As filed with the Securities and Exchange Commission on
, 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
-------------------------------------
Amendment No. 3
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BOOKDIGITAL.COM, INC.
(Name of Small Business Issuer in its charter)
Delaware 22-3655703
(State of Jurisdiction) (Primary Standard Industrial (I.R.S.
Classification Code Number Employee
Identification
No.)
65 Broadway
New York, New York 10006
(212) 430-6380
(Address and telephone number of principal executive offices
and principal place of business)
-------------------------------------
Don L. Rose, Chief Executive Officer
Bookdigital.Com, Inc.
65 Broadway
New York, New York 10006
(212) 430-6380
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
Copies of all communications to:
Joel Schonfeld, Esq.
Andrea I. Weinstein, Esq.
Schonfeld & Weinstein, L.L.P.
63 Wall Street, Suite 1801
New York, New York 10005
(212) 344-1600/Fax: (212) 480-0717
and
Frank J. Hariton, Esq.
1065 Dobbs Ferry Road
White Plains, New York 10607
(914) 674-4373 / Fax: (914) 693-2963
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 Section 8(a), may
determine.
CALCULATION OF REGISTRATION FEE
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Title of Each Amount Being Proposed Maximum Proposed Amount of
Class of Registered Offering Maximum Registration
Securities Price per Share Aggregate Fee
Offering
Price
Common Stock 1,200,000 $10.00 $12,000,000 $3,636.36
Underwriters
Warrants 120,000 $16.50 $ 1,980,000 $ 59.95
Total $3,696.31
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to 457.
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by items of Form SB-2
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Part I Information Required in Prospectus Item No.
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1. Front of Registration Statement Front of
and outside front cover of Registration
Prospectus Statement and
outside
front cover of
Prospectus
2. Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus of Prospectus and
Outside
Front cover Page of
Prospectus
3. Summary Information and Risk Prospectus Summary;
Factors High Risks Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Prospectus Summary-
Determination of
Offering Price; High
Risk Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Plan of
Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal
Stockholders
Beneficial Owners and Management
Part I Information Required in Prospectus Caption in
Prospectus
12. Description of Securities Description
of
Securities
13. Interest of Named Experts and Legal
Opinions;
Experts
Counsel
14. Disclosure of Commission Position Statement as to
on Indemnification Indemnification
for
Securities
Act Liabilities
15. Organization Within Last Management,
Five Years Certain
Transactions
16. Description of Business Business
17. Management's Discussion and Management's
and Analysis or Plan of Discussion
Operation and Analysis
18. Description of Property Property
19. Certain Relationships and Related Not Applicable
Transactions
20. Market for Common Stock and Prospectus Summary
Related Stockholder Matters Market for
Registrant's
Common Stock and Related
Stockholders Matters;
Shares Eligible for
Future Sale.
21. Executive Compensation Executive
Compensation
22. Financial Statements Financials
Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure
<PAGE>
1,200,000 SHARES OF COMMON STOCK
BOOKDIGITAL.COM, INC.
Bookdigital.com, Inc., a Delaware corporation ("Bookdigital," "our,"
"we," or "us") is offering 1,200,000 shares of common stock. Prior
to this offering, there has been no public market for the securities, and
there can be no assurance that such a market will develop or be sustained.
We urge you to read the "Risk Factors" section beginning on page
along with this prospectus before you make your investment decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
Per Share Total
Initial public offering price $ 10.00 $12,000,000
Underwriting discounts and commissions $ 1.00 $ 1,200,000
Proceeds $ 9.00 $10,800,000
The shares are being offered by the underwriters subject to
receipt and acceptance by the underwriters and subject to their
right to reject any order in whole or in part. We have granted to the
underwriters a 45 day option to purchase up to 180,000 additional shares to
cover over-allotments.
The maximum offering price will be $10.00 per share.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
First Madison Securities, Inc.
The date of this prospectus is .
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary
Selected Financial Data
Risks Factors
Use of Proceeds
Capitalization
Dilution
Management's Discussion and Analysis of Financial Condition
Business
Management
Principal Shareholders
Description of Securities
Shares Eligible for Future Sale
Underwriting
Legal Matters
Experts
Index to Financial Statements
<PAGE>
BOOKDIGITAL.COM, INC.
Bookdigital is a development stage company which provides electronic
access to books and other reference material on the Internet. We provide such
books and materials through our web site, www.Bookdigital.com. We are also
in the process of developing a legal reference site, www.LawxpressUSA.com,
which we expect to market to attorneys, law libraries, law students and anyone
else interested in legal research. All our material is provided in a
readily accessible, convenient and user friendly format.
The principal executive offices of Bookdigital are located at 65
Broadway, New York, New York 10006. Our phone number is 212-430-6380. Our
web site is located at www.Bookdigital.com. Nothing contained on our web site
should be construed as part of this prospectus.
The Offering
The following figures do not include shares issuable upon exercise of
370,800 outstanding warrants nor do they reflect the underwriter's warrants.
Securities Offered...................................1,200,000
Shares of Common Stock.
Shares of common stock
Outstanding before offering ................... 5,175,200
Shares of common stock
Outstanding after offering......................6,375,200
__________
Use of Proceeds
The net proceeds from this offering, estimated to be approximately
$10,440,000, will be used to expand sales and marketing activity, further
develop the law e-library purchase hardware and software, and for
working capital and general corporate purposes.
<PAGE>
RISK FACTORS
We anticipate incurring losses for the foreseeable future.
Bookdigital.com, Inc. was incorporated on March 25, 1999 pursuant to the
laws of the State of Delaware. To date, Bookdigital has generated limited
revenues. Since incorporating, we have devoted our efforts to various
organizational activities, including our effort to build our web site and
conduct a private placement in which we raised gross proceeds of $963,600.
As of May 31, 1999 Bookdigital had an accumulated net deficit of $18,436,
and we anticipate that we will incur net losses for the foreseeable future.
The extent of these losses will be dependent, in part, on our ability to
attract and build a membership base, to generate sales and advertising
revenues, and to offer products and services at competitive prices. We expect
our operating expenses to increase, especially in the areas of sales and
marketing and brand promotion, and, as a result, we will need to commence
operations and generate revenue, and to offer products and services at
competitive prices if profitability is to be achieved.
We depend on key personnel, the loss of whom could have a material adverse
effect on our business.
Our success will be substantially dependent on the performance of our
executive officers, Zahra S. Yamani (President), Don L. Rose (CEO), and Susan
L. Schuler (Secretary), who have worked together only a short period of time,
and on the marketing personnel we intend to hire. The loss of the services of
any of our executive officers could have a material adverse effect on our
business, results of operations and financial condition. Competition for
senior management, experienced media sales and marketing personnel, qualified
Web engineers and other employees is intense, and there can be no assurance
that we will be successful in attracting and retaining such personnel. Our
failure to successfully manage our personnel requirements would have a
material adverse effect on our business, results of operations and financial
operations and financial condition. We currently have no Key-Person life
insurance on any of our executive officers. We have entered into employment
agreements with Zahra Yamani, our President, Don L. Rose, our CEO, and Susan
L. Schueler, our Secretary. Within the next twelve months, we intend to
hire 30 full/part time employees at an anticipated annualized cost of
$800,000.
Because there is no current public market for our securities, resale may
be difficult
Prior to this offering, there has been no public market for our common
stock or other securities. The initial public offering price of the common
stock has been arbitrarily determined by Bookdigital and is not necessarily
related to our assets, book value, results of operations, or any other
established criteria of value. There can be no assurance that an active
trading market for the common stock will develop, or be sustained if developed
following the closing of the offering. As a result, resale
securities purchased in this offering may be difficult.
Our offering price was arbitrary determined, and is not based on a market
price, nor related to our earnings, assets, or book value
The initial offering will be arbitrarily determined by Bookdigital and
the Underwriters, and bears no relationship whatsoever to our assets,
earnings, book value or any other objective standard of value. Among the
factors we will consider are the lack of operating history of Bookdigital, the
proceeds to be raised by the offering, the amount of capital to be contributed
by the public in proportion to the amount of stock to be retained by present
stockholders, our relative requirements, and the current market conditions in
the over-the-counter market.
After this offering, inside shareholders will continue to control
Bookdigital, and will continue to be able to elect all of Bookdigital's
directors, appoint its officers, and control Bookdigital's affairs and
operations.
Prior to this offering, inside shareholders, including management of
Bookdigital, owned 90.7% of outstanding Bookdigital common stock. After this
offering, inside shareholders will own 73.6% of the outstanding Bookdigital
common stock. As a result, these insiders will continue to control the
company, and will continue to be able to elect all of Bookdigital/s directors,
appoint its officers and control Bookdigital's affairs and operations.
Bookdigital's articles of incorporation do not provide for cumulative voting.
USE OF PROCEEDS
The net proceeds that we will receive from the sale of the 1,200,000 shares of
common stock are estimated to be approximately $10,440,000, assuming an
initial public offering price of $10.00 per shares, after deducting
underwriting discounts and commissions and estimated offering expenses.
We intend to apply these net proceeds as follows:
Approximate Amount Percentage
of
Of Net Proceeds Net Proceeds
Sales and Marketing $ 4,000,000 39.1%
Site Development Law
(LawxpressUSA.com) $ 1,600,000 15.6%
Site Development-Reference
materials in Spanish, Italian $ 1,850,000 18.1%
German, French
Hardware and Software $ 350,000 3.4%
Working Capital (including $ 2,440,000 23.8%
rent, payroll and office express)
Total $ 10,440,000 100%
CAPITALIZATION
CAPITALIZATION
The following tables sets forth the capitalization at May 31, 1999 on an
actual basis and as adjusted to give effect to the sale of 1,200,000 units at
an initial public offering price of 10,00 per share and receipt of the net
proceeds. This table should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus.
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May 31, 1999
Actual As Adjusted
Short term Debt $ 322,562 $ 322,562
Stockholder's Equity
Common Stock, $.001 par
value, 20,000,000 shares
authorized, 5,175,200
shares issued and
outstanding; 6,375,200
shares issued and
outstanding as adjusted 5,175 6,375
Paid-in Capital 2,461,934 14,461,934
Paid-in Capital - Warrants 213,204 213,204
Accumulated Deficit (1,879,968) (1,879,968)
Total Shareholder's
Equity 800,345 12,801,645
Total Capitalization $1,122,907 13,124,207
</TABLE>
DILUTION
At May 31, 1999, Bookdigital had a net tangible book value of $800,345
or approximately $.15 per share of common stock. Net tangible book value per
share is equal to Bookdigital's tangible asset less its total liabilities,
divided by the number of shares of common stock outstanding on such date.
After giving effect to the sale of 1,200,000 units and the receipt of
estimated net proceeds, assuming an initial offering price of $8.70 (after
deduction of underwriting discounts and commissions), the proforma net
tangible book value at May 31, 1999 would have been $11,240,345 or $1.76
per share of common stock.
This represents an immediate increase in net tangible book value of $1.61
per share of common stock to the existing shareholders an immediate
dilution of $8.24 share of common stock to new investors.
The following table illustrates the per share dilution:
Assumed initial offering price $10.00
Net tangible book value per share .15
Increase attributable to new investors 1.61
Adjusted net tangible book value after offering 1.76
Dilution per share to new investors 8.24
Dilution as a percentage of offering price 82%
The following table sets forth on a proforma basis as of May 31, 1999,
including the offering.
Shares
purchased
Number % Total
consideration
Amount % Average Price
Per Share
Existing
Shareholders
5,175,200 81 $ 971,064 9 $ .19
New
Investors
1,200,000 19 12,000,000 91 10.00
Total
6,375,200 100 12,971,064 100 2.035
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
The following discussion and analysis provides information that we
believe is relevant to an assessment and understanding of our results of
operations and financial condition for the two months ended May 31, 1999. The
following discussion should be read in conjunction with the Financial
Statements and related Notes appearing elsewhere in this prospectus.
Overview
Since beginning operations in March 1999, we have devoted substantially
all of our resources to designing and implementing our web site and organizing
and collecting reference materials for our web site. From inception through
May 31, 1999 we raised total equity capital of $963,600 and had an accumulated
deficit of $(1,879,968) . We have not yet begun to receive revenues
from sales of services. We except to operate at a loss for the first six to
twelve months following the commencement of sales of our services as we incur
increasing levels of expense to support growth.
We believe that an initial operating loss will not be indicative of
future performance for the following reasons, among others:
The receipt of the proceeds of this offering and their use to fund
our anticipated growth will materially change expense levels in
all major categories and are expected to support substantial
increases in revenues from operations; and
We have recently emerged from the development stage and anticipate
rapid increases in the number and size of site visitors and
advertising revenues.
Although we expect substantial growth in both revenues and expenses, we
anticipate that increases in expenses will occur more rapidly than
corresponding increases in revenues. Also, while we are committed, at least
in the short term, to substantial increases in expenses, we cannot guarantee
that revenues will increase correspondingly. Like many companies attempting
to build an Internet-based business, we expect that for at least the next
year, and for an indeterminate period of time thereafter, to follow a strategy
of establishing market share by making expenditures for marketing and
infrastructure development that exceed current revenues.
Bookdigital
Results of Operations. For the two months ended May 31, 1999, we had
$70,278 in total revenues, all of which were derived from gain or sales of
investments and interest, and incurred total expenses of $1,950,246.
Expenses consisted of$12,130 of research and development expenses and $36,224
of general and administrative expenses. We have incurred start up
costs of $1,861,532 . We expect to expend approximately $3,800,000
during the next 12 months.
Liquidity and Capital Resources. We have funded our operations
primarily through the sale of common stock and warrants. From inception
through May 31, 1999, we raised approximately $963,600 from sales of units for
cash. Each unit consists of one share of common stock and one common stock
purchase warrant. Each warrant is exercisable for one share of common stock
at 120% of the price per share in this offering for two year period commencing
March 30, 1999. In some cases, we have issued common stock in return for
goods or services. As of May 31, 1999, we had a total of $322,561 of
outstanding notes and other obligations for money borrowed, and cash and cash
equivalents of $1,107,107. We have described the effect of this offering on
our capital resources and our anticipated uses of those resources under "Use
of Proceeds" on page .
Year 2000 Compliance
There are issues associated with the programming code in existing
computer systems as the Year 2000 approaches. The "Year 2000 problem" is
pervasive and complex, as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail. We have evaluated our current systems, purchased
necessary upgrades and believe that our current hardware and software is Year
2000 compliant. Similarly, we believe that the services we offer to our
customers are not affected by the Year 2000 problem. We have evaluated the
potential impact on us of a Year 2000 problem on the part of our important
third party vendors and have found none. We plan to continue to evaluate our
systems and those of our important vendors in an effort to minimize the
effects of a Year 2000 problem. We do not anticipate that the Year 2000
problem will have a material impact on our business or operations.
BUSINESS
The discussion in this prospectus contains certain forward-looking
statements. The outcome of events described in such forward-looking
statements is subject to risks and uncertainties. Bookdigital's actual
results may differ materially from those discussed in such forward-looking
statements. Factors that may cause or contributed to such differences include
those discussed in "Risk Factors," "Management's Discussion and Analysis" and
"Business" as well as those discussed elsewhere in this prospectus.
Information contained at Bookdigital's web site, www.Bookdigital.com,
does not constitute a part of this prospectus. This prospectus includes
statistical data regarding the Internet industry. Such data is taken or
derived from information published by sources including the Wall Street
Journal, Jupiter Research, Visa International Studies and Ziff-Davis Marketing
Intelligence. Although we believe that such data is generally indicative of
the matters reflected therein, such data may be imprecise and investors are
captioned not to place undue reliance on such data.
Our goal is to become a one-stop e-library reference source for
various subjects, with a focus on legal research. We believe that we
can provide a valuable tool for people conducting research via the Internet by
collecting all available reference material on numerous subjects and allowing
viewers to access it through a single web site. We have designed our web site
so that a viewer will not have to utilize various search engines on the
Internet when performing research or trying to locate a single book.
By logging onto www.Bookdigital.com, a person will be able to quickly and
efficiently access the most pertinent reference material available on a
particular subject and then access or download it onto his/her hard drive or
print a hard copy. Books and other reference materials are categorized in a
user friendly format, further simplifying research. Viewers may search by
title, subject, key word or author. We believe that the Internet is providing
users with the opportunity for easier and more up to date research, and it
will become increasingly acceptable as a means of research. We expect that
the following categories of people, among others, will find Bookdigital's web
site an important reference and data source:
Professionals
Students
Lawyers
Scientists
Medical Professionals
Anyone seeking knowledge.
Bookdigital.com seeks to become the premier on-line source for reference
books and data by :
Offering easy access to a wide variety of reference materials in many
subject areas
Providing the general reference service free of charge
Continuing to expand access to updated reference books and materials
Marketing our service and engaging in cross-marketing with complementary
companies and services
Developing strategic alliances with other web sites and content
providers
Pursuing acquisitions, joint ventures and similar strategic investments
and relationships with complementary businesses and companies.
Investing in technology to further develop state of the art product and
services.
We will offer unlimited use of our on-line research library
free of charge. We are in the process of developing certain categories
within our e-library, for which we will charge fees. The first of these
planned categories is law. We intend to furnish our law e-library with
current court decisions, rulings and laws in all areas of the law, both State
and Federal. Our law research site, www.LawxpressUSA.com, is currently under
development. We expect that site to be available to subscribers by January
2000.
Bookdigital was incorporated on March 25,1999. Bookdigital provides
access to all types of reference books and materials on the Internet in a
digital format that is both easy to use and easy to read. We also provide
links to other categorized premier sites in the subject area. We seek to
maximize the number of visitors to our web site by providing the best service
and content available in the reference and digital book arena. We currently
have in excess of 6,000 volumes in English for our digital book
selection. We anticipate that our digital library will eventually surpass one
million books, and will consist of books in languages such as English,
Spanish, French, German, Italian, Japanese and Chinese. To access a book or
other reference material, all a viewer has to do is to click on the screen.
