entering into by the Company
of that certain Underwriting Agreement by and between Dirks & Company, Inc.
("Dirks") and the Company, dated , 1999 (the "Underwriting"). This
opinion is provided to you pursuant to Section of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we have
reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed , 1999, together
with any and all amendments thereof and exhibits thereto (collectively, the
"Registration Statement");
(iii) a search of the United States Patent and Trademark Office records
and relevant foreign patent and trademark offices records, relevant to ownership
of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed on Schedule A annexed
hereto and hereby incorporated by reference herein (collectively, the
"Patents")), and trademarks, trademark applications, service marks and service
mark applications (collectively, the "Marks") (including, without limitation,
the Marks listed on Schedule B annexed hereto and hereby incorporated by
reference herein (collectively, the "Trademarks")), owned, purportedly owned or
licensed by the Company (including, those patents, patent applications and Marks
licensed, without limitation, pursuant to the licenses listed on Schedule C
annexed hereto and hereby incorporated by reference herein (collectively, the
"Licenses")), conducted by and certified as true and correct as of ______, 1999
(no earlier than 5 days prior to the date of the Closing (as defined in the
Underwriting Agreement));
<PAGE> 41
(iv) a search of the United States Copyright Office records relevant to
ownership of any and all copyrighted material (including, without limitation,
the copyright in, or license permitting the Company's actual use of, the
material licensed or otherwise distributed by the Company and listed on Schedule
D annexed hereto and hereby incorporated by reference herein (collectively, the
"Copyrighted Material")), owned, purportedly owned or licensed by the Company
conducted by and certified as true and correct as of , 1999
(no earlier than 5 days prior to the date of the Closing);
(v) an intellectual property litigation search with respect to all
Patents, Trademarks, Licenses and Copyrighted Material, listed on Schedules A,
B, C and D, respectively;
(vi) a search of the Uniform Commercial Code ("UCC") recordation
offices, in the following jurisdictions -- [ , and ],
with respect to the following two categories of general intangibles:
(a) the intellectual property general intangibles of the
Company, including, without limitation, the Company's patents, patent
applications, inventions, know how, trademarks, service marks, copyrights,
service and trade names, intellectual property licenses and other rights, and
(b) the intellectual property general intangibles licensed to
the Company, including, without limitation, the patents, patent applications,
inventions, know how, trademarks, service marks, copyrights, service and trade
names and other intellectual property rights licensed to the Company pursuant to
the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by and
current through , 1999 (no earlier than 5 days prior to the date of
the Closing) and said jurisdictions being the only jurisdictions in which filing
of UCC financing statements or other documents may be filed to effectively
evidence a security or other interest in said general intangibles; and
(vii) any and all records, documents, instruments and agreements in our
possession or under our control relating to the Company.
We have also examined such corporate records, documents, instruments
and agreements, and inquired into such other matters, as we have deemed
necessary or appropriate as a basis for the opinions set forth herein. Whenever
our opinion herein is qualified by the phrase "to the best of our knowledge" or
"to the best of our knowledge, after due inquiry," such language means that,
based upon (i) our inquiries of officers of the Company, (ii) our review of the
Documents, and (iii) our review of such other corporate records, documents,
instruments and agreements described in the first sentence of this paragraph, we
believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact represented to
you by the Company, we advise you that nothing has come to our attention that
would cause us to believe that such facts are incorrect, incomplete or
misleading or that reliance thereon is not warranted under the circumstances. We
call to your attention that our opinion is limited to such facts as
2
<PAGE> 42
they exist on the date hereof and do not take into account any change of
circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as
described in the Registration Statement, the Company owns or has the right to
use, free and clear of all liens, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever,
(i) all patents and patent applications (including,
without limitation, the Patents),
(ii) all trademarks and service marks (including, without
limitation, the Trademarks),
(iii) all copyrights (including, without limitation, the
Copyrighted Material),
(iv) all service and trade names, and
(v) all intellectual property licenses (including,
without limitation, the Licenses),
used in, or required for, the conduct of the Company's business.
2. To the best of our knowledge, after due inquiry, the
Company possesses all material intellectual property licenses or rights used in,
or required for, the conduct of its business (including, the Licenses and
without limitation, any such licenses or rights described in the Registration
Statement as being owned, possessed or licensed by the Company, as the case may
be) and such licenses and rights are in full force and effect.
3. To the best of our knowledge, after due inquiry, there is
no claim or action, pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's business.
4. To the best of our knowledge, after due inquiry, there is
no intellectual property based claim or action, pending, threatened or
potential, which affects or could affect the rights of the Company with respect
to any products, services, processes or licenses, including, without limitation,
the Licenses used in the conduct of the Company's business.
5. To the best of our knowledge, after due inquiry, except as
described in the Registration Statement, the Company is not under any obligation
to pay royalties or fees to any third party with respect to any material,
technology or intellectual properties developed, employed, licensed or used by
the Company.
6. To the best of our knowledge, after due inquiry, the
statements in the Registration Statement under the headings, "Risk Factors - "
and "Business -
3
<PAGE> 43
", are accurate in all material respects, fairly represent the
information disclosed therein and do not omit to state any fact necessary to
make the statements made therein complete and accurate.
7. To the best of our knowledge, after due inquiry, the
statements in the Registration Statement do not contain any untrue statement of
a material fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the intellectual
property position of the Company which is required to be stated in the
Registration Statement or is necessary to make the statements therein not
misleading.
We call your attention to the fact that the members of this firm are
licensed to practice law in the State of and before the United States
Patent and Trademark Office as Registered Patent Attorneys. Accordingly, we
express no opinion with respect to the laws, rules and regulations of any
jurisdictions other than the State of and the United States of
America.