Bookdigital intends to become the premier e-library and source for
reference and digital books on the Internet. No longer will a person have to
search the Internet via Yahoo, Lycos or some other search engine to find text
dealing with the desired subject. A viewer can go to our Web site, find the
material desired and get instant access to the subject then download an entire
book or series of articles to his/her computer. Bookdigital intends to become
a one-stop reference source. Sources available on our Web site,
www.bookdigital.com, will range from classic literature needed for book
reports (Plato, Mark Twain etc.), to reference materials on law, medicine,
chemistry and more obscure areas such as geophysics. The books and reference
materials are categorized on the web site in an easy to find manner and can be
downloaded from Bookdigital's Web site in a user friendly accessible format.
We have entered into many revenue sharing strategic "alliances" with
complimentary companies such as Staples, Sharper Image, Borders, Omaha Steaks,
and other vendors. A link is established with allied companies to
transport the user to the desired site. A percentage of the ensuing sale is
the normal compensation.
Bookdigital will also actively seek to acquire complimentary
technologies or companies that will grow or expand our business. Furthermore,
the company may invest in other Internet companies that meets its objectives.
As of the date of this prospectus, there are no pending or contemplated
acquisitions.
Products and services
LawXpressUSA.com. Bookdigital is in the process of developing a
legal reference and research web site. By accessing www.lawxpressusa.com,
subscribers will be able to find current statutes, court decisions ,
ordinances and regulations, both state and federal. We intend to make
research as easy as possible for the legal practitioner by utilizing simple
subject-based search engines. It is our goal to provide lawyers, researchers,
law students and others with an easily accessible reference site at a
subscription fee much less than current on-line legal services.
Reference Materials. Bookdigital intends to become the premier
source of reference material on the Web, with an emphasis on up to date
legal reference material. We have obtained, and will continue to obtain,
reference material on a variety of subjects, from astrology to zoology. We
believe that compiling a wealth of information on each topic on a single Web
site will offer subscribers an easy, time-efficient and cost efficient way to
conduct research. Currently, most on-line reference materials are scattered
through numerous Web sites. We believe our site is the first Web site to
condense and concentrate reference materials to such a level in a single
location, www.lawxpressusa.com. We will seek to further attract
those conducting research, by establishing several sub super e-libraries,
within our main reference e-library. The first sub super e-library will be
our law e-library which we expect will contain up to the minute court
decisions, rulings, laws and regulations, in state and federal law. Our
law e-library will be located at a separate web site, www.lawxpressusa.com.
We expect that site to be operational and subscriber-ready by January 2000.
If we are successful in developing these sub super e-libraries, we will
then begin to immediately solicit subscribers for those specific subjects.
Digital Books. Bookdigital will be supplying access to digital books on
our Web site. Books are currently available in English language only. We
intend to expand into additional languages such as Spanish, German, French,
Italian, Japanese and Chinese in the near future. Downloadable books are
creating a new evolution for book publishing by transforming electronic text
and data to digital technology, digital characters, page layout, and
numbering. Some of the advantages of digital books are:
* The user can create an electronic book library on his/her hard drive.
* The user can create personal notes as an attachment to each page with
an option to save and print.
* The user can highlight desired text.
* The user can locate specific words throughout reference materials
and/or literature.
* The user can skim through pages or go directly to a specific page.
* The user can print whole or part of desired text with or without
personal notes.
* The user can magnify (zoom in) text for easier reading.
With these advantages, Bookdigital plans to become the premier Internet
provider of reference books and materials by providing the most multi-lingual
books, and the easiest to use web site. We have thousands of books now, and
plan to acquire at least ninety thousand more over the next year. Many of
these books are of a highly technical nature. We believe that as our book
inventory grows to a critical mass, the name Bookdigital will become
synonymous with digital books, and that we will become the first Web site a
potential customer will visit in the search for reference material. As we
continue to grow, it will reach the point that Bookdigital will be the first
site looked at for any and all books that are needed instantly.
We intend to utilize these advantages to maximum advantage. The key to
successful businesses on the Internet is to become as large and efficient as
possible in an area of specialty. We believe that Bookdigital will have the
largest single library of electronic reference books and materials available.
We will seek to always maintain and improve upon that crucial advantage.
We do not intend to charge any fees for the use of our
general reference materials. Additionally, Bookdigital intends to
focus on particular reference areas such as law, seeking to become a
single source of reference materials in such area. We anticipate
having a full, functioning on-line law reference library in 2000. We will
charge a monthly subscription fee for users of the law service. We
hope to have up to date court decisions, laws and regulations, both state and
federal. We expect to compete with companies such as WestLaw and Lexis/Nexis.
Most of Bookdigital's books are public domain books that have been
formatted in a digital format. After the initial expense of converting the
books into the digital format, the costs of the books is minimal. We will
also seek arrangements with publishers to offer their newest releases for sale
in the digital format. We believe that having some new releases in the
general reading category is a reasonable way to increase traffic. Our costs
to transform the books in the digital format will be similar to our conversion
costs on public domain books, but since these new releases will be charged on
a per-book basis, the profit margin should be sufficient to make this a
profitable supplement. We do not anticipate that this will become a
significant source or revenue. We believe that the primary sources of
revenues for Bookdigital will include, but will not be limited to:
1. Advertising on our Web site;
2. Lawxpressusa.com subscription fees;
3. Alliance with other Internet companies such as computer manufacturers,
monitor manufacturers, and modem vendors;
4. Acquisition of complimentary technologies or operating entities to expand
our business.
Advertising. The rapidly increasing number of web users, both in the
United States and Internationally, have resulted in the emergence of the web
as a new mass medium for advertising. The web is a attractive medium for
advertising because of its interactivity, flexibility, targetability, and
measurability. Advertisers can reach broad audiences and target
advertisements to users with similar demographic characteristics specific
regional population or selected individuals. We intend to solicit advertisers
to advertise on our web site. Currently, we have agreements with over eighty
advertisers such as Sharper Image, 1-800 Flowers, Mothernature.com, GOTO.Com,
and Barnesandnoble.com. We have agreements with approximately 100 vendors
to place ads on our web site. Bookdigital will earn income from these vendors
placing ads on its site either as a percent of sales made as a result of such
ads, or a fee to Bookdigital for every time a user clicks on the ad.
Commissions range from 5% to 60%, depending on the vendor. All such
arrangements are open ended, and may be terminated by either party.
Bookdigital has been earning such revenues since August 1999.
These advertisers have agreed to place banner ads on our Web site, and
will give us a portion of any sales generated by such ads. We expect these
fees to comprise a significant portion of Bookdigital's revenues.
Subscriptions. We intend to charge subscribers for certain of our
services. While Bookdigital will not charge fees for use of Bookdigital's
reference e-library, which will permit a user to access Bookdigital's entire
e-library, Bookdigital will charge subscription fees for certain super
sub categories such as law. Subscribers interested in accessing material and
information contained on our law site, www.lawxpressusa.com will be subject
to a monthly fee. We expect to attract lawyers, doctor and other medical
professionals, engineers and students to our Web sites.
Internet Market and Business Opportunities
According to emarketer, the typical Internet user is an educational,
professional or computer-related individual. The median age is 38, median
household income is $58,000 and 58% have graduated college. Obviously, this is
a very attractive audience for advertisers. Further emarketer statistics show
that the top uses for personnel accessing the Internet are to gather
information (87.8%), E-mail (83.2%) and to conduct research (80.5%). We have
found based upon our surveys that the people who utilize the Internet for
research are in the upper echelon of the income and educational stratum of
Internet users. Furthermore, we will be able to offer the advertisers
prescreened viewers based upon their indicated interests. These factors should
allow Bookdigital to charge higher advertising rates.
Getting customers to download needed information from the Internet is
not a hurdle for business. According to a new study from International Data
Corp., over 50% of online business people download information from the
Internet several times a week. Approximately 91% of commercial survey
respondents and 81% of consumers use their hard drives for primary storage.
We believe that expanding the capabilities on Bookdigital's Web site to
other languages will give us a significant edge. According to a study
recently released by Global Reach, the fastest- growing group of people online
today doesn't access the Internet in English. Over the last four years, the
number of non-English speaking users has grown from less than 10% to nearly
50% according to Bill Dunlap, author of the Global Reach study. In 1995, only
4 to 5 million out of a total of 40 million users were not English speakers.
Today, approximately 80 to 81 million out of 180-182 million Internet users
are non-English speakers.
The eMarketer eGeography Report (released in April 1999) reports there
are 47 million Internet users residing outside the US and another 48 million
inside the US, for a world total of 95.4 million. These figures are based on
counting only "active" net users, defined as those that get online at least
once a week and for a period of at least one to two hours per week.
According to the Dunlap survey, about 100 million of the Internet's 180
million subscribers still speak English, but Spanish and Japanese usage have
each risen to 14.2 million users. We believe that as more people access the
Internet in languages other than English, businesses marketing on the Web need
to expand to accommodate such users. Bookdigital believes that it is
important for web sites which need international exposure to known how many
people are in each language group, since a company can analyze its current
sales activity there and decide where to invest in promoting their web site.
Today, business professionals are twice as likely to use the Internet to
find sources for products and technologies as they were a year ago. This
rising importance of the Internet as a business-to-business buying tool was
highlighted by a survey released from Cahners Business Information, a trade
magazine publisher. According to the survey:
12% of business professionals who buy or set specifications for
purchase in their companies look first to web sites for
information. This compares with just 5% a year ago.
15% now turn to broad-based Internet search engines, versus 8% a
year ago.
Worldwide, eStats projects that the number of Internet users will nearly
quadruple over the next five years, from 36.0 million in 1997 to 142.0 million
by the year 2002. This represents an average annual growth rate of 79%.
Competition
There are competing sites on the Internet that offer copyrighted books
for sale and other sites that offer public domain books for free. The sites
offering copyrighted sites are well known such as Amazon.com and
Barnesandnoble.com. We will offer some copyrighted books, but our main focus
is in gathering all available quality reference material under one site. Most
of this reference material is not copyrighted.
Most web sites offering reference materials are located on web sites
organized by academic institutions. The sites that currently offer public
domain books offer them in an ASCII format and are non-profit organizations,
typically subsets of universities. Generally, these sites are difficult to
locate, and difficult to access.
Sites offering on-line law reference material are WestLaw and
Lexis/Nexis. While we expect to compete with Westlaw and Lexis, we are aware
that these services are much more well established, better known and better
funded than we are. We could also face competition in the future from web
directories, search engine, content sites, commercial online service
providers, sites maintained by Internet services providers, traditional media
companies and other entities that attempt to or establish web sites similar to
Bookdigital. There can be no assurance that our competitors and potential
competitors will not develop sites that are equal or superior to us or that
achieve greater market acceptance.
Nearly all of our existing and potential competitors have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources that
Bookdigital. Such competitors are able to undertake more extensive marketing
campaigns for their brands and services, and make more attractive offers to
potential employees, and potential advertisers. There can be no assurance
that we will be able to compete successfully against our current or future
competitors or that competition will not have a material adverse effect on our
business, results of operations and financial condition.
Marketing Promotion and Advertising
It is our intention that the advertising, promotion and public relations
for Bookdigital and its products will be overseen by designated public
relations and advertising firms. Marketing of both Web site names
will be aggressively pursued. We will use all mediums available for
advertising. We realize that name recognition is extremely important to the
future success of our company.
The development of advertising revenue from the placement of banner ads
on the Bookdigital Web site will continue to be aggressively pursued by our
sales force. We intend to hire experienced personnel to market Bookdigital's
web site to advertisers and advertising agencies.
Bookdigital intends to utilize strategic alliances where feasible in
order to maximize revenue. For example, Bookdigital has entered into over
eighty such "alliances" with manufacturers/advertisers, such as GoTo.com,
Borders, Dell Computer, Amazon.com, Sharper Image, Staples and the Lending
Tree, so that a link to the Vendor's site appears as a banner on our site. We
receive revenue per click through or revenue per sale consummated.
Bookdigital will seek to develop and market as many additional books and
other reference material as possible, and in as many languages as possible.
Languages planned are Spanish, French, Italian, German, Chinese and Japanese.
This will serve to add many potential customers for the near future.
Operations
Bookdigital commenced operations in April 1999. Its web site,
www.bookdigital.com, has been accessible to Internet users since that time.
We have been receiving advertising revenues since August 1999. Our law site,
www.lawxpressusa.com, is currently being developed and is not yet operational.
We expect to commence operations on our law site by January 2000. We expect
to incur approximately $1,600,000 in research, development and other start up
costs to achieve operations on that site. We expect to generate revenues on
lawxpressusa.com by February 2000.
INDUSTRY BACKGROUND
E-commerce. The new arena of e-commerce provides retailers with the
opportunity to serve a rapidly growing market because consumers are
increasingly accepting the Internet as an alternative shopping channel. The
Internet is becoming an increasingly accepted method of purchasing goods among
consumers. According to Jupiter Communications, as of the end of 1998, almost
10 million U.S. households have made at least one on-line purchase and by the
end of 2002 this population is expected to grow to approximately 36.5 million,
representing nearly 60 percent of U.S. online households. We believe that
these figures will continue to grow as Internet use becomes easier and more
pleasurable through higher-speed access and less expensive and alternative
Internet access devices. The growth rate of Bookdigital customer base and
revenues may be different from the growth rate of households making online
purchases.
The Internet also provides e-commerce companies with an opportunity to
serve a global market.
Jupiter Communications' April 1999 estimates project that the number of
Internet connected households worldwide will grow from approximately 60
million at the end of 1998 to approximately 124 million by the end of 2002.
IDC estimates that the number of Web users worldwide will exceed 130 million
by the end of 1999 and will grow to over 315 million users by the end of 202.
The growth rate of Bookdigital's international customer base and revenues from
international sales may be different from the growth rate of
Internet-connected households worldwide or the growth rate of worldwide Web
users.
Products that are well suited for e-commerce.
The reference book business is particulary well suited for e-commerce
because an online site has virtually unlimited shelf space and can offer
consumers anywhere the convenience of browsing through vast product
information databases. The use of sophisticated search engines and
personalized services enables users to locate information with convenience and
speed and to get advance notice about materials in their areas of personal
interest. Editorial content, such as synopses, excerpts, reviews and
editorial recommendations, make for a more-educated and entertaining
purchasing decision. Bookdigital believes that the presence of online stores
on consumers' desktops will, in and of itself, stimulate demand and expand the
marketplace.
Business strategy
Bookdigital seeks to become the leading online source for consumers who
need to obtain certain information and/or data.
To achieve this objective, Bookdigital has focused its efforts on
providing the highest possible levels of value and service, which it believes
are reflected in the completeness of its product selection, the ease-of-use of
its Web site, and the speed of delivery it can offer its customers. While the
principal focus of Bookdigital will be reference information, it will continue
to seek opportunities that expand its product offering to complementary
information, entertainment and intellectual property-based products, and to
present them to customers with the highest contextual relevance. It is our
goal to be recognized as the most innovative and customer-focused of
e-commerce merchants, making online research a simple, personal and gratifying
experience that results in the highest of customer loyalty.
Central to achieving these objectives, Bookdigital's operating strategy
is focused on rapidly extending its brand and increasing its customer and
revenue base by:
Continually enhancing the user experience. Bookdigital is committed to
making every aspect of browsing, shopping and researching on its Web site an
easy and pleasurable experience. It makes continual efforts to improve the
design, layout and navigation of all elements of its Web site, as well as to
ensure that the site's performance metrics are competitive, especially with
regard to page download times and the speed of all research function.
Bookdigital also strives to make the ordering and processing easy, intuitive,
fast and secure.
Offering a large product selection and fast delivery. Bookdigital
intends to offer the largest selection of on-line reference materials and
organized links. This includes books on a variety of topics from astronomy to
law; engineering to medicine. We believe Bookdigital's online databases will
act as a highly searchable catalog for a wide spectrum of materials.
Expanding its products offering. Bookdigital believes that our entire
range of technologies, inclusive of its database and search engine, quick
information access and related interfaces with vendors will enable it to
position itself as a premier delivery mechanism for reference material, such
as manuals and pamphlets.
Building brand awareness and driving customer acquisition through
advertising and promotion. Bookdigital will seek to invest in building our
online brand and in communicating the benefits and convenience of using our
Web sites. We intend to deploy a variety of media, including online, radio,
television, print and outdoor advertising to rapidly grow our customer base.
In all our advertising and promotion initiatives, Bookdigital will seek to
continuously drive down the costs of acquiring new customers, as well as to
get visitors to return to our site more frequently and to increase the use or
our offered services and advertisers.
Strengthening and expanding strategic alliances. Bookdigital will
continue to seek out additional entities to operate as third-party web sites
with whom it hopes to develop ability to generate alliances with merchandising
support, strengthening our ability to generate sales, and to promote both
Bookdigital.com and Lawxpressusa.com's brands.
Marketing and promotion. Since inception, Bookdigital has pursued
strategic alliances with premier online companies and high traffic web sites
in order to drive traffic to its web site. We have entered into agreements
with complimentary companies such as computer manufactures, hard drive,
monitor and other manufacturers. Generally, strategic alliance deals are
arrangements which provide for links to other web sites to be placed on
Bookdigital in order to direct traffic to those other sites, in exchange for
which Bookdigital receives a commission or percent of ensuing sales.