The opinions expressed herein are for the sole benefit of, and may be
relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
<PAGE> 1
EXHIBIT 4.6
OH&S DRAFT
9/15/99
LEARNSAT.COM,INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
------------
WARRANT AGREEMENT
DATED AS OF [______________ __, 1999]
<PAGE> 2
AGREEMENT, dated this __ day of _________, 1999, by and between
LEARNSAT.COM, INC., a Florida corporation (the "Company") and AMERICAN STOCK
TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of up to
1,334,000 units ("Units"), consisting of an aggregate 2,668,000 shares of Common
Stock (as defined in Section 1), 2,668,000 redeemable Class C common stock
purchase warrants (the "Class C Warrants") and 1,334,000 redeemable Class D
common stock purchase warrants (the "Class D Warrants" and together with the
Class C Warrants, the "Warrants"), each warrant entitling the holder thereof to
purchase one additional share of Common Stock, (ii) the over-allotment option to
purchase up to an additional 200,100 Units, consisting of an aggregate 400,200
shares of Common Stock, 400,200 Class C Warrants and 200,100 Class D Warrants
(the "Over-allotment Option"), and (iii) the sale to the underwriter Dirks &
Company, Inc. (hereinafter referred to variously as "Dirks" or the
"Underwriter"), of warrants (the "Underwriter's Warrants") to purchase up to
133,400 Units, consisting of an aggregate 266,800 shares of Common Stock,
266,800 Class C Warrants and 133,400 Class D Warrants, the Company will issue up
to 5,002,500 warrants (subject to increase as provided in the Underwriter's
Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the Warrants
and the rights of the holders thereof.
<PAGE> 3
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Common Stock" shall mean the authorized stock of the Company of
any class, whether now or hereafter authorized, which has the right to
participate in the voting and in the distribution of earnings and assets of the
Company without limit as to amount or percentage.
(c) "Commission" shall mean the Securities and Exchange Commission.
(d) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its business in New York, New
York, shall be administered, which office is located on the date hereof at 40
Wall Street.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Exercise Date" shall mean, subject to the provisions of Section
5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder thereof or his
attorney duly authorized in writing, and (ii) payment in cash or by official
bank or certified check made payable to the Warrant Agent for the account of the
Company,
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<PAGE> 4
of the amount in lawful money of the United States of America equal to the
applicable Purchase Price (as hereinafter defined) in good funds.
(g) "Initial Public Offering Price" shall mean [__] per Share of Common
Stock.
(h) "Initial Warrant Exercise Date" shall mean __________ __, 2000,
which is the date that the Common Stock and Warrants in the offering become
separately tradeable. The Company and the Underwriter may agree that trading of
the Common Stock and Warrants can begin sooner, in which case the Initial
Warrant Exercise Date shall be adjusted to such earlier trading date.
(i) "Initial Warrant Redemption Date" shall mean ________ __, 2000,
which is the date that the Common Stock and Warrants in the offering become
separately tradeable. The Company and the Underwriter may agree that trading of
the Common Stock and Warrants can begin sooner, in which case the Initial
Warrant Redemption Date shall be adjusted to such earlier trading date.
(j) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(k) "Nasdaq" shall mean the Nasdaq Stock Market.
(l) "Purchase Price" shall mean, subject to modification and adjustment
as provided in Section 8, $3.00 per share for the Class C Warrants and $6.50 per
share for the Class D Warrants, with respect to and further subject to the
Company's right, in its sole discretion, to decrease the Purchase Price for a
period of not less than 30 days on not less than 30 days' prior written notice
to the Registered Holders.
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<PAGE> 5
(m) "Redemption Date" shall mean the date (which may not occur before
the Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
(n) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.01 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof.
(o) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(p) "Transfer Agent" shall mean American Stock Transfer and Trust
Company, or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting agreement
dated ________ __, 1999 between the Company and the Underwriter relating to the
purchase for resale to the public of the Common Stock and the Warrants.
(r) "Underwriter's Warrant Agreement" shall mean the agreement dated as
of _________ __, 1999 between the Company and the Underwriter relating to and
governing the terms and provisions of the Underwriter's Warrants.
(s) "Warrant Certificate" shall mean a certificate representing each of
the Class C Warrants and Class D Warrants, respectively, substantially in the
form annexed hereto as Exhibit A and Exhibit B.
(t) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:30 p.m. (New York
time), on ______ __, 2003 for the Class C Warrants and __________, 2005 for the
Class D Warrants, or the
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<PAGE> 6
Redemption Date as defined herein, whichever date is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:30 p.m. (New York time) on the next following
day which, in the State of New York, is not a holiday or a day on which banks
are authorized to close. Upon five business days' prior written notice to the
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof in accordance with the
terms hereof, subject to modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold pursuant to the Underwriting Agreement (subject to
modification and adjustment as provided in Section 8) shall be executed by the
Company and delivered to the Warrant Agent.
(c) Upon exercise of the Underwriter's Warrants as provided therein,
Warrant Certificates representing all or a portion of 266,800 Class C Warrants
and 133,400 Class D Warrants to purchase up to an aggregate of 400,200 shares of
Common Stock (subject to modification and adjustment as provided in Section 8
hereof and in the Underwriter's Warrant Agreement), shall be countersigned,
issued and delivered by the Warrant Agent upon written order of the Company
signed by its Chairman of the Board, Chief Executive Officer, President or a
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary.