Bookdigital will also use the unique characteristic of the Web to cost-
effectively market our products and services and to develop a sizable
membership base. Key elements to our approach are:
Development of a detailed subscriber database
Customer convenience
Expand the Bookdigital library
Develop selected subject areas, such as law and medicine, so
Bookdigital can become a comprehensive specialized research source
Continue to refine electronic book technology
Segment our site uses so we can offer highly targeted audiences to
advertisers
Sign agreements with publishers that allow for the publishing of
their latest books in digital format on our web site
Incorporate books and reference materials in various languages
Our objective is to develop a sizable membership base and to create a
one-stop digital reference source. To achieve this goal, we will:
Focus on membership growth
Build strong brand recognition
Promote repeat usage and member loyalty
Offer new products and services
Maintain and improve technological focus and expertise
Employees
As of August 31, 1999, Bookdigital had eight full time
employees and four part time employees/consultants. Our future
success will depend, in part, on our ability to continue to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. From time to time, we also employ independent
contractors to support our research and development, marketing, sales and
support and administrative organization. Our employees are not covered by any
collective bargaining agreement, and we have never experienced a work
stoppage. We believe that our relations with our employees are good.
Facilities
Our headquarters are currently located in New York City, consisting of
approximately 1,890 square feet of office space which is under a lease that
expires in 2007. The cost per annum of this lease is $26,932.50, with
annual increases.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of Bookdigital and
their respective ages as of June 30, 1999, are as follows:
NAME AGE POSITION
Don L. Rose 42 CEO, Director
Zahra S. Yamani 29 President, Director
Susan L. Schuler 53 Secretary, Director
David Blechman 48 Director
Irwin Bosh Stack 71 Director
Don L. Rose has been Chief Executive Officer and a director of Bookdigital
since June 1999. From June 1994 to June 1999, Mr. Rose served as founder and
President of American Equity Financing, Inc., a full service venture capital
firm that worked with companies to assist them in all areas of growth.
America Equity Financing, Inc. was founded on January 27, 1997.
American Equity Financing owns 1,800,000 shares of restricted common stock in
Bookdigital. Mr. Rose served as a consultant to First Madison Securities in
their investment banking area from February of 1999 to June of 1999. Mr. Rose
has extensive experience in the areas of acquisitions, start-up of public and
private companies, growth financing, investor relations, engineering, project
control and general business consulting. consulting firm of which he is
principal. His previous roles prior to founding American Equity Financing
included licensed stock broker, investment banker, founder and President of a
very successful business consulting firm that conducted management efficiency
audits, coordinated computing and engineering projects, setup enterprise wide
databases and other functions as needed by the clients. Mr. Rose is an eight
year veteran of the U.S. Navy and holds a B.S. in Computer Science from Union
College of New York. He expects to devote over 40 hours per week to
Bookdigital.
Zahra S. Yamani has been President and a director of Bookdigital since its
inception. Ms. Yamani has experience in research and development in the areas
of physics and computation technology. She is currently completing her Ph.D.
in research on high temperature super conductivity from the University of
Toronto. Ms. Yamani has been a research assistant in the physics department of
the University of Toronto since 1998. From 1992 to 1998 Ms. Yamani was a
teaching assistant in the physics department of Sharif University of
Technology in Iran. She expects to devote approximately 10 hours per week to
Bookdigital.
Susan L. Schuler has been Secretary and a director of the Company since
Bookdigital's inception in March 1999. Since June 1983, Ms. Schuler has owned
Kennedy & Kennedy, a consulting firm. Ms. Schuler has served as controller
and chief financial officer of Nesbit Systems, Inc., a software developer
since 1986. She has been controller of Singer Frumento, L.L.P., a law firm,
since September 1996. She is the owner and President of Blue Sky Services
Corp. A consulting company specializing in security regulation. She is also
the President of Auric Investment Group, Ltd., a precious metals dealer
specializing in bullion gold coins. Ms Schuler is a member of the NSCP,
National Society of Compliance Professionals. She received a B.S. from
Portland State College in 1968. She expects to devote approximately 20
hours per week to Bookdigital.
David Blechman has been a director since the company's inception. From 1992
to 1997, Mr. Blechman served as vice president of ManageMed, Inc., a medical
office management services company. Since March 1999, he has served as vice
president and chief technical officer of PriMed Technologies. He has
extensive experience in management consulting as well as the development of
various computer software models for businesses as diverse as wholesalers,
doctors, laboratories, casinos, and option traders. He also has designed and
implemented comprehensive document management systems for the medical field.
Mr. Blechman was involved in the introduction of voice to text technology for
computers and holds a MS in Management Sciences from Lehigh University in
Pennsylvania.
Irwin Bosh Stack has been a director of Bookdigital since July 1999. From
1993 to 1996, he served as chairman of Oaktree Medical Systems, a publicly
traded company, which owed and operated medical clinics. Since 19996, he has
been president of Stack Associate, Inc., independent marketing consultants.
Executive compensation
Directors' compensation
Directors will be reimbursed for the expenses they actually incur in
attending board meetings. Directors will not be paid a fee for their service
or attendance at board meetings. To date, directors have received no
compensation.
Executive officers' compensation
Bookdigital was incorporated in March 1999. Don L. Rose, our Chief
Executive Officer, shall receive an annual salary of $85,000, Zahra Yamani,
our president, shall receive a salary of $75,000 per year, and Susan L.
Schueler, our secretary, shall receive a salary of $40,000 per year.
Principal stockholders
The following table sets forth certain information known to Bookdigital
with respect to beneficial ownership of Bookdigital's common stock as of June
30, 1999, and as adjusted for the sale of the securities offered by this
prospectus, the number and percentage of outstanding shares of common stock
beneficially owned by each person who beneficially owns:
more than 5% of the outstanding shares of our common stock;
each of our officers and directors; and
all of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of common stock owned by them.
<TABLE>
<S> <C> <C> <C>
<C> Number of
Name and Address Of Shares %Beneficially Owned %Beneficially
Owned
Beneficial Owner Beneficially Owned Before Offering(3) After Offering (3)
Zahra S. Yamani(1)
321 Floor St. West
Toronto, Ontario
M55155, Canada 2,848,000 55.03.4% 44.7%
American Equity
Financing, Inc.(2)
1078 Route 112
Suite 183
Pt. Jefferson, NY 1,800,000 34.8% 28.2%
Irwin Bosh Stack
16504 Sonehaven Rd.
Miami Lakes, FL 0 0% 0 %
David Blechman
350 NW 12th Avenue
Deerfield Beach, FL 25,000 4.8% 3.9%
Susan L. Schuler
8 Elmwynd Drive
Allentown, NJ 20,000 3.9% 3.10%
All Officers and
Directors as a
Group
(5 persons) 4,693,000 90.7% 73.6%
</TABLE>
(1) Zahra S. Yamani, President of Bookdigital, is the sole officer and
director of Knightsbridge Capital, Inc., as well as its controlling
shareholder. 2,028,000 of Ms. Yamani's 2,038,000 shares are held by
Knightsbridge.
(2) Don L. Rose, our Chief Executive Officer, is a controlling shareholder of
American Equity Financing, Inc.
(3) Excludes all shares issuable upon exercise of 370,800 outstanding
warrants.
DESCRIPTION OF SECURITIES
As of the date of this prospectus, our authorized capital stock consists
of 20,000,000 shares of common stock and 0 shares of preferred stock.
Units
Each unit consists of one share of common stock and one warrant.
Common Stock
As of May 31, 1999, there were 5,175,200 shares of common stock
outstanding held of record by approximately 100 shareholders. Excluding the
exercise of outstanding warrants, there will be 6,375,200 shares of common
stock outstanding after giving effect to the sale of the 1,200,000 we are
offering.
Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders.
Subject to preferences that may be applicable to the holders of
outstanding shares of preferred stock, the holders of common stock are
entitled to receive such lawful dividends as the board of directors may
declare from time to time. In the event we liquidate, dissolve or wind up,
and subject to the rights of the holders of outstanding shares of preferred
stock, the holders of shares of common stock will be entitled to receive pro
rata all of our remaining assets available for distribution to our
shareholders. There are no redemption or sinking fund provisions applicable
to the common stock. All outstanding shares of common stock are fully paid and
nonassessable, and shares of common stock to be issued pursuant to this
offering will be, upon issuance, fully paid and nonassessable.
Warrants
As of May 31, 1999, there were 370,800 warrants issued and outstanding.
Each warrant entitles the holder to purchase one share of common stock at an
exercise price of (120%) of the initial public offering price of the common
stock. The shares of common stock underlying the warrants, when issued upon
exercise of a warrant, will be fully paid and non-assessable. The warrants are
exercisable for a two year period commencing March 30, 1999, after which they
will expire. The warrants are subject to redemption by Bookdigital at a price
of $.10 per warrant at any time on twenty days prior written notice, provided
the closing bid price of the common stock is at least 120% of the warrant
exercise price ($12.00) for twenty consecutive trading days ending
three days prior to the date that notice of redemption was given to warrant
holders.
A warrant may be exercised upon surrender of the warrant certificate on
or before the expiration or redemption date of the warrant at the offices of
the warrant agent, with the form of "Election to Purchase" on the reverse side
of the warrant certificate completed and executed as indicated, accompanied by
payment of the exercise price (by certified or bank check payable to the order
of Bookdigital.com, Inc.) for the number of shares with respect to which the
warrant is being exercised. We will not be required to honor the exercise of
the warrants if, in the opinion of our board of directors with the advice of
counsel, the sale of securities upon exercise would be unlawful.
The foregoing discussion of material terms and provision of the warrants
is qualified in its entirety be reference to the detailed provisions of the
warrant agreement, the form of which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
For the life of the warrants, the holders have the opportunity to profit
from a rise in the market price of the common stock without assuming the risk
of ownership of the share of common stock underlying the warrants. The
warrant holders may be expected to exercise their warrants at a time when we
would, in all likelihood, be able to obtain any needed capital by an offering
of common stock on terms more favorable than those provided for by the
warrants. Furthermore, the terms on which we could obtain additional capital
during the life of the warrants may be adversely affected.
Transfer Agent and Warrant Agent
Continental Stock Transfer, New York, New York, will serve as the
Transfer Agent for the common stock and Warrant Agent for the warrants.
Determination of Offering Price
The offering price of the common stock will be arbitrarily determined by
Bookdigital and the underwriters. This price bears no relation to our assets,
book value, or any other customary investment criteria, including our prior
operating history. Among factors we considered in determining the offering
price were estimates of Bookdigital's business potential, our financial
resources, the amount of equity and control desired to be retained by the
present shareholders, the amount of dilution to public investors and the
general condition of the securities markets.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for Bookdigital's
securities. Future sales of substantial amounts of common stock or warrants
in the public market could adversely affect market prices prevailing from time
to time.
Upon completion of this offering, Bookdigital will have outstanding an
aggregate of 6,375,200 shares of common stock, assuming no exercise of any
warrants to purchase common stock. 1,200,000 of these shares will
be freely tradable without restriction or further registration under the
Securities Act (except for any shares purchased by "affiliates," as that term
defined in Rule 144 under the Securities Act). The remaining 5,175,000
shares are shares of restricted stock, as that term is defined in Rule
144 promulgated under the Securities Act. Restricted stock may be sold in
public market only if registered or if it qualifies for an exemption from
registration is available.
Pursuant to the provisions of Rule 144 (including Rule 144(k)), the
shares of restricted stock would be available for sale in the public market as
follows: 5,175,000 restricted shares would be eligible for sale under
Rule 144 upon expiration of the one year holding period applicable to
restricted stock, which expires on various dates between March 1999 and May
1999.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year (including
the holding period of any prior owner except an affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) one percent of the number of share of common stock then
outstanding (which will equal approximately 63,752 shares immediately after
this offering); or (ii) the average weekly trading volume of the common stock
during the four calendar weeks preceding the filing of a notice on Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about Bookdigital. Under Rule 144(k), a person who
is not deemed to have been an Affiliate of Bookdigital at any time during the
90 days preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least two years (including the holding period of any prior
owner except for an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144; therefore, unless otherwise restricted, "144(k)
shares" may be sold immediately upon the completion of this offering.
UNDERWRITING
The underwriters named below, for whom First Madison Securities, Inc. is
acting as representative, have severally agreed pursuant to the terms and
conditions of the underwriting agreement between Bookdigital and the several
underwriters, to purchase from Bookdigital and Bookdigital has agreed to sell
to the underwriters the number of shares of common stock set forth in the
table below at the price set forth on the cover page of this prospectus.
Number of
Underwriter Shares
First Madison Securities, Inc
Janssen-Meyers, L.P.
Westphalia Investments, Inc.
EBI Securities Corporation
Total............................................ 1,200,000
===========
The underwriting agreement provides that the obligations of the
underwriters to purchase such shares of common stock are subject to certain
conditions. The Underwriters are selling the shares on a firm commitments
basis.
The representative has advised Bookdigital that the underwriters propose
to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to selected
dealers at such price less a concession within the discretion of the
representative, and that the underwriters and such dealers may reallow a
concession to other dealers, including the underwriters, within the discretion
of the representative. After the public offering price, the concessions to
selected dealers and the reallowance to other dealers may be changed by the
representative. The offering price will not be changed until after the
completion of the public distribution.
The representative may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representative purchases
securities in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock and/or warrants, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those securities as part of this offering.
The underwriting agreement provides for indemnification between
Bookdigital and the underwriters against certain liabilities, including
liabilities under the Securities Act and for contribution by Bookdigital and
the underwriters to payments that may be required to be made in respect
thereof. Insofar as indemnification for liabilities under the Securities Act
may be permitted to Bookdigital directors, officers, and controlling persons
of Bookdigital pursuant to the agreement between Bookdigital and the
underwriters, or otherwise, Bookdigital has been advised that in the opinion
of the Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Bookdigital has agreed to pay the representative a nonaccountable
expense allowance equal to three percent of the gross proceeds from the sale
of common stock offered hereby. In the event the offering is not consummated,
any nonaccountable portion of the advanced payment will be promptly returned
to Bookdigital.
Bookdigital has agreed to issue to the underwriters the underwriter's
warrants, which entitle the holders to purchase up to an aggregate of 120,000
shares of common stock (one share for every ten shares sold by the
underwriters) for $.001 per warrant. These warrants will have an exercise
price per share equal to 165% of the initial offering price of the
common stock in this offering. The underwriter's warrants are not
transferable for one year from the date of issuance, except by operation
of law, to individuals who are either a partner or an officer of an
underwriter, by will or by the laws of descent and distribution. In
addition, during and after such one year period, the underwriter's warrants
may not be sold, transferred, pledged or hypothecated unless Bookdigital has
been supplied with evidence reasonably satisfactory to it that such transfer
is not in violation of the Securities Act of 1933. The underwriter's
warrants are not redeemable by Bookdigital. Bookdigital has agreed to maintain
an effective registration statement with respect to the issuance of the
securities underlying the underwriter's warrants, if necessary, to allow their
public resale without restriction, at all times during the period in which the
underwriter's warrants are exercisable, commencing one year after the date of
this prospectus. Such securities are being registered on the registration
statement of which this prospectus is a part.
Prior to this offering, there has been no public market for Bookdigital's
securities. Accordingly, the initial public offering price of the common
stock has been determined in negotiations between Bookdigital and the
representative. Among the factors considered in determining the initial
public offering price of the common stock were the history and the prospects
of Bookdigital and the industry in which it operates, the status and
development prospects for Bookdigital's proposed products and services, the
experience and qualifications of Bookdigital's executive officers and the
general condition of the securities markets at the time of the offering.
Legal Matters
The validity of the securities offered hereby will be passed upon for
Bookdigital by its counsel, Schonfeld & Weinstein, L.L.P., New York, New York.
Frank J. Hariton, Esq., White Plains, New York, acted as counsel for the
underwriters.
Experts
The balance sheet as of May 31, 1999, and the statements of operations,
stockholders' deficit, and cash flows for each of the two months then ended,
have been audited by Simon Krowitz Bolin & Associates, independent certified
public accountants, as set forth in their report thereon appearing elsewhere
herein and in registration statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
CERTAIN TRANSACTIONS
On March 25, 1999, Bookdigital issued a total of 4,708,040 shares to 7
people for par value. Zahra Yamani, President of Bookdigital, was issued
810,000 of those shares. Knightsbridge Capital, Inc., a company of which Ms.
Yamani is a principal, was issued 2,028,000 of those shares. Additionally,
1,800,000 of the 4,708,040 shares were issued to American Equity Financing,
Inc., a company of which Don L. Rose, Chief Executive Officer of Bookdigital,
is a principal. Susan L. Schuler, Secretary of Bookdigital, purchased 20,000
shares, and David Blechman, a director, purchased 25,000 shares. Zarto
Ltd. purchased 25,000 shares and Janis Fidotta purchased 20,000 shares.
Additional Information
Bookdigital has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended with respect to the
common stock offered hereby. This prospectus omits certain information
contained in the registration statement and the exhibits thereto, as permitted
y the rules and regulations of the Commission. For further information with
respect to Bookdigital and the securities, reference is hereby made to the
Registration Statement and such exhibits filed as a part thereof, which may be
inspected, without charge, at the Public Reference Section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street , N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at 75 Park Place,
14th Floor, New York, NY 10007. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, upon payment of the prescribed fees. The SEC maintains a World
Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC,
including the Registration Statement. The address of the SEC"s World Wide Web
site is http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract
or other documents referred to herein are not necessarily complete and. In
each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement, each such
statement being qualified in all respect by such reference.
We are not currently a reporting company under the Securities and Exchange
Act of 1934, and therefore we have not filed any reports with the Securities
and Exchange Commission. Upon completion of this offering we intend to
register under the Securities Act, and will be requires to furnish to
our security holders annual reports containing audited reports containing
audited financial statements reported on by independent auditors, and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year by electronic delivery on our Web site at
www.Bookdigital.Com.
<PAGE>
BOOKDIGITAL.COM, INC.
Table of Contents
Financial Statements
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Change in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 8
<PAGE>
SIMON KROWITZ BOLIN & ASSOCIATES, P.A.
11300 ROCKVILLE PIKE
SUITE 800
ROCKVILLE, MARYLAND 20852
(301) 468-7700
Independent Auditors' Report
To the Board of Directors of
Bookdigital.com, Inc.