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<PAGE> 7
(d) From time to time, up to the Warrant Expiration Date or the
Redemption Date, whichever date is earlier, the Warrant Agent shall countersign
and deliver Warrant Certificates in required denominations of one or whole
number multiples thereof to the person entitled thereto in connection with any
transfer or exchange permitted under this Agreement. Except as provided herein,
no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder and those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants held by the
exercising Registered Holder, (ii) Warrant Certificates issued upon any transfer
or exchange of Warrants, (iii) Warrant Certificates issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7,
(iv) Warrant Certificates issued pursuant to the Underwriter's Warrant
Agreement, and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A and Exhibit B (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance,
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<PAGE> 8
transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Chief Executive Officer, President or any Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates, nevertheless, may be countersigned
by the Warrant Agent, issued and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be such
officer of the Company. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered by the Warrant Agent to the Registered Holder
promptly and without further action by the Company, except as otherwise provided
by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof
may be exercised by the Registered Holder thereof commencing at any time on or
after the Initial Warrant Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as
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<PAGE> 9
the holder, upon exercise thereof, as of the close of business on the Exercise
Date. If Warrants in denominations other than whole number multiples thereof
shall be exercised at one time by the same Registered Holder, the number of full
shares of Common Stock which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of full shares of Common Stock
issuable upon such exercise. As soon as practicable on or after the Exercise
Date and in any event within five business days after such date, if one or more
Warrants have been exercised, the Warrant Agent on behalf of the Company shall
cause to be issued to the person or persons entitled to receive the same a
Common Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the same to
the person or persons entitled thereto. Upon the exercise of any one or more
Warrants, the Warrant Agent shall promptly notify the Company in writing of such
fact and of the number of securities delivered upon such exercise and, subject
to subsection (b) below, shall cause all payments of an amount in cash or by
check made payable to the order of the Company, equal to the Purchase Price, to
be deposited promptly in the Company's bank account.
(b) The Company shall not be required to issue fractional shares on the
exercise of Warrants. Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares. If
one or more Warrants shall be presented for exercise in full at the same time by
the same Registered Holder, the number of whole shares which shall be issuable
upon such exercise thereof shall be computed on the basis of the aggregate
number of shares purchasable on exercise of the Warrants so presented. If any
fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
8
<PAGE> 10
(1) If the Common Stock is listed, or admitted to unlisted trading
privileges on a national securities exchange, or is traded on Nasdaq, the
current market value of a share of Common Stock shall be the closing sale price
of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants on whichever of such
exchanges or Nasdaq had the highest average daily trading volume for the Common
Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, but is traded in the over-the-counter market, the current
market value of a share of Common Stock shall be the average of the last
reported bid and asked prices of the Common Stock reported by the National
Quotation Bureau, Inc. on the last business day prior to the date of exercise of
the Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the current market value of a
share of Common Stock shall be an amount, not less than the book value thereof
as of the end of the most recently completed fiscal quarter of the Company
ending prior to the date of exercise, determined by the members of the Board of
Directors of the Company exercising good faith and using customary valuation
methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be
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<PAGE> 11
issuable upon exercise of the Warrants shall, at the time of delivery thereof,
be duly and validly issued and fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, and that upon issuance such shares shall be listed on each securities
exchange, if any, on which the other shares of outstanding Common Stock of the
Company are then listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment, use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except, if
in the opinion of counsel to the Company, such registration is not required
under the federal securities law or if the Company receives a letter from the
staff of the Commission stating that it would not take any enforcement action if
such registration is not effected). The Company will use its best efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws with respect to any such securities. However, Warrants may not be exercised
by, or shares of Common Stock issued to, any Registered Holder in any state in
which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the
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<PAGE> 12
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with customary
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented for registration
of transfer, or for exchange or exercise, the subscription or exercise form, as
the case may be, on the
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<PAGE> 13
reverse thereof shall be duly endorsed or be accompanied by a written instrument
or instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder thereof or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such Holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or the
Warrant Agent that a new Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a
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<PAGE> 14
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common
Stock Deliverable.
(a) Except as hereinafter provided, in the event the Company shall,
issue or sell any shares of Common Stock for a consideration per share less than
the Initial Public Offering Price of the shares of Common Stock or issue any
shares of Common Stock as a stock dividend to the holders of Common Stock, or
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then, and thereafter upon each further
Change of Shares, the Purchase Price for the Warrants (whether or not the same
shall be issued and outstanding) in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a cent
to the nearest cent) determined by dividing (i) the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of
Shares, multiplied by the Purchase Price in effect immediately prior to such
Change of Shares and (b) the consideration, if any, received by the Company upon
such sale, issuance, subdivision or combination, by (ii) the total number of
shares of Common Stock outstanding immediately after such Change of Shares;
provided, however, that in no event shall the Purchase Price be adjusted
pursuant to this computation to an amount in excess of the Purchase Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
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<PAGE> 15
(A) In case of the issuance or sale of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares of
Common Stock) for a consideration part or all of which shall be cash, the amount
of the cash portion of the consideration therefor deemed to have been received
by the Company shall be (i) the subscription price, if shares of Common Stock
are offered by the Company for subscription, or (ii) the public offering price
(before deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash actually
received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company, and otherwise than on the
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company, using customary
valuation methods and on the basis of prevailing market values for similar
property or services.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders
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<PAGE> 16
entitled to receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(D) The reclassification of securities of the Company other than shares
of Common Stock into securities including shares of Common Stock shall be deemed
to involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time outstanding
shall be deemed to include the aggregate maximum number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise of
options, rights or warrants and upon the conversion or exchange of convertible
or exchangeable securities.
(b) Upon each adjustment of the Purchase Price pursuant to this Section
8, the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Purchase
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Purchase Price.