New York, New York
We have audited the accompanying balance sheet of Bookdigital.com, Inc. as of
May 31, 1999 and the related statements of income and retained earnings and
cash flows for the period from inception (March 25, 1999) to May 31, 1999.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bookdigital.com, Inc. as of
May 31, 1999 and the results of its operations and its cash flows for the
initial period then ended in conformity with generally accepted accounting
principles.
Rockville, Maryland
June 23, 1999
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
BALANCE SHEET
May 31, 1999
ASSETS
Current Assets
Cash $ 128,629
Marketable Equity Securities 978,478
Total Current Assets 1,107,107
Property and Equipment
Computer Equipment 15,800
TOTAL ASSETS $ 1,122,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Liability Payable - margin account $ 322,562
Stockholders' Equity
Common Stock - 0.001 Par Value;
20,000,000 Shares
Authorized, 5,175,200 Shares Issued and
Outstanding 5,175
Paid-in Capital 2,461,934
Paid-in Capital Warrants 213,204
Retained Earnings, including
Deficit Accumulated During the
Development Stage (1,879,968)
Total Stockholders' Equity 800,345
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,122,907
See Auditors' Report and Notes to Financial Statements.
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Period March 25,1999 (date of inception) to May 31, 1999
INCOME
Interest Income $ 816
Realized Gain on
Marketable Securities 69,462
TOTAL GROSS INCOME 70,278
EXPENSES
Start-up Costs 1,861,532
Accounting Fee 1,500
Bank Charge 42
Consulting Fees 12,000
Entertainment 2,200
Interest Expenses 360
Internet 130
Legal Expenses 8,500
Office Expenses 3,147
Postage 885
Professional Fee - Other 8,250
Rent 7,200
Retainer Fee 40,000
Telephone Expenses 4,500
TOTAL EXPENSES 1,950,246
NET DEFICIT (1,879,968)
RETAINED EARNINGS AT
MARCH 25, 1999 (INCEPTION) 0
RETAINED (DEFICIT) - MAY 31, 1999 (1,879,968)
NET DEFICIT PER SHARE - BASIC $ (0.36)
NET DEFICIT PER SHARE - DILUTED $ (0.36)
SHARES USED IN PER SHARE
CALCULATION - BASIC 5,175,200
SHARES USED IN PER SHARE
CALCULATION - DILUTED 5,196,520
See Auditors' Report and Notes to Financial Statements.
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
For the Period from March 25, 1999 (date of inception) to May 31, 1999
Shares Amount Retained Earnings Total Comprehensive
Income
Balance at
March 25,
1999 0 $ $
Issuance of
Common
Stock 5,175,200 5,175 5,175
Paid-in
Capital 2,461,934 2,461,934
Paid-in
Capital Warrants 213,204 213,204
Net Loss (1,879,968) (1,879,968) (1,879,968)
Balance at
May 31,
1999 5,175,200 $2,680,313 $(1,879,968) $ 800,345 $(1,879,968)
See Auditor's Report and Notes to Financial Statements.
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period from March 25, 1999 (date of inception) to May 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net Deficit $ (1,879,968)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Marketable Equity Securities (978,478)
Purchases of Computer Equipment (15,800)
NET CASH USED BY INVESTING ACTIVITIES (994,278)
CASH FLOWS FROM BY FINANCING ACTIVITIES
Proceeds from Issuance of Warrants 213,204
Proceeds from Issuance Common Stock 2,467,109
Proceeds from Short-term Debt 322,562
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,002,875
NET INCREASE IN CASH 128,629
CASH - March 25, 1999 0
CASH - May 31, 1999 $ 128,629
Supplemental Disclosure:
Interest Paid During the Period $ 360
NONCASH INVESTING ACTIVITIES:
Issuance of Common Stock for
Services Included in Start-up cost 1,524,900
Issuance of Warrants for services Included
In Start-up costs 213,204
See Auditors' Report and Notes to Financial Statements.
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
May 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History and Business Activity - Bookdigital.com, Inc. (the Company) is a
development stage company. The Company was incorporated in the Delaware on
March 25, 1999 and has a December 31 year end. The Company's mission is to
become the ultimate reference library site online. The company's site
(www.Bookdigital.com) on the Internet is designed to maintain a very
comprehensive set of books, manuals, pamphlets, journals, research data, and
links. Bookdigital.com serves as a home base library for educational and
intellectual advancement. Viewer may search, review, browse and download
information needed in any subject such as physics, law, astronomy, etc. at
Bookdigital.com site.
The search can be made by title, subject or author for any reference
materials. Currently all reference materials are in English. However, the
Company intends to develop a global reference site in Spanish, French, German,
Italian, etc. The Company intends to register its viewers and may charge a
subscription fee in the future.
Cash and Cash Equivalents - Bookdigital.com, Inc. maintains a bank account and
a petty cash fund, both of which it classifies as cash for purposes of the
statement of cash flows.
Marketable Equity Securities - The companies' marketable securities consist of
common stock that have a readily determinable fair market value.
Management determines the appropriate classification of its investments at the
time of purchase and re-evaluates such determinations at each balance sheet
date.
Property, Plant and Equipment - Fixed assets are recorded at cost. The costs
are being depreciated on a straight-line basis over a five-year period.
Basic and Diluted Net Income (Loss) per Share - Basic net income (loss) per
share is computed using the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is also
computed using the weighted average number of common shares outstanding during
the period, including conversion of any warrants to its equivalent common
stock.
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
May 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.
Concentration of Credit Risk - The Company maintains a cash balance in a money
market account with Spear, Leeds & Kellogg. Accounts are insured by the FDIC
(Federal Deposit Insurance Corporation) up to $100,000.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires the use of the "liability method" of accounting for
income taxes. Accordingly, deferred tax liabilities and asset are determined
based upon the differences between the financial statement and tax bases of
assets and liabilities, using enacted rates in effect for the year in which
the differences are expected to reverse. Current income taxes are based upon
the year's taxable income for federal and state income tax reporting purposes.
NOTE 2 - STOCKHOLDERS' EQUITY
Common Stock - The Company is authorized to issue 20,000,000 common shares,
$0.001 par value per share and 5,175,200 shares of common stock were issued
and outstanding. The holders of common stock have one vote per share on all
matters (including election of directors) without provision for cumulative
voting. Thus, holders of more than 50% of the shares voting for the election
of director can elect all of the directors, if they choose to do so. The
common stock is not redeemable and has no conversion or pre-emptive rights.
There are no sinking fund provisions. In the event of liquidation of the
company, the holders of common stock will share equally in any balance of the
company's assets available for distribution to them after satisfaction of
creditors and preferred stockholders, if any. Common stock was issued by the
company as payment for services and has been valued by management at $5.50 per
share, the estimated fair market value of the stock existing at the time of
issuance.
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
May 31, 1999
NOTE 2 - STOCKHOLDERS' EQUITY (Continued)
Warrants - Each Class A warrant entitles the holder to purchase one share of
common stock at an exercise price of 120% of the initial public offering price
(the "Exercise Price") during the two-year period commencing March 30, 1999
("Exercise Period"). The Class A warrants are subject to redemption by the
company at a price of $0.10 per warrant, at any time on twenty-day prior
written notice provided the closing bid price of the common stock is at least
120% of the exercise price for twenty consecutive trading days ending three
days prior to the date that notice of redemption was give to warrant holders.
The shares and Class A warrants shall be detachable and separately tradable as
determined by the company. These warrants will have a one-year holding
period. They may be exercised any time after this one-year period, up to the
expiration period of two years. A value of $1.09 per warrant has been
established using the Black-Scholes Model for option pricing.
NOTE 3 - LOAN PAYABLE
The Company maintains an overdraft account with Spear, Leeds & Kellogg, its
brokerage house. The loan is due on demand and bears an interest rate of 6.5%
to 7.5%. The loan is secured by the company's investment securities.
Interest is payable monthly.
NOTE 4 - INCOME TAXES
Since the Company has not yet realized income as of the date of this report,
no provision for income taxes has been made. At May 31, 1999 a deferred tax
asset has not been recorded due to the company's lack of operations to provide
income to use the net operation loss carryover of $(1,879,968) which expires
in
2019.
NOTE 5 - CONTINGENCIES
The Company is not currently aware of any other legal proceedings or claims
that the company believes will have, individually or in the aggregate, a
material adverse effect on the company's financial position or results of
operations.
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
Financial Statements
August 31, 1999
BOOKDIGITAL.COM, INC.
Table of Contents
Financial Statements
Balance Sheet
Statement of Income and Retained Earnings
Statement of Change in Stockholders' Equity
Statement of Cash Flows
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
BALANCE SHEET
August 31, 1999
ASSETS
Current Assets
Cash $ 109,092
Account Receivable 5,500
Marketable Equity Securities 318,180
Total Current Assets 432,772
Property and Equipment
Furniture and Fixtures 11,507
Equipment 8,770
Computer Equipment 15,800
Accumulated Depreciation - Computer Equipment (790)
Total Property and Equipment 35,287
Other Assets
Security Deposits 28,821
TOTAL ASSETS $ 496,880
LIABILITY AND STOCKHOLDERS' EQUITY
Current Liability $ 0
Stockholders' Equity
Common Stock - $.001 Par Value;
20,000,000 Shares
Authorized, 5,174,200 Shares Issued and
Outstanding 5,175
Paid-in Capital 2,456,434
Paid-in Capital Warrants 213,204
Retained (Deficit), including deficit
accumulated during the
development stage
(2,177,933)
Total Stockholders' Equity 496,880
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 496,880
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Periods
June 1, 1999 March 25
to August 31, (inception)to
1999 August 31, 1999
INCOME
Interest Income $ 1,982 $ 2,798
Realized Gain or (Loss) on
Marketable Equity Securities (64,135) 5,327
TOTAL INCOME (LOSS) (62,153) 8,125
EXPENSES
Start up costs 0 1,861,532
Officer's Salaries 38,071 38,071
Clerical Salaries 558 558
Consulting Fees 64,228 76,228
Entertainment 0 2,200
Internet 179 309
Insurance 2,662 2,662
Office Expenses 5,543 8,732
Postage 108 993
Professional Fee - Public Relations 6,000 6,000
Professional Fee - Accounting 10,000 11,500
Professional Fee - Legal 22,000 30,500
Professional Fee - Other 31,480 39,730
Dues and Subscriptions 498 498
Software Expense 3,064 3,064
Rent 6,088 13,288
Retainer Fee 10,000 50,000
Stock/Registration Fees 1,848 1,848
Advertising - Internet 24,500 24,500
Depreciation Expense -
Computer Equipment 790 790
Payroll Tax Expense 4,051 4,051
Other Taxes 100 100
Telephone Expenses 3,516 8,016
TOTAL EXPENSES 235,284 2,185,170
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Periods
June 1, 1999 March 25
To August 31, (inception)to
1999 August 31, 1999
OTHER INCOME (EXPENSE)
Interest $ (528) $ (888)
NET (DEFICIT) (297,965) (2,177,933)
RETAINED (DEFICIT) - Beginning (1,879,968) 0
RETAINED (DEFICIT) - Ending $(2,177,933) $(2,177,933)
NET DEFICIT PER SHARE - BASIC $ (0.06) $ (0.42)
NET DEFICIT PER SHARE - DILUTED $ (0.06) $ (0.42)
SHARES USED IN PER SHARE CALCULATION - BASIC 5,174,200 5,174,200
SHARES USED IN PER SHARE CALCULATION - DILUTED 5,195,520 5,195,520
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
For the Period from June 1, 1999 to August 31, 1999
Compre-
Retained hensive
Shares Amount Earnings Total Income
Balance at March 25,
1999 0 $ 0 $ 0 $ 0 $ 0
Issuance of
Common Stock 5,175,200 5,175 5,175
Paid in Capital 2,461,934 2,461,934
Paid-in Capital-Warrants 213,204 213,204
Loss to May 31, 1999 (1,879,968) (1,879,968) (1,879,968)
Balance at May 31,
1999 5,175,200 2,680,313 (1,879,968) 800,345 (1,879,968)
Refund to the
Investor (1,000) (1) (1)
Reduction of
Paid-in Capital (5,499) (5,499)
Net Loss (297,965) (297,965) (297,965)
Balance at August
31, 1999 5,174,200 $2,674,813 $(1,177,933) $496,880 $(2,177,933)
<PAGE>
BOOKDIGITAL.COM, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Periods
June 1, 1999 March 25 to
To August 31, (inception) to
1999 August 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Deficit) $ (297,965) $ (2,177,933)
Adjustment to Reconcile Net (Deficit)
to Net Cash Used by Operating Activities
Depreciation Expense -
Furniture and Fixtures 790 790
Increase in Accounts Receivable (5,500) (5,500)
Increase in Security Deposit (28,821) (28,821)
NET CASH (USED) BY OPERATING ACTIVITIES (331,496) (2,211,464)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (Purchases) of Marketable
Equity Securities 660,298 (318,180)
Purchases of Furniture and Fixtures (11,507) (11,507)
Purchases of Computer Equipment (8,770) (24,570)
NET CASH PROVIDED BY INVESTING ACTIVITIES 640,021 (354,257)
CASH FLOWS FROM BY FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 0 2,467,109
Proceeds from Issuance of Warrants 213,204
Increase (Decrease) in Short-term Debt (322,561) 0
Decrease in Common Stock (1) (1)
Decrease in Paid-in Capital (5,499) (5,499)
NET CASH USED BY FINANCING ACTIVITIES (328,061) 2,674,813
NET INCREASE (DECREASE) IN CASH (19,536) 109,092
CASH - Beginning 128,628 0
CASH - Ending $ 109,092 $ 109,092
Supplemental Disclosure:
Interest Paid for the Periods $ 528 $ 888
NONCASH INVESTING ACTIVITIES:
Issuance of common stock for services
Included in start-up costs $ 0 $ 1,524,900
Issuance of warrants for services
Included in start-up costs $ 0 $ 213,204
Until , all dealers that effect transaction in the
securities whether or not participating in this offering , may be required to
deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law, as amended, provides for the
indemnification of the Company's officers, directors and corporate
employees and agents under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. - (a) A corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually
and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by an officer or director in defending
any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified
by the corporation as authorized in this section. Such expenses including
attorneys' fees incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement expenses provided by,
or granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under this section.
(h) For purposes of this Section, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation including absorbed in a consolidation of merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
<PAGE>
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
Article XI of the Company's By-laws provides for the indemnification
of the company's officers, directors, and corporate employees and agents
under certain circumstances as follows:
Article XI provides that the Company will hold harmless and will
indemnify all officers, directors, employees and agents of the Company against
all expense, liability and loss reasonably incurred or suffered by such person
in its connection as such with the Company. The Company shall indemnify
any such person seeking indemnification in connection with a proceeding
initiated by such person (except against the Company) only if such
proceeding was authorized by the Company's Board of Directors.
If a claim under the above paragraph is not paid in full by the
Company within 30 days after a written claim has been received by the Company,
the claimant may at anytime thereafter bring suit against the Company to
recover the unpaid amount of the claim. If the claimant is successful, it
is entitled to be paid the expense of prosecuting such claim, as well.
Notwithstanding any limitations in other sections of the By-laws,
the Company will, to the fullest extend permitted by Section 145 of the
General Corporation Law of Delaware, indemnify any and all persons whom it
has the power to indemnify against any and all of the expense, liabilities
and loss, and this indemnification shall not be deemed exclusive of any
other rights to which the indemnities may be entitled under any By-law,
agreement, or otherwise, both as to action in his/her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such persons.
The Company may, at its own expense, maintain insurance to protect
itself and any director, officer, employee or agent of the Company against any
such expense, liability or loss, whether or not the Company would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
<PAGE>
Item 25. Expenses of Issuance and Distribution
The other expenses payable by the Registrant in connection with
the issuance and distribution of the securities being registered are estimated
as follows:
Escrow Fee....................................$ 1,000.00
Securities and Exchange Commission
Registration Fee..............................$ 6,776.23
Legal Fees....................................$25,000.00
Accounting Fees...............................$10,000.00
Printing and Engraving....................... $ 1,500.00
Blue Sky Qualification Fees and Expenses......$ 3,000.00
Miscellaneous.................................$ 2,000.00
Transfer Agent Fee............................$ 1,500.00
TOTAL...................................................$50,776.23
<PAGE>
Item 26. Recent Sales of Unregistered Securities
On March 25, 1999, Bookdigital issued a total of 4,708,040 shares
to 7 people for par value.
Between March 30, 1999 and May 25, 1999, Bookdigital conducted a
private placement of our securities. We offered a maximum amount of 181,800
units, each unit consisting of one share of common stock and one warrant,
exercisable for one share of common stock at a price equal to 120% of the
offering price in Bookdigital's initial public offering. The units were
offered at $5.50 per unit. We sold 175,200 units to approximately 80
people.
On May 31, 1999, we issued 195,600 warrants and 272,000 shares of
common stock to various consultants of Bookdigital for work, labor and
services performed and to be performed in the future.
Each of these offerings was conducted pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1933. The
March 30, 1999 private placement was also conducted pursuant to Rule 504
of Regulation D. All investors in the March 30, 1999 offering were
sophisticated investors.
<PAGE>
EXHIBITS
Item 27.
1.0 Underwriting Agreement
3.1 Certificate of Incorporation.*
3.2 By-Laws.*
4.1 Specimen Certificate of Common Stock.*
5.0 Opinion of Counsel.
24.0 Accountant's Consent to Use Opinion.
24.1 Counsel's Consent to Use Opinion.
99.0 Selected Dealer's Agreement
99.1 Lease**
99.2 Affiliate Advertising Agreements
* Filed with original registration statement on Form SB-2.
** Filed with Amendment No.1 to Registration statement on Form
SB-2
<PAGE>
Item 28.
UNDERTAKINGS
The registrant undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the Effective Date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement,
including (but not limited to) any addition or deletion of managing
underwriter;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
treated as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to any provisions contained in its
Certificate of Incorporation, or by-laws, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York on November 8, 1999.
BOOKDIGITAL.COM, INC.
BY:
Don L. Rose
Don L. Rose, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Dated November 8, 1999
Don L. Rose
Don L. Rose
Chief Executive Officer, Director
Dated November 8, 1999
Zahra S. Yamani
Zahra S. Yamani
President, Director
Susan L. Schuler Dated November 8, 1999
Susan L. Schuler
Secretary, Director
Irwin Bosh Stack Dated November 8, 1999
Irwin Bosh Stack
Director
David Blechman
Director
<PAGE>
November 8, 1999
Securities and Exchange Commission
Washington, D.C.
Re: Bookdigital.com, Inc.
To Whom It May Concern:
Bookdigital.com, Inc.(the "Company") is a corporation duly
incorporated and validly existing and in good standing under the laws of the
state of Delaware.
The Company has full corporate powers to own its property and
conduct its business, as such business is described in the prospectus. The
Company is qualified to do business as a foreign corporation in good standing
in every jurisdiction in which the ownership of property and the conduct of
business requires such qualification.
This opinion is given in connection with the registration with the
Securities and Exchange Commission of one million two hundred thousand
(1,200,000) shares of common stock at a maximum offering price of $10.00
per Share, for sale in the Company's proposed public offering. We opine
only as to the state corporate law of the State of Delaware.
We have acted as counsel to the company in connection with the
preparation of the Registration Statement on Form SB-2, pursuant to which such
Shares are being registered and, in so acting, we have examined the originals
and copies of the corporate instruments, certificates and other documents of
the Company and interviewed representatives of the Company to the extent
we deemed it necessary in order to form the basis for the opinion
hereafter set forth. In such examination we have assumed the genuineness
of all signatures and authenticity of all documents submitted to us as
certified or photostatic copies. As to all questions of fact material to
this opinion which have not been independently established, we have relied
upon statements or certificates of officers or representatives of the
Company.
All of the 1,200,000 Shares being registered are now authorized but
unissued shares.
Based upon the foregoing, we are of the opinion that the 1,200,000
Shares of Common Stock of the Company being registered for sale by the
Company, when issued and sold pursuant to this Registration Statement will be
legally issued, fully paid and non-assessable and there will be no personal
liability to the owners thereof.
The undersigned hereby consents to the use of this opinion in
connection with such Registration Statement and its inclusion as an exhibit
accompanying such Registration Statement.
Very truly yours,
SCHONFELD & WEINSTEIN, L.L.P.
SCHONFELD & WEINSTEIN, L.L.P.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated June 23, 1999, in this registration
statement (Form SB-2) of Bookdigital.com, Inc.
Simon Krowitz Bolin & Associate, P.A.
Certified Public Accountants
Simon Krowitz Bolin & Associates, P.A.
Dated: November 8, 1999
1130 Rockville Pike, Suite 800
Rockville, MD 20852
301-468-7700
<PAGE>
To The Board of Directors of
Bookdigital.com, Inc.
Re: Bookdigital.com, Inc.
SCHONFELD & WEINSTEIN, L.L.P. does hereby consent to the use of our
opinion dated November 8, 1999, to Bookdigital.com, Inc. to be used and
filed in connection with the SB-2 Registration Statement and Prospectus, as
filed with the Securities and Exchange Commission.
Schonfeld & Weinstein, L.L.P.
SCHONFELD & WEINSTEIN, L.L.P.
Dated: November 8, 1999
<PAGE>
1,200,000 Shares of Common Stock
of
BookDigital.com, Inc.
UNDERWRITING AGREEMENT
New York, New York
October , 1999
First Madison Securities, Inc.
Janssen/Meyers Associates, L.P.
Westphalia Investments, Inc. and
EBI Securities Corporation
as Representatives of the Several Underwriters
c/o First Madison Securities, Inc.
150 East 58th Street - 24th Floor
New York, New York 10022
Ladies and Gentlemen:
BookDigital.com, Inc., a Delaware corporation (the "Company"), confirms its
agreement with the underwriters named on Schedule A hereto for whom First
Madison Securities, Inc.("FMS"), Janssen/Meyers Associates, L.P. ("JMA"),
Westpahlia
Investments, Inc. ("WP") and EBI Securities Corporation ("EBISC") are acting as
representatives (FMS, JMA, WP and EBISC are sometimes hereinafter referred to as
the "Representatives" and each individually as a "Representative") with respect
to the sale by the Company and the purchase by the Underwriters individually and
not severally, of the amount of shares set forth on Schedule A (an aggregate of
1,200,000 shares of the Company's common stock, par value $.002 per share
("Common Stock") and with respect to the grant by the Company to FMS
individually, and not as Representative, the option described in Section 2(b)
hereof to purchase all or any part of 180,000 additional shares for the purpose
of covering over-allotments, if any. The aforesaid 1,200,000 shares of Common
Stock (the "Firm Securities") and together with all or any part of the 180,000
additional shares of Common Stock subject to the overallotment option described
in Section 2(b) hereof (the "Overallotment Securities") are hereinafter
collectively referred to as the "Securities". The Company also proposes to
issue and sell to the Underwriters, an option (the "Underwriters' Purchase
Option") pursuant to the Underwriters' Purchase Option Agreement (the
"Underwriters' Purchase Option Agreement") for the purchase of an aggregate
of 120,000 additional shares of Common Stock (the "Underwriters' Option
Shares"). The Securities, the Underwriters' Purchase Option Agreement and
Underwriters' Option Shares are more fully described in the Registration
Statement (as defined in Subsection 1(a) hereof) and the Prospectus (as
defined in Subsection 1(a) hereof) referred to below. Unless the context
otherwise requires, all references to the "Company" shall include all
presently existing subsidiaries and any entities acquired by the Company on or
prior to the Closing Date (defined in Subsection 2(c) hereof). All
representations, warranties and opinions of counsel required hereunder shall
cover any such subsidiaries and acquired entities taken as a whole.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriter as of the date hereof,
and as of the Closing Date and any Overallotment Closing Date (as defined in
Subsection 2(c) hereof), if any, as follows:
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, and an amendment or amendments thereto,
on Form SB-2 (No. 333- ) including any related preliminary prospectus (each
a "Preliminary Prospectus"), for the registration of the Securities under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
any 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. Following execution of this Agreement, the Company will
promptly file (i) if the Registration Statement has been declared effective
by the Commission, (A) a Term Sheet (as defined in the Rules and Regulations
(as hereinafter defined)) pursuant to Rule 434 under the Act or (B) a
Prospectus under Rules 430A and/or 424(b) under the Act, in either case in
form satisfactory to the Underwriter or (ii) in the event the registration
statement has not been declared effective, a further amendment to
said registration statement in the form heretofore delivered to the Underwriter
and will not, before the registration statement becomes effective, file any
other amendment thereto unless the Underwriter shall have consented thereto
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective
(including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof 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)
(as hereinafter defined), 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, is hereinafter called
the "Prospectus." For purposes hereof, "Rules and 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 Prospectus or any part thereof and no proceedings for
a stop order have been instituted or are pending or, to the best knowledge of
the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and the Prospectus at the time of filing thereof conformed in all
material respects with the requirements of the Act and the Rules and
Regulations, and neither 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 and necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except 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 by or on
behalf of the Underwriter expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Overallotment Closing Date
(as hereinafter defined) 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 material
statements which are required to be stated therein in compliance with the Act
and the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, 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, not misleading, and
the Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Overallotment Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information supplied to the Company in writing by
or on behalf of the Underwriter expressly for use in the Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is now, and at the Closing Date
and any Overallotment Closing Date will be, validly existing as a corporation in
good standing under the laws of the State of Delaware. The Company does not own,
directly or indirectly, an interest in any corporation, partnership, trust,
joint venture or other business entity; provided, that the foregoing shall
not be applicable to the investment of the net proceeds from the sale of the
Securities in short-term, low-risk investments as set forth under "Use of
Proceeds" in the Prospectus except to the extent that any failure of the
Company to comply with the foregoing does not have a material adverse effect
on the Company. The Company is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which its ownership
or leasing of its properties or the character of its operations require such
qualification to do business, except where the failure to so qualify would
not have a material adverse effect on the Company. 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 having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus except where
the failure to comply would not have a material adverse effect upon the Company;
the Company is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and regulations
except where the failure to comply would not have a material adverse effect
upon the Company; 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, business affairs, position, prospects, value,
operation, properties, business or results of operation of the Company. The
disclosures, if any, in the Registration Statement concerning the effects of
federal, state, local, and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated are correct in
all material respects and do not omit to state a material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and will have the adjusted capitalization set forth therein on the Closing Date,
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 the
Company to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as otherwise described in the
Prospectus. The Securities, the Underwriters' Purchase Option and the
Underwriters' Option Shares and all other securities issued or issuable by the
Company conform or, when issued and paid for, will conform in all respects to
all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and
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 similar
contractual rights granted by the Company to subscribe for or purchase
securities. The Securities, the Underwriters' Purchase Option and the
Underwriters' Option Shares to be issued and sold by the
Company hereunder, and upon payment therefor, are not and will not be subject to
any preemptive or other similar rights of any stockholder to subscribe for or
purchase securities, 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 will 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, issuance and sale of the Securities, the Underwriters'
Purchase Option and the Underwriters' Option Shares has been duly and validly
taken; and the certificates, if any, representing the Securities and the
Underwriters' Option Shares will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold to the
Underwriter by the Company hereunder, 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.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a prospective
change in the condition, financial or otherwise, or in the earnings, business
affairs, position, prospects, value, operation, properties, business, or results
of operation of the Company, whether or not arising in the ordinary course of
business, since the dates 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 material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(g) Simon Korwitz Bolin & Associates, whose report is filed with the
Commission as a part of the Registration Statement, is an independent certified
public accountant as required by the Act and the Rules and Regulations.
(h) 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
taxes payable under Chapters 21 through 24 of the Internal Revenue Code of 1986
(the "Code"), (ii) has furnished all tax and information returns it is required
to furnish pursuant to the Code, and has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have knowledge of any
tax deficiency or claims outstanding, proposed or assessed against it.
(i) The Company maintains insurance, which is in full force and effect, of
the types and in the amounts which it reasonably believes to be adequate for its
business, including, but not limited to, personal injury and product liability
insurance covering all personal and real property owned or leased by the Company
against fire, theft, damage and all risks customarily issued against.
(j) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or to the knowledge of the
Company 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 or this Agreement or of any action
taken or to be taken by the Company pursuant to or in connection with this
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
affect the condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to enter into
this Agreement, the
Underwriters' Purchase Option Agreement, the Consulting Agreement (as described
in Section 4(x) hereof) and to consummate the transactions provided for in such
agreements; and this Agreement, the Underwriters' Purchase Option Agreement and
the Consulting Agreement have each been duly authorized, executed and delivered
by the Company. Each of this Agreement, the Underwriters' Purchase Option
Agreement and the Consulting Agreement, constitutes a legally valid and binding
agreement of the Company, subject to due authorization, execution and delivery
by the Underwriter, 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 enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriters' Purchase
Option Agreement, or the Consulting Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation or imposition of any material 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
Certificate of Incorporation or By-Laws of the Company; (ii) any material
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which the Company is bound or
to which any of its properties or assets (tangible or intangible) is 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 court, regulatory body, government agency or other body, domestic or
foreign, is required for the performance by the Company of this Agreement and
the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriters' purchase and distribution of
the Firm Securities and Overallotment Securities to be sold by the Company
hereunder; or (ii) the issuance and delivery of the Underwriters' Purchase
Option or the Underwriters' Option Shares.
(m) All executed agreements or copies of executed agreements (whether
electronically scanned or otherwise) filed as exhibits to the Registration
Statement to which the Company is a party or by which the Company may be bound
or to which any of its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legally valid and binding agreements of the Company, enforceable
against it in accordance with their respective terms, except to the extent there
is no material adverse effect upon the Company. The descriptions contained in
the Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by the Rules and Regulations and there are no material contracts
or other documents which are required by the Act or the Rules and Regulations 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 materially or substantially 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 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 in any material amount; (ii) entered into any transaction other
than in the ordinary course of business; (iii) declared or paid any dividend or
made any other distribution on or in respect of its capital stock; or (iv) made
any changes in capital stock, material changes in debt (long or short term) or
liabilities other than in the ordinary course of business; or (v) made any
material changes in or affecting the general affairs, management, financial
operations, stockholders equity or results of operations of the Company.
(o) No default exists in the due performance and observance of any material
term, covenant or condition of any license, contract, indenture, mortgage,
installment sales agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which any of
the Company may be bound or to which any of its property or assets (tangible
or intangible) of the Company is subject or affected except where such
default does not, and will not, have a material adverse effect upon the Company.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance in all material respects
with all federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
(q) Since its inception, the Company has not incurred any liability arising
under or as a result of the application of the provisions of the Act.
(r) Except as disclosed in the Prospectus, the Company does not presently
maintain, sponsor or contribute to, and never has maintained, sponsored or
contributed to, any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan " or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37) respectively of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
Except as disclosed in the Prospectus, 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.
(s) The Company is not in violation in any material respect of any domestic
or foreign laws, ordinances or governmental rules or regulations to which it is
subject.
(t) Except for the persons included in the Registration Statement as
Selling Security Holders, no holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have 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 under the
Act.
(u) Neither the Company, nor, to the Company's best knowledge after due
inquiry, any of its employees, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(v) Except as described in the Prospectus, none of the patents, patent
applications, trademarks, service marks, trade names and copyrights, or licenses
and rights to the foregoing presently owned or held by the Company is in dispute
or are in any conflict with the right of any other person or entity within the
Company's current area of operations nor has the Company received notice of any
of the foregoing. The Company to its knowledge: (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 patents, trademarks, service marks, trade names and
copyrights, technology 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) except as set forth in the
Prospectus, 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 patent, trademark, service mark trade name,
copyright, know-how, technology or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business or
otherwise.
(w) The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all the material trade secrets,
trademarks, know-how (including unpatented and/or unpatentable proprietary
and confidential information) technical data and information ("Intellectual
Property") material to its operations.
(x) The Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property 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 or assessments not yet due and payable.
(y) On or before the effective date of the Registration Statement, the
Company shall cause to be duly executed legally binding and enforceable
agreements pursuant to which each of the Company's officers and directors and
shareholders has agreed to be bound by the lock up[ and right of first refusal
of FMS as may be described in the Registration Statement. The Company will cause
its Transfer Agent, as defined below, to mark an appropriate legend, acceptable
in form to FMS and its counsel, on the face of stock certificates representing
all of such shares of Common Stock.
(z) The Company has not incurred any liability and there are no
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities or any other
arrangements, agreements, understandings, payments or issuances with respect to
the Company or any of its officers, directors, employees or affiliates that may
adversely affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers,
Inc. ("NASD").
(a) The Firm Securities have been approved for quotation on the Over the
Counter bulletin Board or Nasdaq SmallCap Market of the Nasdaq Stock Market,
Inc. (as set forth in the Registration Statement) subject to official notice of
issuance.
(aa) Neither the Company nor any of its respective officers, employees,
agents or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) 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); (b) if not given in the past, might have
had a materially adverse effect on the assets, business or operations of the
Company; and (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects 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.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any such
person or entity or the Company, has or has had, either directly or indirectly,
(i) a material 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, except with respect to the beneficial ownership
of not more than 1% of the outstanding shares of capital stock of any publicly-
held entity; or (ii) a beneficial interest in any material contract or agreement
to which the Company is a party or by which it may be bound or affected. 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 principal stockholder of the Company, or
any affiliate or associate of any such person or entity.
(cc) Any certificate signed by any officer of the Company and delivered to
the Underwriter or to the Underwriters' counsel shall be deemed a representation
and warranty by the Company to the Underwriter as to the matters covered
thereby.
(dd) The Company has entered into an employment agreement with and has
obtained the life insurance policies on the lives of officers as described in
the Prospectus.
(ee) No securities of the Company have been sold by the Company
since its inception, except as disclosed in Part II of the Registration
Statement.
(ff) The minute books of the Company have been made available to
Underwriters' counsel and contain a complete summary of all meetings and actions
of the Board of Directors and Stockholders of the Company since its inception.
(gg) No officer, or director or to the Company's knowledge stockholder of
the Company has any affiliation or association with any member of the NASD.
2. Purchase, Sale and Delivery of the Securities and Agreement to Issue
Underwriters' Purchase Option.
(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, at the price per Security set forth below, the
Firm Securities.
(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 up
to an additional 180,000 shares of Common Stock. The option granted hereby will
expire 45 days after the date of this Agreement, 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
Securities upon notice by the Underwriter to the Company setting forth the
number of Overallotment Securities as to which the Underwriter is then
exercising the option and the time and date of payment and delivery for such
Overallotment
Securities. Any such time and date of delivery shall be determined by the
Underwriter, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as defined
in paragraph (c) below, unless otherwise agreed to between the Underwriter and
the Company. Nothing herein contained shall obligate the Underwriter to make any
over-allotments. No Overallotment Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of the Underwriter at 150 East
58th Street 24th Floor, New York, New York 10022 or at such other place as shall
be designated by the Underwriter. 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 designated by the Underwriter but not less than three (3) nor more
than five (5) business days after the effective date of the Registration
Statement (such time and date of payment and delivery being hereafter called
"Closing Date"). In addition, in the event that any or all of the Overallotment
Securities are purchased by the Underwriter, payment of the purchase price for,
and delivery of certificates for such Overallotment Securities shall be made at
the above-mentioned office or at such other place and at such time (such time
and date of payment and delivery being hereinafter called "Overallotment Closing
Date") as shall be agreed upon by the Underwriter and the Company on each
Overallotment Closing Date as specified in the notice from the Underwriter to
the Company. Delivery of the certificates for the Firm Securities and the
Overallotment Securities, if any, shall be made to the Underwriter against
payment by the Underwriter of the purchase price for the Firm Securities and the
Overallotment Securities, if any, to the order of the Company as the case may be
by certified check in New York Clearing House funds, certificates for the Firm
Securities and the Overallotment Securities, if any, shall be in definitive,
fully registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriter may request in
writing at least two (2) business days prior to Closing Date or the relevant
Overallotment Closing Date, as the case may be. The certificates for the Firm
Securities and the Overallotment Securities, if any, shall be made available to
the Underwriter at the above-mentioned office 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 Closing Date or the relevant
Overallotment Closing Date, as the case may be.