(c) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share (determined as provided in Sections 8(a) and 8(b) and
as provided below) less than the Initial Public Offering Price of the Common
Stock, or without consideration (including the issuance of any such securities
by way of dividend or other distribution), the Purchase Price for the Warrants
(whether or
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<PAGE> 17
not the same shall be issued and outstanding) in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as the case
may be, issuable or that may become issuable under such options, rights or
warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, for a consideration equal
to the minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any, received by
the Company for such options, rights or warrants; provided, however, that upon
the expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (A) (and for the
purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the
number of shares as to which options, warrants and/or rights shall have expired,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Purchase Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or
that may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if not
then currently convertible or
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exchangeable in full) shall be deemed to be issued and outstanding at the
time of issuance of such securities, for a consideration equal to the
consideration received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the termination of the right to convert or
exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection (B) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares
as to which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon conversion or exchange of those convertible
or exchangeable securities as to which the conversion or exchange rights shall
not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (A) of this
Section 8(c), or in the price per share or ratio at which the securities
referred to in subsection (B) of this Section 8(c) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
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(d) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than (1) a merger
with a subsidiary of the Company in which merger the Company is the continuing
corporation or (2) any consolidation or merger of the Company with or into
another corporation which, in either instance, does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination)) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant Agent
a statement signed by its Chief Executive Officer, President or a Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Sections 8(a), (b) and (c). The above provisions of
this Section 8(d) shall similarly apply to
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successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(e) hereof, continue to express the Purchase Price per share and the
number of shares purchasable thereunder as the Purchase Price per share and the
number of shares purchasable thereunder were expressed in the Warrant
Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman, Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
19
<PAGE> 21
(g) No adjustment of the Purchase Price shall be made as a result of or
in connection with (A) the issuance or sale of shares of Common Stock pursuant
to options, warrants, stock purchase agreements and convertible or exchangeable
securities outstanding or in effect on the date hereof and on the terms
described in the final prospectus relating to the public offering contemplated
by the Underwriting Agreement; (B) stock options to be granted under the
Company's 1999 Long Term Incentive Plan or any other stock option plan which has
been approved by the Company's stockholders to employees, consultants and
directors; or (C) the issuance or sale of shares of Common Stock if the amount
of said adjustment shall be less than $.10, provided, however, that in such
case, any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that shall amount, together with any adjustment so carried
forward, to at least $.10. In addition, Registered Holders shall not be entitled
to cash dividends paid by the Company prior to the exercise of any Warrant or
Warrants held by them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may,
on 30 days' prior written notice, redeem all the Warrants at one cent ($.01) per
Warrant, provided, however, that before any such call for redemption of Warrants
can take place, the average closing sale price for the Common Stock as reported
by the Pacific Stock Exchange, if the Common Stock is then traded on the Pacific
Stock Exchange, (or the average closing bid price, if the Common Stock is then
traded on Nasdaq) shall have equaled or exceeded 150% of the Purchase Price for
a period of thirty (30) consecutive trading days ending three days prior to the
date on which the notice contemplated by (b) and (c) below is given (subject to
adjustment in the event of any stock splits or other similar events as provided
in Section 8 hereof).
20
<PAGE> 22
(b) In case the Company shall exercise its right to redeem all of the
Warrants, it shall give or cause to be given notice to the Registered Holders of
the Warrants, by mailing to such Registered Holders a notice of redemption,
first class, postage prepaid, at their last address as shall appear on the
records of the Warrant Agent. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than three (3) days prior to
the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to Dirks a
similar notice telephonically and confirmed in writing together with a list of
the Registered Holders (including their respective addresses and number of
Warrants beneficially owned) to whom such notice of redemption has been or will
be given.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the Redemption Date, which shall in no event be less than thirty (30) days
after the date of mailing of such notice, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:30 p.m. (New York
time) on the business day immediately preceding the date fixed for redemption.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
holder (a) to whom notice was not mailed or (b) whose notice was defective. An
affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:30 p.m. (New
York time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
21
<PAGE> 23
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustments,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of fact contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence, bad faith or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company or for Dirks) and shall incur no
liability or responsibility
22
<PAGE> 24
for any action taken, suffered or omitted by it in good faith in accordance with
the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board of Directors, Chief Executive Officer, President or
any Vice President (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand reasonably believed by it to be
genuine.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save it
harmless from and against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence,
bad faith or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own gross negligence or willful misconduct), after giving
30 days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint in writing
a new warrant agent. If the Company shall fail to make such appointment within a
period of 15 days after it has been
23
<PAGE> 25
notified in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having a capital and surplus, as shown by its last published report to
its stockholders, of not less than $10,000,000 or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
24
<PAGE> 26
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the
date of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; or (ii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; provided, however, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or to increase the Purchase Price therefor or to accelerate the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holders representing not less than 66-2/3% of the Warrants then outstanding,
other than such changes as are presently specifically prescribed by this
Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of the
Underwriter, other than to cure any ambiguity or to correct any provision which
is inconsistent with any other provision of this Agreement or to make any such
change that is necessary or desirable and which shall not adversely affect the
interests of the Underwriter and except as may be required by law.
25
<PAGE> 27
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class registered or certified mail, postage prepaid or by Federal
Express or other reorganized overnight courier, as follows: if to the Registered
Holder of a Warrant Certificate, at the address of such holder as shown on the
registry books maintained by the Warrant Agent; if to the Company at 3819 South
Perkins Road, Stillwater, Oklahoma 74074, Attn: Charles Brewer, or at such other
address as may have been furnished to the Warrant Agent in writing by the
Company; and if to the Warrant Agent, at its Corporate Office. Copies of any
notice delivered pursuant to this Agreement shall also be delivered to the
Underwriter c/o Dirks & Company, Inc., 520 Madison Avenue, 10th Floor, New York,
New York 10022, Attention: General Counsel, or at such other address as may have
been furnished to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Nothing in
this Agreement is intended or shall be construed to confer upon any other person
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
26
<PAGE> 28
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
27
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
[SEAL]
LEARNSAT.COM, INC.
By: __________________________
Name:
Title
Attest:
By: __________________________
Name:
Title:
AMERICAN STOCK TRANSFER AND
TRUST COMPANY,
As Warrant Agent
By: __________________________
Name:
Title:
28
<PAGE> 30
EXHIBIT A
No. W______ VOID AFTER ______ __, 2003
2,668,000 CLASS C WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
LEARNSAT.COM, INC.
CUSIP_____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
______________ or registered assigns (the "Registered Holder") is the owner of
the number of Redeemable Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock of
LearnSat.Com, Inc., a Florida corporation (the "Company"), at any time between
_______ __, 2000 (as may be modified in accordance with the Warrant Agreement,
the "Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer and Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $3.00 subject to
adjustment (the "Purchase Price"), in lawful money of the United States of
America in cash or by check made payable to the Warrant Agent for the account of
the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated ________ __,
1999, between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York time) on
___________, 2003. If each such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:30 p.m. (New York
1
<PAGE> 31
time) on the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $0.01 per
Warrant, at any time commencing after _________ __, 2000, provided that the
average closing sale price for the Common Stock as reported by the Pacific Stock
Exchange (or the closing bid price, if the Common Stock is then traded on
Nasdaq), shall have equaled or exceeded 150% of the Purchase Price for a period
of thirty (30) consecutive trading days ending on three days prior to the Notice
of Redemption, as defined below (subject to adjustment in the event of any stock
splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to the Warrants except to receive the $.01 per Warrant upon surrender of
this Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
2
<PAGE> 32
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
LEARNSAT.COM, INC.
[SEAL]
By: __________________________
Name:
Title:
Attest:
By: __________________________
Name:
Title:
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By: __________________________
Authorized Officer
3
<PAGE> 33
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be
issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________________________
______________________________________
______________________________________
(please print or type name and address)
and be delivered to
______________________________________
______________________________________
______________________________________
(please print or type name and address)
4
<PAGE> 34
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:_________________ X____________________________________
_____________________________________
_____________________________________
Address
_____________________________________
Social Security or Taxpayer
Identification Number
_____________________________________
Signature Guaranteed
5
<PAGE> 35
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,_______________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
____________________________________________
(please print or type name and address)
___________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints _____________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: __________________________ X __________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
6
<PAGE> 36
EXHIBIT B
No. W______ VOID AFTER ______ __, 2005
1,334,000 CLASS D WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
LEARNSAT.COM, INC.
CUSIP_____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
______________ or registered assigns (the "Registered Holder") is the owner of
the number of Redeemable Warrants (the "Warrants") specified above. Each Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock of
LearnSat.Com, Inc., a Florida corporation (the "Company"), at any time between
_______ __, 2000 (as may be modified in accordance with the Warrant Agreement,
the "Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer and Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $6.50 subject to
adjustment (the "Purchase Price"), in lawful money of the United States of
America in cash or by check made payable to the Warrant Agent for the account of
the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
________ __, 1999, between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional interests will be issued. In the
case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:30 p.m. (New York
time) on __________, 2005. If each such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:30 p.m. (New York time) on the next
1
<PAGE> 37
following day which in the State of New York is not a holiday or a day on which
banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$0.01 per Warrant, at any time commencing after _________ __, 2000, provided
that the average closing sale price for the Common Stock as reported by the
Pacific Stock Exchange (or the closing bid price, if the Common Stock is then
traded on Nasdaq), shall have equaled or exceeded 150% of the Purchase Price for
a period of thirty (30) consecutive trading days ending on three days prior to
the Notice of Redemption, as defined below (subject to adjustment in the event
of any stock splits or other similar events). Notice of redemption (the "Notice
of Redemption") shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to the Warrants except to receive the $.01 per Warrant upon surrender of
this Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
2
<PAGE> 38
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated:
LEARNSAT.COM, INC.
[SEAL]
By: _______________________
Name:
Title:
Attest:
By: _______________________
Name:
Title:
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY,
as Warrant Agent
By: _______________________
Authorized Officer
3
<PAGE> 39
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be
issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
______________________________________
______________________________________
______________________________________
(please print or type name and address)
and be delivered to
______________________________________
______________________________________
______________________________________
(please print or type name and address)
4
<PAGE> 40
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: _________________________ X_________________________
_________________________
_________________________
Address
___________________________
Social Security or Taxpayer
Identification Number
___________________________
Signature Guaranteed
5
<PAGE> 41
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,_______________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
_______________________________________
(please print or type name and address)
___________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints _____________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: _________________________ X_________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
6
<PAGE> 1
EXHIBIT 4.7
LEARNSAT.COM, INC.
AND
DIRKS & COMPANY, INC.
UNDERWRITER'S
WARRANT AGREEMENT
DATED AS OF SEPTEMBER [__], 1999
<PAGE> 2
UNDERWRITER'S WARRANT AGREEMENT dated as of September [__], 1999
between LEARNSAT.COM, INC., a Florida corporation (the "Company"), DIRKS &
COMPANY, INC. (hereinafter referred to variously as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Warrants") to purchase up to an aggregate 266,800 shares of Common Stock,
$0.001 par value, of the Company, 266,800 class C redeemable purchase warrants
of the Company ("Class C Redeemable Warrants"), and 133,400 class D redeemable
purchase warrants of the Company ("Class D Redeemable Warrants" and together
with the Class C Redeemable Warrants, "Redeemable Warrants"), each Redeemable
Warrant to purchase one additional share of Common Stock; and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and Underwriter, to act as the Underwriter in connection with the
Company's proposed public offering of up to 1,334,000 units ("Units"),
consisting of an aggregate 2,668,000 shares of Common Stock, 2,668,000 Class C
Redeemable Warrants and 1,334,000 Class D Redeemable Warrants (the "Public
Warrants"), at a public offering price of $[__.__] per unit ($[__.__] per share
of Common Stock, and $[__] per Class C Redeemable Warrant and $[__] per Class D
Redeemable Warrant) (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the Underwriter's compensation in connection with, the Underwriter acting as
the Underwriter pursuant to the Underwriting Agreement;
<PAGE> 3
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate [__________] ($[____]), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Underwriter (or its designees) is hereby granted the
right to purchase, at any time from [________ __], 2000, until 5:30 P.M., New
York time, on [______] __, 2004, up to an aggregate of 266,800 shares of Common
Stock, 266,800 Class C Redeemable Warrants of the Company and 133,400 Class D
Redeemable Warrants of the Company at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $[______] per share of Common
Stock, $[___] per Class C Redeemable Warrant, and $[____] per Class D Redeemable
Warrant, subject to the terms and conditions of this Agreement. One Class C
Redeemable Warrant is exercisable to purchase one additional share of Common
Stock at an initial exercise price of $3.00 and one Class D Redeemable Warrant
is exercisable to purchase one additional share of Common Stock at an initial
exercise price of $6.50 from [________], 2000, until 5:30 p.m. New York time on
[__________], 2004, at which time the Redeemable Warrants shall expire. Except
as set forth, the shares of Common Stock and the Redeemable Warrants issuable
upon exercise of the Warrants are in all respects identical to the shares of
Common Stock and the Public Warrants being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement. The shares of Common Stock and the Redeemable Warrants issuable upon
exercise of the Warrants are sometimes hereinafter referred to collectively as
the "Securities."
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit
2
<PAGE> 4
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this
Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per share of Common Stock and per Redeemable Warrant set forth
in Section 6 hereof payable by certified or official bank check in New York
Clearing House funds, subject to adjustment as provided in Section 8 hereof.
Upon surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock and the Redeemable Warrants
purchased at the Company's principal executive offices in Oklahoma (presently
located at 3819 South Perkins Road, Stillwater, Oklahoma 74074) the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased and a certificate or certificates for the Redeemable Warrants so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock and Redeemable Warrants underlying the
Warrants). In the event the Company redeems all of the Public Warrants (other
than the Redeemable Warrants underlying the Warrants), then the Warrants may
only be exercised if such exercise is accompanied by the simultaneous exercise
of the Redeemable Warrant(s) underlying the Warrants being so exercised.
Warrants may be exercised to purchase all or part of the shares of Common Stock
together with an equal or unequal number of the Redeemable Warrants represented
thereby. In the case of the purchase of less than all the shares of Common Stock
and the Redeemable Warrants purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender
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<PAGE> 5
thereof and shall execute and deliver a new Warrant Certificate of like tenor
for the balance of the shares of Common Stock and Redeemable Warrants
purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to the method
of payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 hereof. The
number of shares of Common Stock to be issued pursuant to this Section 3.2 shall
be equal to the difference between (a) the number of shares of Common Stock in
respect of which the Warrants are exercised and (b) a fraction, the numerator of
which shall be the number of shares of Common Stock in respect of which the
Warrants are exercised multiplied by the Exercise Price and the denominator of
which shall be the Market Price (as defined in Section 3.3 hereof) of the shares
of Common Stock. The number of each class of the Redeemable Warrants to be
issued pursuant to this Section 3.2 shall be equal to the difference between (a)
the number of each respective class of Redeemable Warrants in respect of which
the Warrants are exercised and (b) a fraction, the numerator of which shall be
the number of each respective class of Redeemable Warrants in respect of which
the Warrants are exercised multiplied by the Exercise Price and the denominator
of which shall be the Market Price (as defined in Section 3.3 hereof) of each
respective class Redeemable Warrants. Solely for the purposes of this paragraph,
Market Price shall be calculated either (i) on the date on which the form of
election attached hereto is deemed to have been sent to the Company pursuant to
Section 14 hereof ("Notice Date") or (ii) as the average of the Market Prices
for each of the five trading days preceding the Notice Date, whichever of (i) or
(ii) is greater.
Section 3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be (i) when referring to the
Common Stock, the last reported sale price,
4
<PAGE> 6
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the Nasdaq SmallCap Market ("Nasdaq
SmallCap") or by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted by Nasdaq, the average
closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it or (ii) when referring to a Redeemable Warrant,
the last reported sales price, or, in the case no such reported sale takes place
on such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Redeemable Warrants are listed or admitted to trading or
by Nasdaq, or, if the Redeemable Warrants are not listed or admitted to trading
on any national securities exchange or quoted by Nasdaq, the average closing bid
price as furnished by the NASD through Nasdaq or similar organization if Nasdaq
is no longer reporting such information, or if the Redeemable Warrants are not
quoted on Nasdaq or are no longer outstanding, the Market Price of a Redeemable
Warrant shall equal the difference between the Market Price of the Common Stock
and the Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and Redeemable Warrants
and/or other securities, properties or rights underlying such Warrants and, upon
the exercise of the Redeemable Warrants, the issuance of certificates for shares
of Common Stock and/or other securities,
5
<PAGE> 7
properties or rights underlying such Redeemable Warrants shall be made forthwith
(and in any event within five (5) business days thereafter) without charge to
the Holder thereof including, without limitation, any tax which may be payable
in respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and the Redeemable Warrants underlying the Warrants and the
shares of Common Stock underlying the Redeemable Warrants (and/or other
securities, property or rights issuable upon the exercise of the Warrants or the
Redeemable Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer. Certificates representing the
shares of Common Stock and Redeemable Warrants, and the shares of Common Stock
underlying each Redeemable Warrant (and/or other securities, property or rights
issuable upon exercise of the Warrants) shall be dated as of the Notice Date
(regardless of when executed or delivered) and dividend bearing securities so
issued shall accrue dividends from the Notice Date.
6
<PAGE> 8
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; 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 date hereof, except to officers of the Underwriter.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $[______] per share of Common Stock, $[______] per Class C Redeemable Warrant
and $[______] per Class D Redeemable Warrant. The adjusted exercise price shall
be the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section 8
hereof. Any transfer of a Warrant shall constitute an automatic transfer and
assignment of the registration rights set forth in Section 7 hereof with respect
to the Securities or other securities, properties or rights underlying the
Warrants.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and Redeemable Warrants, or other
securities issuable upon exercise of the Warrants, and the shares of Common
Stock or other securities issuable upon exercise of the Redeemable Warrants
(collectively, the "Warrant Securities") have been registered under the
Securities Act of 1933, as amended (the "Act") pursuant to the Company's
Registration Statement on Form SB-2 (Registration No. 333-________) (the
"Registration Statement"). All
7
<PAGE> 9
of the representations and warranties of the Company contained in the
Underwriting Agreement relating to the Registration Statement, the Preliminary
Prospectus and Prospectus (as such terms are defined in the Underwriting
Agreement) and made as of the dates provided therein, are incorporated by
reference herein. The Company agrees and covenants promptly to file
post-effective amendments to such Registration Statement as may be necessary in
order to maintain its effectiveness and otherwise to take such action as may be
necessary to maintain the effectiveness of the Registration Statement as long as
any Warrants are outstanding. In the event that, for any reason, whatsoever, the
Company shall fail to maintain the effectiveness of the Registration Statement,
the certificates representing the Warrant Securities shall bear the following
legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144 under
the Act (or any similar rule under such Act relating to the disposition
of securities), or (iii) an opinion of counsel, if such opinion shall
be reasonably satisfactory to counsel to the issuer, that an exemption
from registration under such Act is available.