The purchase price of the Securities to be paid by each of the
Underwriters, severally and not jointly, to the Company for the Securities
purchased under Clauses (a) and (b) above will be 90 % of the price paid by the
public as indicated on the front page of the Prospectus or $** per Share (which
price is net of the Underwriters' discount and commissions). The Company shall
not be obligated to sell any Securities hereunder unless all Firm Securities to
be sold by the Company are purchased hereunder. The Company agrees to issue and
sell the Securities to the several Underwriters in accordance Schedule A hereto.
(d) On the Closing Date, the Company shall issue and sell to FMS and its
designees, the Underwriters' Purchase Option at a purchase price of $120.00
which Underwriters' Purchase Option shall entitle the holders thereof to
purchase an aggregate of 120,000 shares of Common Stock. The Underwriters'
Purchase Option shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement
at an initial exercise price equal to one hundred twenty percent (120%) of
the initial public offering price of the Firm securities. The Underwriters'
Purchase Option Agreement and form of Purchase Option Certificate shall be
substantially in the form filed as an Exhibit to the Registration Statement.
Payment for the Underwriters' Purchase Option shall be made on the Closing
Date. The Company has reserved and shall continue to reserve a sufficient
number of Shares for issuance upon exercise of the Underwriters' Purchase
Option.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Representatives deem advisable, but in no
event more than five (5) business days after such effective date, the
Underwriters shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus and otherwise in compliance with the Rules and
Regulations. The Representatives may allow such concessions and discounts upon
sales to other dealers as set forth in the Prospectus. The Representatives may
from time to time increase or decrease the public offering price after
distribution of the Securities has been completed to such extent as the
Representatives, in their sole discretion, deems advisable.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Exchange Act
within 25 days after the Closing Date except for Form 8-A or any amendment
thereto: (i) before termination of the offering of the Securities by the
Underwriters which the Representatives shall not previously have been advised
and furnished with a copy; or (ii) to which the Underwriter shall have
objected; or (iii) which is not in compliance with the Act, the Exchange Act
or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representatives and confirm by notice in writing: (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective;
(ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening of any proceeding, suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution or proceeding for that
purpose; (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of the
Securities for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose; (iv) of the receipt of any
comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every
reasonable effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriter
pursuant to Rule 424(b)(4)) not later than the Commission's close of
business on the earlier of
(i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representatives (and their counsel) notice
of its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the 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),
will furnish each Representative with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such prospectus to which the Representatives or
Frank J. Hariton, Esq. ("Representatives' counsel"), shall reasonably object.
(e) The Company shall cooperate in good faith with the Representatives, and
Representatives' counsel, at or prior to the time the Registration Statement
becomes effective, in endeavoring to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Representatives may
reasonably designate, and shall making of such applications, and filing such
documents and shall 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 consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representatives agree that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required
by the laws of such jurisdiction to continue such qualification.
(f) During the time when the 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 and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, 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 the 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 Representatives' counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the 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 reasonably satisfactory to Underwriters' counsel, and the
Company will furnish to the Underwriters a reasonable number of copies of
such amendment or supplement.
(g) As soon as practicable, but in any event not later than 45 days after
the end of the 12-month period commencing on the day after the end of the fiscal
quarter of the Company during which the effective date of the Registration
Statement occurs (90 days in the event that the end of such fiscal quarter is
the end of the Company's fiscal year), the Company shall make generally
available to its security holders, in the manner specified in Rule 158(b) of
the Rules and Regulations, and to the Underwriter , an earnings statement
which will be in such form and 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 12 consecutive months after the
effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof and provided
that the Company is required to file reports with the Commission under Section
12 of the Exchange Act, the Company will furnish to its stockholders, as soon as
practicable, annual reports (including financial statements audited by
independent public accountants), and will deliver to each Representative:
(i) as soon as they are available, copies of all reports (financial or
other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any securities
exchange;
(iii) every press release and every material news item or article of
interest to the financial community in respect of the Company and any future
subsidiaries or their affairs which was released or prepared by the Company;
(iv) any additional information of a public nature concerning the Company
and any future subsidiaries or their respective businesses which the Underwriter
may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received or
filed by the Company from time to time.
During such five-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) For as long as the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will maintain a
Transfer Agent for its Common Stock.
(j) The Company will furnish to each Representative or pursuant to any
Representative's direction, without charge, at such place as any Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), 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 any Representative or Underwriter
may reasonably request.
(k) Neither the Company, nor its officers or directors, nor affiliates of
any of them (within the meaning of the Rules and Regulations) will take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation
of the price of any securities of the Company except as may be permitted
under the Exchange Act.
(l) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the provisions, set forth under the
caption "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used directly or indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each
Overallotment Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited consolidated interim
financial statements of the Company (which in no event shall be as of a date
more than forty-five (45) days prior to the date of the Registration Statement)
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.
(o) For a period of five (5) years from the Closing Date, the Company shall
furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Securities upon the
Representatives'request; (ii) a list of holders of Securities upon the
Representatives' request; (iii) a list of, if any, the securities positions of
participants in the Depository Trust Company upon the Representatives'
request.
(p) Until a date which is five (5) years from the Closing Date shall use
its best efforts to cause one (1) individual selected by FMS to be elected to
the Board of Directors of the Company (the "Board"), if requested by FMS and
provided such individual is reasonably acceptable to and approved by the
Company. FMS'nominee, if elected, shall receive the same compensation as the
other non-employee members of the Board. Alternatively, FMS shall be entitled
to appoint an individual who 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, and copies of all minutes
thereof. The Company shall reimburse FMS' designee for his or her out-of-
pocket expenses reasonably incurred and authorized in advance by the Company
in connection with his or her attendance of the Board meetings. To the extent
permitted by law, the Company agrees to indemnify and hold the designee (as
a director or observer) and FMS
harmless against any and all claims, actions, awards and judgements arising out
of his or her service as a director or an observer and the Company shall
maintain a liability insurance policy in an amount of not less than
$1,000,000 affording coverage for the action of its officer and directors, to
include such designee and FMS as an insured under such policy. FMS' nominee
shall, if a member of the Board, be a member of the Audit Committee of the
Board. FMS' nominee or designee, as the case may be, shall agree not to
disclose any non-public information and shall, if requested by the Company,
execute and deliver a non- disclosure agreement upon terms reasonably
acceptable to the Company. The Company reserves the right not to provide
information and to exclude such FMS' attendee from any
meeting or portion thereof if attendance at such meeting by such attendee would
compromise or adversely affect the attorney-client privilege between the Company
and its counsel, or would, in the good faith judgment of the Board, result in
conflict of interest situation. The Company shall use its reasonable efforts to
promptly bring to the attention of such attendee any agenda item that, in the
good faith judgment of the Board, would result in any trade secret, privileged
matter or conflict of interest arising during such meeting and the Board may
exclude such attendee (or alternatively, the attendee shall be entitled to
exclude himself or herself) from any deliberation or discussion of the Board
concerning such trade secret (if the observer has not executed a confidentiality
agreement), privileged matter or dissemination of such information. If such
observer in his or her good faith believes that an item to be discussed shall
result in a conflict, then such observer shall promptly bring such conflict to
the attention of the Chairman of the Board. In no event shall any provision of
this paragraph waive any obligation of confidentiality to the Company owed by
any such attendee or FMS.
(q) For a period equal to the lesser of (i) five (5) years from the date
hereof, or (ii) the sale to the public of the Underwriters' Option Shares, the
Company will not take any action or actions that may prevent or disqualify the
Company's use of Form S-1 or, if applicable, Form S-3 (or other appropriate
form) for the registration under the Act of the Underwriters' Option Shares.
(r) For a period of five (5) years from the date hereof, use its best
efforts at its cost and expense to maintain the listing of the Securities on the
Nasdaq SmallCap or National Market System or such other exchange on which the
securities are traded immediately after the Closing Date.
(s) As soon as practicable, but in no event more than 5 business days after
the effective date of the Registration Statement, file a Form 8-A with the
Commission providing for the registration under the Exchange Act of the
Securities.
(t) Following the Effective Date of the Registration Statement and for a
period of two (2) years thereafter, the Company shall, at its sole cost and
expense, prepare and file such blue sky trading applications with such
jurisdictions as the Representatives may reasonably request after consultation
with the Company, and on the Representatives' request, furnish the
Representatives with a secondary trading survey prepared by securities counsel
to the Company.
(u) The Company shall not amend or alter the terms of any written or oral
employment agreement between the Company and any executive officer in a manner
more favorable to such employee without the prior consent of the Underwriter,
which consent shall not be unreasonably withheld by the Underwriter. For a
period of three (3) years from the date hereof prior to the Company entering
into any oral or written employment agreement with any person who will, upon
commencement of such persons duties be deemed an executive officer, the
Company shall consult with the Representatives and the entire Board of
Directors as to the proposed terms of such employment.
(v) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Representative, which consent
shall not be unreasonably withheld, issue, directly or indirectly, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations.
(w) The Company will use its best efforts to maintain its registration
under the Exchange Act in effect for a period of five (5) years from the Closing
Date.
(x) On the Closing Date, the Company and FMS shall enter into a financial
consulting agreement, in the form filed as an Exhibit to the Registration
Statement, if any such agreement is so included.
(y) For a period of 12 months commencing on the Closing Date, except with
the written consent of the Representatives, will not issue or sell, directly or
indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Underwriters' Purchase Option, (iii) the
exercise of warrants and options of the Company heretofore issued and
described in the Prospectus, and (iv) the grant of options and the issuance
of shares issued upon exercise of options issued or to be issued under the
Company's stock option plan as described in the Prospectus (Stock Option Plan).
Except as discussed in the Prospectus, prior to the Closing Date, the Company
will not issue any options or warrants without the prior written consent of the
Representatives. The Company shall not, for a period of 12 months from the
Closing Date offer or sell any securities pursuant to Regulation S or similar
regulation without FMS' prior written consent.
(z) The Company will not file any registration statement relating to the
offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the 24 months following the Closing Date without
FMS' prior written consent.
(aa) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any material adverse
change in the condition (financial or other), business, operations, income, net
worth or properties, including any material loss or damage to the properties of
the Company (whether or not such loss is insured against), which could
materially adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Common Stock or its other securities or redeem or repurchase any of its
Common Stock or other securities.
(bb) Except as disclosed in or contemplated by the Registration Statement
and Prospectus, the Company, for a period of 24 months following the Closing
Date, shall not redeem any of its securities, and shall not pay any dividends or
make any other cash distribution in respect of its securities in excess of the
amount of the Company's current or retained earnings derived after the Closing
Date without obtaining FMS' prior written consent, which consent shall not be
unreasonably withheld. FMS shall either approve or disapprove such contemplated
redemption of securities or dividend payment or distribution within ten (10)
business days from the date FMS receives written notice of the Company's
proposal with respect thereto or within ten (10) business days as of the date
that the Company provides FMS with such information relating to the
transaction as it shall reasonably request (whichever is later); a failure of
FMS to respond within the ten (10) business day period shall be deemed
approval of the transaction.
(cc) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order
to permit preparation of financial statements in accordance with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date and the
Overallotment Closing Date (to the extent not paid at the Closing Date) all its
expenses and fees (other than fees of Representatives' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this 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, mailing, printing and
filing of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing and delivery of this Agreement,
the Selected Dealer Agreements, Agreement Among Underwriters, Power of Attorney,
Underwriter's Questionnaire, and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter in
quantities as hereinabove stated; (iii) the printing, engraving, issuance and
delivery of the Securities and Underwriters' Option Shares including any
transfer or other taxes payable thereon; (iv) disbursements and fees of
Representatives' counsel in connection with 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, which Representatives'counsel fees (exclusive of filing fees
and disbursements) (this legal work shall be performed by the Company's
counsel at the Company's sole cost and expense; (v) advertising costs and
expenses, including but not limited to costs and expenses in connection with
one information meeting held in New York, New York, one
tombstone advertisement, at least 5 bound volumes of the Offering documents for
the Representative and its counsel and prospectus memorabilia; (vi) fees and
expenses of the transfer agent; (vii) the fees payable to the NASD; and (viii)
the fees and expenses incurred in connection with the listing of the Securities
on the Nasdaq SmallCap Market. All fees and expenses payable to the
Representative hereunder shall be payable at the Closing Date or Overallotment
Closing Date, as applicable; provided, however, the Company shall pay such fees
and costs in advance of the Closing Date if requested by the Representatives.
The Representatives shall be responsible for all of their own costs of counsel.
(b) If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 6, Section 10(a) or Section 11, the Company shall
reimburse and indemnify the Underwriter for up to $ __ ** out-of-pocket actual
expenses reasonably incurred in connection with the transactions contemplated
hereby including the fees and disbursements of counsel for the Underwriter of
which the Underwriter acknowledges $0 has been paid prior to the date hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to FMS a non-
accountable expense allowance equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Firm Securities, $0 of which has
been paid to date to FMS . The Company will pay the remainder of the non-
accountable expense allowance on the Closing Date by certified or bank cashier's
check or, at the election of FMS, by deduction from the proceeds of the offering
contemplated herein. In the event the Underwriter elect to exercise the over-
allotment option described in Section 2(b) hereof, the Company further agrees to
pay to FMS on the Overallotment Closing Date (by certified or bank cashier's
check or, at FMS' election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Overallotment Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters, which are several and not joint, hereunder shall be subject to
the continuing accuracy of the representations and warranties of the Company
herein as of the Closing Date and each Overallotment Closing Date, if any, as
if they had been made on and as of the Closing Date or each Overallotment
Closing Date, as the case may be; the accuracy on and as of the Closing Date
or Overallotment Closing Date, if any, of the statements of officers of the
Company made pursuant to the provisions hereof; and the performance by the
Company on and as of the Closing Date and each Overallotment Closing Date, if
any, of each of its covenants and obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall have become effective not later than
5:30 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 Closing
Date and each Overallotment 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 to the knowledge of the Company 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 Representatives' counsel. If
the Company has elected to rely upon Rule 430A of the Rules and Regulations,
the price of the Securities 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 Closing Date the
Company shall have provided evidence satisfactory to the Representatives 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 Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, and the opinion of its counsel
is material or omits to state a fact which, in the Representatives' opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Representatives'
reasonable opinion, or the opinion of its counsel is material, or omits to state
a fact which, in the Representatives' reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) At the Closing Date and the Overallotment Closing Date, the
Underwriters shall have received the favorable opinion of Schonfeld & Weintsein,
LLP, counsel to the Company, dated the Closing Date, or Overallotment Closing
Date, as the case may be, addressed to the Underwriters and in form and
substance satisfactory to Representatives' counsel, to the effect that:
(i)(A) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own or lease its properties and to carry
on its business as set forth in the Registration Statement and Prospectus; (B)
to Counsel's knowledge the Company is duly qualified as a foreign corporation in
all jurisdictions in which by reason of maintaining an office in such
jurisdiction or by owning or leasing real property in such jurisdiction it is
required to be so qualified except where the failure to be so qualified would
have no material adverse effect upon the business, properties, results of
operations, conditions (financial or otherwise) affairs or properties of the
Company (a "Material Adverse Effect"); and (C) to the best of counsel's
knowledge, the Company has not received any notice of proceedings relating to
the revocation or modification of any such license or qualification
which revocation or modification would have a Material Adverse Effect upon the
Company.
(ii) The Registration Statement, each Preliminary Prospectus that has
been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other than the financial statements, 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 Regulations and the conditions for use of a registration statement
on Form SB-2have been satisfied by the Company.
(iii) To the best of such counsel's knowledge, except as described
in the Prospectus, the Company does not own an interest of a character required
to be disclosed in the Registration Statement in any corporation, partnership,
joint venture, trust or other business entity;
(iv) To the best of such counsel's knowledge, the Company has a duly
authorized, issued and outstanding capitalization as set forth in the Prospectus
as of the date indicated therein, under the caption "Capitalization". The
Securities, Underwriters' Purchase Option and the Underwriters' Option Shares
conform or upon issuance will conform in all material respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and all shares of capital stock are fully paid and non-
assessable; the holders thereof are not, except by reason of their own conduct
or acts, subject to personal liability by reason of being such holders, and to
the Counsel's knowledge none of such securities were issued in violation of the
preemptive rights of any holder of any security of the Company. The Securities
to be sold by the Company hereunder, the Underwriters' Purchase Option to be
sold by the Company under the Underwriters' Purchase Option Agreement and
Underwriters' Option Shares have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and conform or upon issuance will conform to the
description thereof contained in the Prospectus; are not, subject to the
Counsel's knowledge to any preemptive or other similar rights of any stockholder
of the Company; that, to such counsel's knowledge, the holders of the Securities
and Underwriters' Option Shares shall not be personally liable for the payment
of the Company's debts solely by reason of being such holders except as they may
be liable by reason of their own conduct or acts; and that the certificates
representing the Securities, Underwriters' Purchase Option and Underwriters'
Option Shares are in due and proper legal form. Upon delivery of the Securities
to the Underwriter against payment therefor as provided for in this Agreement,
the Underwriter (assuming they are bona fide purchasers within the meaning of
the Uniform Commercial Code) will acquire good title to the Securities, free and
clear of all liens, encumbrances, equities, security interests and claims.