Piggyback Registration. If, at any time commencing after the effective
date of the Registration Statement and expiring seven (7) years thereafter, the
Company proposes to register any of its securities under the Act (other than
pursuant to Form S-4, Form S-8 or a comparable registration statement) it will
give written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Underwriter and to all other
Holders of the Warrants and/or the Warrant Securities of its intention to do so.
If the Underwriter or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) business days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Underwriter and such
Holders of the Warrants and/or Warrant Securities the opportunity to
8
<PAGE> 10
have any such Warrant Securities registered under such registration statement.
(sometimes referred to herein as "Piggyback Registration").
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the securities the Company
proposes to sell, (ii) second, the Warrant Securities requested to be included
in such registration, pro rata among the Holders of such Warrant Securities on
the basis of the number of shares requested by such Holders, and (iii) third,
other securities requested to be included in such registration.
If a Piggyback Registration is an underwritten secondary registration
on behalf of holders of the Company's Common Stock, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities requested to be included therein by the
holders requesting such registration pursuant to a demand registration right,
pro rata among such holders, (ii) second, the Warrant Securities requested to be
included by Holders under Piggyback Registration rights hereunder on a pro rata
basis based upon the number of Warrant Securities of such Holders requested to
be included and (iii) third, other securities requested to be included in such
registration.
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.
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<PAGE> 11
Section 7.2 Demand Registration.
(a) At any time commencing after the effective date of the Registration
Statement and expiring five (5) years thereafter, the Holders of the Warrants
and/or Warrant Securities representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants) 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 Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the 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 Warrant Securities for six (6) consecutive months by such Holders and
any other Holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
Section 7.3 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty five (45) days of receipt of any demand therefor, shall
use its best efforts to have any registration statements declared effective at
the earliest possible time, and shall furnish each
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<PAGE> 12
Holder desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant 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 each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the
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<PAGE> 13
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, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from information furnished by or on
behalf of such Holders, or their successors or assigns, for specific inclusion
in such registration statement to the same extent and with the same effect as
the provisions contained in Section 7 of the Underwriting Agreement pursuant to
which the Underwriters have agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof (other than (i) shelf registrations effective
prior thereto and (ii) registrations on Form S-4 or S-8), without the prior
written consent of the Holders of the Warrants and Warrant 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) relating to the due incorporation of
the Company, the
12
<PAGE> 14
validity of the shares being issued, the due execution and delivery of the
underwriting agreement and Rule 10b-5, and (ii) if such registration includes an
underwritten public offering, a "cold comfort" letter dated the effective date
of such registration statement and 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, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in accountants' letters delivered to underwriters in
underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriters, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its
13
<PAGE> 15
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder or underwriter shall reasonably
request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be
included in such underwriting, which may be the Underwriter. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriter(s), 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(s). The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities whether pursuant to Section 7.2 or
Section 7.3(a) and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) 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 underwriter(s) except as
they may relate to such Holders and their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
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<PAGE> 16
Section 8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
Section 8.5 Merger or Consolidation. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other
15
<PAGE> 17
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 securities of the Company
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than two cents (2") per Warrant Security, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2 cents) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction,
16
<PAGE> 18
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 Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or Redeemable Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or Redeemable Warrants or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants and the
Redeemable Warrants, such number of shares of Common Stock or other securities,
properties or rights as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock, Redeemable Warrants and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and not subject to the preemptive rights of any
stockholder. The Company further covenants and agrees that upon exercise of the
Redeemable Warrants underlying the Warrants and payment of the respective
Redeemable Warrant exercise price therefor, all shares of Common Stock and other
securities issuable upon such exercises shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the 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 Redeemable Warrants and all Redeemable
17
<PAGE> 19
Warrants underlying the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock or the Public
Warrants issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq SmallCap or Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the 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 or capital surplus (in accordance with applicable
law), as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer
18
<PAGE> 20
books for the determination of the stockholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription rights, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
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. Redeemable Warrants. The forms of the certificates representing
Redeemable Warrants (and the form of election to purchase shares of Common Stock
upon the exercise of Redeemable Warrants and the form of assignment printed on
the reverse thereof) shall be substantially as set forth in Exhibit "A" to the
Warrant Agreement dated as of the date hereof by and between the Company and
American Stock Transfer and Trust Company (the "Redeemable Warrant Agreement").
Each Class C Redeemable Warrant and each Class D Redeemable Warrant issuable
upon exercise of the Warrants shall evidence the right to initially purchase a
fully paid and non-assessable share of Common Stock at an initial purchase price
of $3.00 per share and $6.50 per share, respectively, from [______ __], 2000
until 5:30 p.m. New York time on [________, __], 2004 at which time the
Redeemable Warrants, unless the exercise period has been extended, shall expire.
The exercise price of the Redeemable Warrants and the number of shares of Common
Stock issuable upon the exercise of the Redeemable Warrants are subject to
adjustment, whether or not the Warrants have been exercised and the Redeemable
Warrants have been issued, in the manner and upon the occurrence of the events
set forth in Section 8 of the Redeemable 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 Redeemable Warrants underlying the Warrants, each
19
<PAGE> 21
registered holder of such Redeemable Warrants shall have the right to purchase
from the Company (and the Company shall issue to such registered holders) up to
the number of fully paid and non-assessable shares of Common Stock (subject to
adjustment as provided herein and in the Redeemable Warrant Agreement), free and
clear of all preemptive rights of stockholders, provided that such registered
holder complies with the terms governing exercise of the Redeemable Warrants set
forth in the Redeemable Warrant Agreement, and pays the applicable exercise
price, determined in accordance with the terms of the Redeemable Warrant
Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith
issue to the registered holder of any such Redeemable Warrants 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 in this Agreement, the
Redeemable Warrants underlying the Warrants shall be governed in all respects by
the terms of the Redeemable Warrant Agreement. The Redeemable Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), which will
not be unreasonably withheld, the Redeemable Warrant Agreement will not be
modified, amended, canceled, altered or superseded, and that the Company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by
20
<PAGE> 22
registered or certified mail, return receipt requested or by Federal Express or
other recognized overnight courier:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
15. Supplements and Amendments. The Company and the Underwriter may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Underwriter) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriter may deem necessary or desirable and which the Company and
the Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
16. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of
business on [________ __, 200_]. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on [________ __, 20__].
18. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
21
<PAGE> 23
The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, the Underwriter and the
Holders (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 14 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any action, proceeding or
claim. The Company, the Underwriter and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefore.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement and the Redeemable Warrant Agreement to the extent
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22
<PAGE> 24
21. Captions. The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Underwriter and any other registered Holders of Warrant Certificates or
Warrant Securities.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
23
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
LEARNSAT.COM, INC.
By: ___________________________________
Name:
Title:
Attest:
____________________________
Secretary
DIRKS & COMPANY, INC
By: ___________________________________
Name:
Title:
24
<PAGE> 26
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, [______________], 2004
No. W- Warrants to Purchase
266,800 shares of Common
Stock, 266,800 Class C
Redeemable Warrants
and 133,400 Class D
Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Dirks & Company, Inc., or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from [________], 2000 until 5:30 p.m. New York time on [__________],
2004 ("Expiration Date"), up to 266,800 fully-paid and non-assessable shares of
common stock, $0.001 par value ("Common Stock"), of LEARNSAT.COM, INC., a
Florida corporation (the "Company"), and 266,800 Class C Redeemable Warrants of
the Company and 133,400 Class D Redeemable Warrants of the Company (each
Redeemable Warrant entitling the owner to purchase one fully-paid and
non-assessable share of Common Stock) at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $________ per share of
Common Stock, $_______ per Class C Redeemable Warrant and $________ per Class D
Redeemable Warrant upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of September
[__], 1999 between the Company and DIRKS & COMPANY, INC. (the "Warrant
Agreement"). Payment of the Exercise
<PAGE> 27
Price shall be made by certified or official bank check in New York Clearing
House funds payable to the order of the Company or by surrender of this Warrant
Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the 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 Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the 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 (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
26
<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ______, 1999
LEARNSAT.COM, INC.
By: _______________________________
Name:
Title:
27
<PAGE> 29
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] ____________ shares of Common Stock;
[ ] ____________ Redeemable Warrants;
[ ] ____________ shares of Common Stock together with an equal number of
Redeemable Warrants; or
[ ] ____________ shares of Common Stock together with
____________ Redeemable Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of LearnSat.Com,
Inc. in the amount of $_______________________, all in accordance with the terms
of Section 3.1 of the Underwriter's Warrant Agreement dated as of ______, 1999
between LearnSat.Com, Inc. and Dirks & Company, Inc. The undersigned requests
that a certificate for such securities be registered in the name of __________
whose address is ____________________ and that such Certificate be delivered to
__________ whose address is ____________________ .
Dated: ____________________
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
28
<PAGE> 30
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] ____________ shares of Common Stock;
[ ] ____________ Redeemable Warrants;
[ ] ____________ shares of Common Stock together with an equal number of
Redeemable Warrants; or
[ ] ____________ shares of Common Stock together with
____________ Redeemable Warrants.
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Underwriter's Warrant Agreement
dated as of ______, 1999 between LearnSat.Com, Inc. and Dirks & Company, Inc.
The undersigned requests that a certificate for such securities be registered in
the name of __________ whose address is ____________________ and that such
Certificate be delivered to __________ whose address is ____________________ .
Dated: ____________________
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
29
<PAGE> 31
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please 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, with full power of substitution.
Dated:____________________
Signature:___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
_____________________________________________
Insert Social Security or Other Identifying
Number of Assignee)
30
<PAGE> 1
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
LearnSat.Com, Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated April 16, 1999, on the
financial statements of LearnSat.Com, Inc. as of December 31, 1998 and for each
of the two years in the period then ended which appears in such Prospectus. We
also consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" in such Prospectus.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 14, 1999
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 152,145
<SECURITIES> 0
<RECEIVABLES> 455,667
<ALLOWANCES> 40,757
<INVENTORY> 445,981
<CURRENT-ASSETS> 1,149,681
<PP&E> 518,174
<DEPRECIATION> 258,822
<TOTAL-ASSETS> 1,530,211
<CURRENT-LIABILITIES> 871,713
<BONDS> 155,418
0
0
<COMMON> 13,691
<OTHER-SE> 489,389
<TOTAL-LIABILITY-AND-EQUITY> 1,530,211
<SALES> 896,820
<TOTAL-REVENUES> 896,820
<CGS> 830,767
<TOTAL-COSTS> 830,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,130
<INCOME-PRETAX> 14,167
<INCOME-TAX> 2,900
<INCOME-CONTINUING> 11,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,267
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 47,300
<SECURITIES> 0
<RECEIVABLES> 662,923
<ALLOWANCES> 23,525
<INVENTORY> 412,350
<CURRENT-ASSETS> 1,285,688
<PP&E> 458,393
<DEPRECIATION> 241,225
<TOTAL-ASSETS> 1,532,598
<CURRENT-LIABILITIES> 1,022,032
<BONDS> 521,882
0
0
<COMMON> 12,441
<OTHER-SE> (23,757)
<TOTAL-LIABILITY-AND-EQUITY> 1,532,598
<SALES> 2,144,169
<TOTAL-REVENUES> 2,144,169
<CGS> 1,914,482
<TOTAL-COSTS> 1,914,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 58,611
<INCOME-PRETAX> (238,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,894)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