(v) The Registration Statement has been declared effective under the
Act, and, if applicable, filing of all pricing information has been timely made
in the appropriate form under Rule 430A, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and to the best of such counsel's knowledge, no
proceedings for that purpose have been instituted or are pending or threatened
or contemplated under the Act;
(vi) To the best of such counsel's knowledge, (A) there are
no material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations;
(vii) This Agreement, the Underwriters' Purchase Option Agreement and
the Financial Consulting Agreement have each been duly and validly authorized,
executed and delivered by the Company, and assuming that each is a valid and
binding agreement of the Underwriter , as the case may be, constitutes a legally
valid and binding agreement of the Company, enforceable as against the Company
in accordance with their respective terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law or pursuant to public policy).
(viii) Neither the execution or delivery by the Company of this
Agreement, the Underwriters' Purchase Option Agreement or any Financial
Consulting Agreement, nor its performance hereunder or thereunder, nor its
consummation of the transactions contemplated herein or therein, nor the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, nor the issuance of the Securities
pursuant to this Agreement, conflicts with or will conflict with or results or
will result in any material breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material default under,
or result in the creation imposition of any material 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 except to
the extent such event will not have a Material Adverse Effect pursuant to the
terms of, (A) the Certificate of Incorporation or By-Laws of the Company, (B) to
the best knowledge of such counsel, any material indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument that is material to the Company
to which the Company is a party or by which it is bound or to which its
properties or assets (tangible or intangible) are subject, or any indebtedness,
or (C) to the best knowledge of such counsel, and except to the extent it would
not have a material adverse effect on the Company, any statute, judgment,
decree, order, rule or regulation applicable to the Company or any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of
its respective activities or properties.
(ix) No consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other than
such as may be required under state securities laws or the NASD, as to which no
opinion need be rendered) is required in connection with the issuance by the
Company of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Underwriters' Purchase Option
Agreement and the Financial Consulting Agreement by the Company, and the taking
of any action by the Company contemplated hereby or thereby, which has not been
obtained;
(x) Except as described in the Prospectus, to the best knowledge of
such counsel, the Company is not in breach of, or in default under, any material
term or provision of any indenture, mortgage, installment sale agreement, deed
of trust, lease, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company is
a party or by which the Company may be bound or to which any of the property or
assets (tangible or intangible) of the Company is subject or affected; and the
Company is not in violation of any material term or provision of its Certificate
of Incorporation or By-Laws or in violation of any material franchise, license,
permit, judgment, decree, order, statute, rule or regulation material to the
Company business;
(xi) The statements in the Prospectus under the captions "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES STOCK," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or regulations
or legal conclusions, are correct in all material respects;
(xii) To the best of such counsel's knowledge, no person,
corporation, trust, partnership, association or other entity holding securities
of the Company has the contractual 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 who has not been so included;
(xiii) the Securities are eligible for listing on the Nasdaq Small
Cap Market.
In addition, such counsel shall state that in connection with the
preparation of the Registration Statement and the Prospectus such counsel has
participated in conferences with officers and other representatives of the
Company, Underwriters of the independent public accountants for the Company at
which the contents of the Registration Statement, the Prospectus and related
matters were discussed and, although such counsel is not passing upon, has not
verified, and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement and
Prospectus and made no independent check or verification thereof, 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
Prospectus 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 under
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 Registration Statement or
Prospectus or with respect to statements or omissions made therein in reliance
upon information furnished in writing to the Company on behalf of the
Underwriter expressly for use in the Registration Statement or the
Prospectus). In rendering such opinion, such counsel may state that no
portion of the opinion relates, or is given with regard to any issues or
elements of any state or federal Intellectual Property Law, Patent Law,
Trademark Law, Environmental Law, the laws
and regulations regulating the sale, distribution and preparation of food, drugs
and pesticides, or the laws regulating international trade for the United
States, any of them, or any agencies deriving authority from either or both, and
all other foreign jurisdictions and their respective agencies.
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, the
corporate laws of Delaware and New York 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
reasonably satisfactory to Representatives' counsel) of other counsel reasonably
acceptable to Representatives' counsel, familiar with the applicable laws of
such other jurisdictions, 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 various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company; provided, that copies of any such
statements or certificates shall be delivered to Representatives' counsel if
requested. 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,
in their opinion, the Representatives and they are justified in relying thereon.
(d) At each Overallotment Closing Date, if any, FMS and any other
Underwriter purchasing such shares shall have received the favorable opinion of
counsel to the Company, each dated the Overallotment Closing Date, addressed to
them and in form and substance satisfactory to Underwriters' counsel confirming
as of the Overallotment Closing Date the statements made by such firm, in their
opinion, delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Overallotment Closing
Date, Representative' Counsel shall have been furnished such documents,
certificates and other legal opinions (including, without limitation, legal
opinions related to patent, trademark or Food and Drug matters) as he may
reasonably require and request for the purpose of enabling him to review or pass
upon the matters referred to in subsection (c) of this Section 6, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(f) Prior to the Closing Date and each Overallotment Closing Date, if any:
(i) there shall have been no material adverse change nor development involving
a prospective change in the condition, financial or otherwise, prospects or the
business activities of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the
latest date as of which the financial condition of the Company is set forth in
the Registration Statement and Prospectus which is materially adverse to the
Company; (iii) the Company shall not be in material default under any provision
of any instrument relating to any outstanding indebtedness for money borrowed,
except as described in the Prospectus; (iv) no material amount of the assets of
the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (v) no action, suit or proceeding, at law
or in equity, shall have been pending or to its knowledge threatened against the
Company, or affecting any of its properties or businesses before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially adversely
affect the business, operations, prospects or financial condition or income of
the Company, except as set forth in the Registration Statement and Prospectus;
and (vi) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
(g) At the Closing Date and each Overallotment Closing Date, if any, the
Representatives 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 Overallotment Closing Date, as
the case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are, in all material respects, true and correct, as if made on and as
of the Closing Date or the Overallotment 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 Overallotment Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best of each of such person's knowledge,
are contemplated or to their knowledge 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 nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under 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 under which they were made, not misleading except to the extent
any such material fact may be corrected in the Final Prospectus; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as otherwise
contemplated therein: (A) the Company has not incurred up to and including the
Closing Date or the Overallotment Closing Date, as the case may be, other than
in the ordinary course of its business, any material liabilities or obligations,
direct or contingent; (B) the Company has not paid or declared any dividends or
other distributions on its capital stock; (C) the Company has not entered into
any material transactions not in the ordinary course of business; (D) there has
not been any change in the capital stock or any increase in long-term debt or
any increase in the short-term borrowings (other than any increase in the
short-term borrowings in the ordinary course of business) of the Company;
(E) the Company has not sustained any material loss or damage to its property or
assets, whether or not insured; (F) there is no litigation which is pending
or threatened against the Company which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or affiliates shall
have taken, and the Company, its officers and affiliates will not take, directly
or indirectly, any action designed to, or which might reasonably be expected to,
cause or result in the stabilization or manipulation of the price of the
Company's securities to facilitate the sale or resale of the Shares.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date of
such certificate.
(h) By the Effective Date, the Underwriters shall have received clearance
from NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory in all respects (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter, from Simon Krowitz Bolin & Associates:
(i) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(ii) stating that it is their opinion that the combined 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 thereunder and
that the Underwriter may rely upon the opinion of Simon Krowitz Bolin &
Assocoiates with respect to the 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 available unaudited interim combined financial
statements of the Company (with an indication of the date of the latest
available unaudited interim combined financial statements), a reading of the
latest available minutes of the stockholders and board of directors and the
various committees of the boards 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
that would lead them to believe that (A) the unaudited combined 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 combined
financial statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the stockholders' equity or
net current assets or net assets of the Company as compared with amounts
shown in the financial statements 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 June 1, 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 increase in net earnings per common
share of the Company, in each case as compared with the corresponding period
beginning *? 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 breakdown of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar amounts, numbers
of Securities, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
(vi) stating that they have not during the immediately preceding five
(5) year period brought to the attention of the Company's management any
"weakness", as defined in Statement of Auditing Standard No. 60 "Communication
of Internal Control Structure Related Matters Noted in an Audit, " in the
Company's internal controls;
(vii) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all material respects with the applicable
accounting requirements of Rule ll-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as any Representative may reasonably request.
At the Closing Date and each Overallotment Closing Date, the Underwriters
shall have received from Simon Krowitz Bolin & Associates, a letter, dated as of
the Closing Date, or Overallotment Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (i) of this Section, except that the specified date referred to
shall be a date not more than five days prior to Closing Date and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause
(iii) of subsection (i) of this Section with respect to certain amounts,
percentages and financial information as specified by any Representative and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b)
and have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (iii).
(k) On each of Closing Date and Overallotment Closing Date, if any, there
shall have been duly tendered to the Underwriters for their accounts the
appropriate number of Securities against payment therefore.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Overallotment Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Overallotment Closing Date, as
the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter, and
each person, if any, who controls any Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), whatsoever (including but not limited
to any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), as such are incurred, to which such 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 any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus (except
that the indemnification contained in this paragraph with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter or to
the benefit of any person controlling such Underwriter on account of any loss,
claim, damage, liability or expense arising from the sale of the Firm Securities
by such Underwriter to any person if a copy of the Prospectus, as amended or
supplemented, shall not have been delivered or sent to such person within the
time required by the Act, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, as amended and supplemented, and
such correction would have eliminated the loss, claim, damage, liability or
expense),
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 Underwriters' Purchase Option;
or (iii) in any application or other document or written communication (in this
Section 7 collectively called "application") 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 Nasdaq Stock Market,
Inc. or any other securities exchange; or 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 the
light of the circumstances under which they were made), unless in any case 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 Prospectus, or any amendment
thereof or supplement thereto, in any post-effective amendment, new
registration statement or prospectus or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each Underwriter agrees, to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act to the
same extent as the foregoing indemnity from the Company to the Underwriter
(i) with
respect to statements or omissions, or alleged statements or omissions if any,
made in any Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto in any post-effective amendment, new
registration statement or prospectus, or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company with respect to such 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 post-effective amendment, new
registration statement or prospectus, or in any such application, directly
related to the transactions effected by such Underwriter in connection with this
Offering; provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto, in any post-effective
amendment, new registration statement or prospectus or in any such application,
and (ii) for any claim, loss, damages or liability for violation or alleged
violations of any federal or state securities laws in the offer or sale of the
Securities; provided, further, that the liability of such Underwriter to the
Company shall be limited to the product of the Underwriters' discount or
commission for the Shares multiplied by the number of Shares sold by such
Underwriter hereunder. The Company acknowledges that the statements with respect
to the public offering of the Firm Securities set forth under the heading
"Underwriting" and the stabilization legend and the last paragraph of the cover
page in the Prospectus have been furnished by any Underwriter expressly for use
therein and any information furnished by or on behalf of the Underwriters filed
in any jurisdiction in order to qualify the Securities under state securities
laws or filed with the Commission, the NASD or any securities exchange
constitute the only information furnished in writing by or on behalf of any
Underwriter for inclusion in the Prospectus and the Underwriter hereby
confirm that such statements and information are true and correct and shall
be on each Closing Date and Overallotment Closing Date.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, suit or proceeding, such indemnified
party shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to 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 is brought
against any indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it may elect by written
notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, the indemnifying party may assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing the indemnified party or parties shall have the right to employ its or
their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not
have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnifying party or parties shall have reasonably
concluded that there may be defenses available to it or them that are different
from or additional to those available to one or all of the indemnifying parties
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events 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 or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. Anything in this Section 7 to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided however, that such
consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriter are 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
and commissions 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 or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this subparagraph (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the Closing Date and
the Overallotment Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity 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 the Underwriter , the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter .
9. Effective Date. This Agreement shall become effective at 9:30 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
Representatives, in their sole discretion, shall release the Securities for the
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 Representatives of telegrams to
securities dealers releasing such Securities for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) The Underwriter shall have the right to terminate this Agreement: (i)
if any calamitous domestic or international event or act or occurrence has
materially disrupted, or in the Underwriters' commercially reasonable opinion
will in the immediate future materially disrupt general securities markets in
the United States; or (ii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market
by the NASD or by order of the Commission or any other government authority
having jurisdiction; or (iii) if the United States shall have become involved in
a war or major hostilities; or (iv) if a banking moratorium has been declared by
a New York State or federal authority; or (v) if a moratorium in foreign
exchange trading has been declared; or if the Company shall have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; or (vi) if there shall have been such material adverse change
in the conditions or prospects of the Company, involving a change not
contemplated by the Registration Statement, or (vii) if there shall have been
such material adverse change in general economic, political or financial
conditions as in the Underwriters' reasonable judgment would make it
inadvisable or impracticable to proceed with the offering, sale or delivery
of the Securities.
(b) Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 9 and 10 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the Closing Date or any
Overallotment Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Overallotment Closing Date, the
Representatives may at the Representatives' option, by notice from the
Representatives to the Company, terminate the Underwriters' obligations to
purchase Securities from the Company on such date) without any liability on the
part of any non-defaulting party other than pursuant to Section 5 and Section 7
hereof. No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
12. Venue; Submission to Jurisdiction. The Company (a) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern
District of New York, (b) waives any objection which the Company may have now or
hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York in any such suit, action or procedure. Each of the
Company and each
Underwriter further agrees to accept and acknowledge service of any and all
process which may be served in any suit, action or proceeding in the New York
State Supreme Court, County of New York or the United States District Court for
the Southern District of New York, and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the company in any such suit,
action or proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to
have been duly given if mailed, hand delivered by a bonded messenger service
or sent by recognized overnight courier. Notices to the Underwriters shall be
directed to First Madison Securities, Inc., as Representative, 150 East 58th
Street - 24thFloor (c/o Madison Venture Capital II, Inc.), New York, New York
10022, Attention Ray Vahab, with a copy to Frank J. Hariton, Esq., 1065 Dobbs
Ferry Road, White Plains, New York 10607. Notices to the Company shall be
directed to the Company at 65 Broadway, New York, New York 10006, Attention
Don L. Rose, with a copy to Schonfeld & Weinstein, L.L.P., 63 Wall Street, New
York, New York 10005, Attention: Joel Schonfeld, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal Underwriters and assigns, and their respective heirs and legal
Underwriters and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Applicable Law/Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York as
they are applied to agreements executed, delivered and to be performed entirely
within the State of New York.
16. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which taken together
shall be deemed to be one and the same instrument.
17. Waiver. The waiver by either party of the breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach.
18. Assignment. Except as otherwise provided within this Agreement, neither
party hereto may transfer or assign this Agreement without prior written
consent of the other party.
19. Titles and Captions. All article, section and paragraph titles or captions
contained in this Agreement are for convenience only and shall not be deemed
part of the context nor affect the interpretation of this Agreement.
20. Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the Person or Persons may require.
21. Entire Agreement. This Agreement contains the entire understanding between
and among the parties and supersedes any prior understandings and agreements
among them respecting the subject matter of this Agreement.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and the Underwriters.
Very truly yours,
BOOKDIGITAL.COM, INC.
By:___________________________
Name: Don L. Rose
Title: Chief Executive Officer
Confirmed and accepted as of the date first above written.
FIRST MADISON SECURITIES, INC. JANSSEN/MEYER ASSOCIATES, L.P.
By: By:_____________________________
Name: Ray Vahab Name: Peter Janssen
Title: President Title: President
WESTPHALIA INVESTMENTS, INC. EBI SECURITIES CORPORATION
By: By:
Name: Carlos Penalozza Name:
Title: President Title:
SCHEDULE A
Name and address of Underwriter Number of Shares in
Commitment
<PAGE>
BOOKDIGITAL.COM, INC.
1,200,000 Shares of Common Stock
AGREEMENT AMONG UNDERWRITERS
October , 1999
New York, New York
First Madison Securities, Inc.,
Janssen - Meyers, L.P.
Westphalia Investments, Inc. and
EBI Securities Corporation
as Representatives of the several Underwriters
c/o First Madison Securities, Inc.
150 East 58th Street - 24th Floor
New York, New York 10022
Dear Sirs:
1. Underwriting Agreement. We understand that BookDigital.Com, Inc.
(the "Company"), proposes to issue and sell 1,200,000 shares of its common stock
par value $.001 per share (the "Shares") and that the Company proposes to enter
into an underwriting agreement (the "Underwriting Agreement") substantially in
the form attached hereto as Exhibit A, with you acting as representatives (the
"Representatives" and each a "Representative") of the several underwriters named
in Schedule I to the Underwriting Agreement (the "Underwriters"). This is to
confirm that we agree to purchase, in accordance with the terms of the
Underwriting Agreement, the number of Shares set forth opposite our name in
Schedule I plus such number of Shares, if any, which we may become obligated to
purchase pursuant to Paragraphs 4, 9 and 10 hereof ("our Commitment"). The
total Shares which we thus become obligated to purchase pursuant to the
Underwriting Agreement are referred to herein as "our Shares". The Underwriting
Agreement also relates to the grant to First Madison Securities, Inc., in its
individual capacity and not in its capacity as a Representative, of the right
to purchase up to an additional 180,000 Shares, at their option for the sole
purpose of covering over-allotments in the sale of the 1,200,000 Shares.
2. Registration Statement and Prospectus. We have heretofore received
and examined a copy of the registration statement, as amended (exclusive of
exhibits), and the related prospectus in respect of the Shares, as filed with
the Securities and Exchange Commission, and we are familiar with the amendment
thereto proposed to be filed. The information therein is correct and is not
misleading insofar as it relates to us, and we consent to being named as an
Underwriter therein. We confirm that we have furnished a copy of any amended
preliminary prospectus to each person to whom we have furnished a copy of any
previous preliminary prospectus and we confirm that we have delivered and we
agree that we will deliver, all preliminary and final prospectuses required for
compliance with the provisions of Rule 15c2-8 under the Securities Exchange Act
of 1934.
3. Authority of the Representatives. We authorize you, acting as
Representatives, to execute and deliver on our behalf the Underwriting Agreement
and to agree to any variation of its terms which, in your discretion, may be
desirable. We also authorize you to exercise all the authority and discretion
vested in the Underwriters or in you by the provisions of the Underwriting
Agreement and to take all such actions as you may believe desirable to carry out
the provisions of the Underwriting Agreement and of this Agreement. We
authorize you to take such actions as in your discretion may be necessary or
desirable to effect the sale and distribution of the Shares, including the
right to determine the terms of any proposed offering, the concession to
Selected Dealers (as hereinafter defined) and the re-allowance, if any, to
other dealers, and the right to make the judgments provided in Paragraph
11(b) of the Underwriting Agreement.
We authorize you, among other things, to advise the Company of any
information necessary to amend or supplement the registration statement or the
prospectus, to fix the offering price, to determine when and if the Shares shall
be released for public offering, to fix and alter the time within which the
Registration Statement must become effective, to fix and alter the date for
closing and to determine all matters relating to the public advertisement of the
offering.
4. Authority of Representatives as to Defaulting Underwriters. Until
the termination of this Agreement, we authorize you to arrange for the purchase
by other persons, who may include any of the Underwriters, of any Shares not
taken by any defaulting Underwriter. In the event that such arrangements are
made, the respective number of Shares to be purchased by the non-defaulting
Underwriters and by such other person or persons, if any, shall be taken as the
basis for all rights and obligations hereunder; but this shall not in any way
affect the liability of any defaulting Underwriter to the other Underwriters for
damages resulting from its default, nor shall any such default relieve any other
Underwriter of any of its obligations hereunder or under the Underwriting
Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Shares agreed
to be purchased by them thereunder at the Closing Date (as defined in the
Underwriting Agreement) or (b) under this Agreement to take up and pay for any
securities purchased, or to deliver any securities sold or over-allotted, by you
for the respective accounts of the Underwriters pursuant to Paragraphs 9 and 10
hereof, or to bear their respective share of expenses or liabilities pursuant to
Paragraphs 12, 14 and 15 hereof, and to the extent that arrangements shall not
have been made by you for any persons to assume the obligations of such
defaulting Underwriter or Underwriters, we agree to assume our proportionate
share, based on the respective Commitments of the non-defaulting Underwriters,
of the obligations of each defaulting Underwriter (subject in the case of clause
(a) above to the limitations contained in Paragraph 10 of the Underwriting
Agreement) without relieving any such defaulting Underwriter of its liability
thereof.
5. Offering of Shares. We understand that you will notify us when the
initial public offering of the Shares is to be made and of the initial public
offering price of the Shares and the components thereof. We hereby authorize
you in your discretion after the initial public offering to change the public
offering price, the concession and the re-allowance. The offering price at any
time in effect is hereinafter referred to as the "public offering price". We
agree that we will not offer any of the Shares for sale at a price other than
the public offering price or allow any discount therefrom except as herein
otherwise provided.
We authorize you to reserve and offer for sale to retail purchasers and to
dealers (the "Selected Dealers"), to be selected by you (including any
Underwriter) such of our Shares as you shall determine. Any such offering to
Selected Dealers may be made pursuant to a Selected Dealer Agreement, in the
form attached hereto as Exhibit B, or otherwise, as you may determine. We
authorize you to take any action you deem desirable in respect to all matters
pertaining to sales to Selected Dealers, including any variation in the terms
of the Selected Dealer Agreement.
We authorize you to make purchases and sales of Shares from or to any
Selected Dealer or Underwriter at the public offering price less all or any part
of the concession and, with your consent, any Underwriter may make purchases or
sales of Shares from or to any Selected Dealer or Underwriter at the public
offering price less all or any part of the concession. The concession and
re-allowance may be allowed only to dealers who are members in good standing of
the National Association of Securities Dealers, Inc., or foreign dealers or
institutions not registered under Section 15(b) of the Securities Exchange Act
of 1934 who agree not to make sales within the United States, its territories or
possessions or to persons who are citizens thereof or residents therein and, if
the offering is one within the scope of such Association's Interpretation with
Respect to Free-Riding and Withholding, not to make other sales of Shares to
persons enumerated in Paragraphs "1" through "5" of such Interpretation or in a
manner inconsistent with the Fixed Price Offering Rules and specifically
Sections 8, 24 and 36 of Article III of the Rules of Fair Practice of said
Association.
We shall also comply with Section 25 of Article III of the Rules of Fair
Practice of said Association. We understand that you will notify each
Underwriter promptly upon release of the Shares for public offering as to the
number of its Shares reserved for sale to Selected Dealers and retail
purchasers. Shares not so reserved may be sold by each Underwriter for its
own account, except that from time to time you may, in your discretion, add
to the Shares
reserved for sale to Selected Dealers and retail purchasers any Shares retained
by an Underwriter remaining unsold. We agree to notify you from time to time
upon request, of the number of Shares retained by us remaining unsold. If all
the Shares reserved for offering to Selected Dealers and retail purchasers are
not promptly sold by you, any Underwriter may from time to time, with your
consent, obtain a release of all or any Shares of such Underwriter then
remaining unsold and Shares so released shall thereafter be deemed not to
have been reserved. Shares of any Underwriter so reserved which remain
unsold or, if sold, have not been paid for any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Shares shall remain subject to disposition by you until this Agreement is
terminated.
6. Compensation to the Representatives. As compensation for your
services, we agree to pay to you and authorize you to charge our account with,
a management commission in an amount equal to $.____ for each Unit we become
obligated to purchase pursuant to the Underwriting Agreement.
7. Payments and Delivery. At or before 9:00 A.M., New York time, on the
Closing Date (as defined in the Underwriting Agreement), we agree to deliver a
certified or official bank check payable in New York Clearing House funds to the
order of Wertheim Schroeder, Incorporated account of First Madison Securities,
Inc. c/o , New
York, New York for the purchase of our Shares. At your option, such
payment shall be in an amount equal to the initial public offering price of our
Shares in respect to our Shares, or in an amount equal to the initial public
offering price of the Shares less the concession to the Selected Dealers in
respect to our Shares. Any balance due to us shall be credited to our account.
We authorize you to utilize such payments to make payment for our Shares.
Notwithstanding the foregoing, payment for and delivery of the Shares purchased
by us hereunder shall be made through the facilities of the Depository Trust
Company, if we are a member, unless we have otherwise notified you prior to the
date specified in your telex or telegram to us, or if we are not a member,
settlement may be made through a correspondent who is a member pursuant to
instructions prior to such specified dates. Delivery to us of certificates
shall be made as soon as practicable thereafter.
We authorize you to hold and deliver against payment any of our Shares
which have been sold or reserved for sale to Selected Dealers or retail
purchasers. Any of the certificates representing our Shares not sold or
reserved by you as aforesaid will be available for delivery to us at your office
or the office of your clearing agent as soon as practicable after the
certificates representing our Shares have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of the certificates representing our
Shares reserved by you for sale to Selected Dealers or retail purchasers but not
sold and paid for, against payment by us of an amount equal to the initial
public offering price of such Shares less the concession to the Selected
Dealers in respect thereof.
You shall not be accountable for interest on our funds at any time in your
hands, and any such funds may be held by you unsegregated from your general
funds.
8. Authority to Borrow. We authorize you (to the extent permitted by
law) to arrange loans for our account and to execute and deliver any notes or
other instruments in connection therewith, and to pledge as security therefor
all or any part of our Shares or of any securities purchased for the accounts of
the several Underwriters pursuant to Paragraphs 9 and 10 hereof, as you may deem
necessary or advisable to carry out the purchase, carrying and distribution of
the Shares, to advance your own funds, charging current interest rates, and to
give instructions to lenders with respect to any such loans and the proceeds
thereof, which instructions the lenders are hereby authorized to accept.
9. Over-allotment Option. We authorize you, in your sole discretion,
to determine (i) the number of Shares, if any, to be purchased pursuant to
Paragraph 4 of the Underwriting Agreement and (ii) whether such over-allotment
Shares shall be purchased solely for your account or for the accounts of such of
the Underwriters, including ourselves and yourself, as you shall determine. We
agree that if such over-allotment is purchased for our account we will increase
our Commitment to the extent of such purchase for our account.
10. Over-allotment; Stabilization. We authorize you for our account,
prior to the termination of this Agreement, and for such longer period as may be
necessary to cover any short position incurred for the accounts of the several
Underwriters pursuant to this Agreement, (a) to over-allot in arranging for
sales of Shares to Selected Dealers and others and, if necessary, to purchase
Shares as provided for in Paragraph 4 of the Underwriting Agreement, and to
make other purchases of Shares at such prices as you may determine, all for
the purpose of covering such over-allotments, and (b) for the purpose of
stabilizing the market in the Shares of the Company, to make purchases and
sales of securities of the Company on the open market or otherwise, for long
or short account, on a when-issued basis or otherwise at such prices, in such
amounts and in such manner as you may determine, provided, however, that at
no time shall our net commitment, either for long or short account, under
this Paragraph 10 exceed 15% of the amount of our Commitment. Such purchases,
sales and over-allotments shall be made for the accounts of the several
Underwriters in such proportions as you may determine. It is understood that
you may have made purchases of common stock
of the Company for stabilizing purposes prior to the execution of this Agreement
and we agree that any common stock of the Company so purchased shall be treated
as having been purchased for the respective accounts of the Underwriters
pursuant to the foregoing authorization. We agree to take up on demand at
cost any Shares of the Company so purchased for our account and deliver on
demand any Shares or other shares of common stock of the Company so sold or
over-allotted for our
account. We authorize you to sell for our account any securities of the Company
purchased pursuant to this Paragraph 10, upon such terms as you may deem
advisable and any Underwriter, including yourselves, may purchase such Shares.
You are authorized to charge our account with broker's commissions or dealer's
mark-up on purchases and sales effected by you for our account. We agree to
transmit to you for filing with the Securities and Exchange Commission any and
all reports required to be made by us pursuant to paragraph (e) of Rule 17a-2
under the Securities Exchange Act of 1934 as a result of any transactions in
connection with the offering of the Shares.
If pursuant to the provisions of the preceding paragraph or otherwise you
purchase or contract to purchase for the account of any Underwriter in the open
market or otherwise any common stock of the Company or Shares which were
retained by or released to us for direct sale, or any other shares or common
stock of the Company which may have been issued in exchange for such Shares
we authorize you either to charge our account with an amount equal to the
concession to Selected Dealers with respect thereto, which amount shall be
credited against the cost of
such common stock or Shares or to require us to repurchase such common stock or
Shares at a price equal to the total cost of such purchase, including transfer
taxes and broker's commissions or dealer's mark-up, if any. In lieu of such
action you may, in your discretion, sell for our account the common stock of the
Company or Shares so purchased and debit or credit our account for the loss or
profit resulting from such sale.
11. Open Market Transactions. We agree that, except as herein otherwise
provided, until the termination of this Agreement or until you notify us that we
are released from this restriction, we will not without your consent buy, sell,
deal or trade in the Shares of the Company for our own account or for the
accounts of customers.
12. Allocation and Payment of Expenses. We understand that all expenses
of a general nature which are not paid for by the Company and which are incurred
by you, as Representatives in connection with the sale of the Shares shall be
borne by the Underwriters in accordance with our Commitment. We authorize you
to charge our account with our proportionate share, based on our Commitment, of
the aforesaid expenses.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our proportionate share of all expenses and liabilities which may be
incurred by or for the accounts of the Underwriters, including any expenses and
liabilities referred to in Paragraphs 14 and 15 hereof, which shall be
determined as provided in this Paragraph 12.
13. Termination. Unless this Agreement or any provision hereof is
earlier terminated by you and except for provisions herein that contemplate
obligations surviving the termination hereof, this Agreement will terminate at
the close of business on the 30th day after the date hereof, but in your
discretion may be extended by you for a further period not exceeding 30 days;
provided, however, that the provisions of Paragraphs 12, 14 and 15 hereof shall
survive the termination of this Agreement.
14. Liability of the Representatives. Neither as Representative nor
individually shall either of you be under any liability whatsoever to any other
Underwriter nor shall you be under any liability in respect of any matters
connected herewith or action taken by you pursuant hereto (except for the
obligations expressly assumed by you in this Agreement), including, but not
limited to the validity or value of or title to, the Shares; the form of, or the
statements contained in, or the validity of, the registration statement or
prospectus or any amendment or supplement thereto, or any other letter or
instrument executed by the Company or by others; the form or validity of the
Underwriting Agreement, the Selected Dealer Agreement, or this Agreement; the
delivery of Shares; the performance by the Company or by others of any agreement
on its or their part; the qualification of Shares for sale under the laws of any
jurisdiction; or any matter in connection with the foregoing; provided, however,
that nothing contained in this Paragraph 14 shall constitute the several
Underwriters as association, or partners with us or with each other, or except
as herein expressly provided, render any Underwriter liable for the obligation
of any other Underwriter. The rights, obligations, and liabilities of each of
the Underwriters are several, in accordance with their respective obligations,
and not joint. Notwithstanding any settlement of accounts under this Agreement,
we agree to pay our proportionate share, based on our Commitment, of the amount
of any claim, demand or liability which may be asserted against and discharged
by the Underwriters, or any of them, based on the claim that the Underwriters
constitute an association, unincorporated business or other entity, and also to
pay our proportionate share, based on our Commitment, of expenses approved by
you incurred by the Underwriters, or any of them, in contesting any such claims,
demands or liabilities.
15. Indemnification and future Claims. (a) We agree to indemnify and
hold harmless each of you and each other Underwriter, and each person, if any,
who controls you or such other Underwriter within the meaning of Section 15 of
the Securities Act of 1933, as amended, and to reimburse your and its expenses,
to the extent that upon the terms that we agree to indemnify and hold harmless
the Company and to reimburse its expenses as set forth in Paragraph __ of the
Underwriting Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against either of you, as a Representative or otherwise involving the
Underwriters generally, relating to the registration statement or any
preliminary prospectus or the final prospectus, as from time to time amended or
supplemented, the public offering of the Shares or any of the transactions
contemplated by this Agreement, we authorize you to make such investigations,
or retain such counsel and to take such other action as you shall deem
necessary or desirable under the
circumstances, including settlement of any such claim or claims if such course
of action shall be recommended by counsel retained by you. We agree to pay to
you, on request, our proportionate share, based on our Commitment, of all
expenses incurred by you (including, but not limited to, disbursements and fees
of counsel so retained) in investigating and defending against such claim or
claims and our proportionate share, based on our Commitment, of any liability
incurred by you in respect of such claim or claims, whether such liability shall
be the result of a judgment or as a result of any such settlement.
16. Title in the Shares. The Shares purchased by, or on behalf of, the
respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Shares shall not in any event pass to either
Representative by virtue of any of the provisions of this Agreement.
17. Blue Sky Matters. It is understood that you assume no responsibility
with respect to the right of any Underwriter or other person to offer or to sell
Shares in any jurisdiction, notwithstanding any information which you may
furnish as to the jurisdictions under the securities laws of which it is
believed the Shares may be sold.
18. Review of Registration Statement. We are aware that the staff of the
Securities and Exchange Commission may make only a cursory and not a customary
review of the registration statement, which may not be relied upon in any degree
to indicate that such registration statement is true, complete or accurate, and
we are aware of our statutory responsibilities under the Securities Act of 1933,
as amended, and you are authorized, on our behalf, to so advise the Commission
by letter.
19. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York without regard to the
principles of conflict of law.
20. Miscellaneous. Any notice from you to us shall be deemed to have
been duly given if mailed, telephoned, telegraphed or telexed to us at the
address set forth in the Underwriters' Questionnaire furnished by us to you.
Any notice from us to you shall be deemed to have been duly given if mailed,
telephoned, telegraphed or telexed to you at First Madison Securities, Inc., 150
East 58th Street - 24th Floor, New York, New York 10022.
We confirm our ratio of aggregate indebtedness to net capital is such that
we may, in accordance with Rule 15c3-1, promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, of
and any other applicable rules, purchase the aggregate number of Shares set
forth opposite our name on Schedule I to the Underwriting Agreement.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc., or, if we are not such a member, we are
a foreign dealer or institution that is not registered under Section 15(b) of
the Securities Exchange Act of 1934 and that hereby agrees not to make any sales
within the United States, its territories or its possessions (except that we may
participate in group sales made by you under Paragraph 5 hereof) or to persons
who are citizens thereof or residents therein and, if the offering of the Shares
is one within the scope of such Association's Interpretation with Respect to
Free-Riding and Withholding, not to make other sales of Shares to persons
enumerated in Paragraphs "1" through "5" of such Interpretation or in a manner
inconsistent with Paragraph "6" thereof we further agree to make all sales in a
manner consistent with the Fixed Price Offering Rules and particularly Sections
8, 24 and 36 of Article III of the Rules of Fair Practice of said Association
and to comply with Section 25 of Article III of the Rules of Fair Practice of
said Association.
21. Counterparts. This agreement may be signed in any number of
counterparts which taken together shall constitute one and the same instrument.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
As Attorney-in-Fact pursuant to a Power of
Attorney
Confirmed the date first above written:
FIRST MADISON SECURITIES, INC.
as a Representative of the Several Underwriters
By:
Ray Vahab, President
JANSSEN MEYERS, L.P.
as a Representative of the Several Underwriters
By:
WESTPHALIA INVESTMENTS, INC.
as a Representative of the Several Underwriters
By:
Carlos Penalozza, President
EBI SECURITIES CORPORATION
as a Representative of the Several Underwriters
By:
