<PAGE>
As filed with the Securities and Exchange Commission on October 12, 1999
SEC File No. 333-83807
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
Under
the Securities Act of 1933
---------------
ALARON.COM HOLDING CORPORATION
(Name of Small Business Issuer in its charter)
Delaware 6200 36-4274489
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization) 822 West Washington Boulevard
Chicago, Illinois 60607
312.563.8000
(Address and Telephone Number of Principal Executive Offices)
822 West Washington Boulevard
Chicago, Illinois 60607
(Address of Principal Place of Business or Intended Principal Place of
Business)
Steven A. Greenberg
822 West Washington Boulevard
Chicago, Illinois 60607
312.563.8000
Facsimile--312.850.2820
(Name, Address and Telephone Number of Agent for Service)
Copies to:
GERALD L. FISHMAN, ESQ. ARTHUR DON, ESQ.
BARTON J. SPRINGER, ESQ. STEPHEN R. CURTIS, ESQ.
ADAM D. FISHMAN, ESQ. McLAURIN HILL FILES, ESQ.
Wolin & Rosen Ltd. D'Ancona & Pflaum LLC
111 East Wacker Drive, Suite 2800
55 West Monroe Street, Suite 3600
Chicago, IL 60601
Chicago, IL 60603
312.424.0600 312.602.2000
Facsimile--312.424.0660 Facsimile--312.602.3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) or
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
FACING SHEET CONTINUED ON NEXT PAGE
<PAGE>
CONTINUATION OF FACING SHEET
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Number Amount Maximum Proposed Amount of
Title of Each Class of To Be Offering Price Maximum Registration
Securities To Be Registered Registered (1) Per Share (2) Offering Price (2) Fee
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<S> <C> <C> <C> <C>
common stock $.01 par value (3)........... 1,728,000 $10.00 $17,280,000 $ 4,804
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warrants to purchase shares of common
stock (3)................................ 1,728,000 $ 0.10 $ 172,800 $ 48
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common stock, underlying warrants to
purchase common stock (3)................ 1,728,000 $14.00 $24,192,000 $ 6,724
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underwriters' warrants to purchase (4).... 150,000 $0.0001 $ 15 $ 0
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common stock underlying the underwriters'
warrants................................. 150,000 $16.50 $ 2,475,000 $ 688
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warrants underlying the underwriters'
warrants................................. 150,000 $0.165 $ 247,500 $ 68
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common stock issuable upon exercise of the
warrants underlying the underwriters'
warrant.................................. 150,000 $14.00 $ 2,100,000 $ 0
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TOTAL..................................... $46,467,315 $12,332(5)
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</TABLE>
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(1) Pursuant to Rule 416, there are also being registered such indeterminable
number of securities which may be issued as a result of the anti-dilution
provisions of the warrants and the underwriters' warrant.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Includes 225,000 shares of common stock and 225,000 warrants subject to
sale upon exercise of over-allotment option granted to the Underwriter and
up to 3,000 shares of common stock and 3,000 warrants to be sold by counsel
for the Registrant.
(4) Represents warrants, to be issued to the underwriters, to purchase 150,000
shares of common stock and/or 150,000 warrants. Pursuant to Rule 457(g) no
additional registration fee is required.
(5) $6,365 was previously paid with the initial filing on July 27, 1999.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion dated October 12, 1999
1,500,000 shares of common stock and
1,500,000 redeemable common stock purchase warrants
[Logo of ALAR.com Corporation]
Investing in our securities involves a high degree of risk. You should
carefully consider the "Risk Factors" beginning on page 6.
Alaron.com Holding Corporation
This is our initial public offering. No public market
currently exists for our securities. The shares of common
stock and warrants offered hereby may only be purchased
together on the basis of one share of common stock and
one warrant. The common stock and warrants will be
separately tradeable immediately following the completion
of this offering.
822 West Washington Boulevard
Chicago, Illinois 60607
312.563.8000
The Offering
<TABLE>
<CAPTION>
Per Share Per Warrant Total
--------- ----------- ------
<S> <C> <C> <C>
Public Offering Price............................. $ $ $
Underwriting Discounts............................ $ $ $
Proceeds to us (before expenses).................. $ $ $
</TABLE>
Proposed Nasdaq SmallCap Market Symbol for our common stock and warrants: ALAR
and ALARW
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or passed upon the
adequacy or accuracy of the disclosures in this prospectus. Any representation
to the contrary is a criminal offense.
Certain of our stockholders have granted to the underwriters a 45-day option
to purchase up to an additional 225,000 shares of common stock and we have
granted to the underwriters a similar option to purchase up to 225,000 warrants
to cover over-allotments.
We estimate that our initial offering price will be $10.00 per share of
common stock and $0.10 per warrant. The underwriters expect to deliver the
securities to purchasers on or about , 1999.
National Securities Corporation
The date of this Prospectus is , 1999
<PAGE>
[Inside Front Cover]
[Bargraphs indicating number of customers, accounts, customer funds, page views
and contracts traded.]
[Logo of Alaron.com Holding Corporation]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
We have experienced operating losses for the last three fiscal years
which may continue in the future....................................... 6
We depend on Joel W. Greenberg, Steven A. Greenberg, Barry S. Issacson,
Carrie A. Greenberg and Michael A. Greenberg, and the loss of any of
their services could harm our business................................. 6
We rely heavily on electronic systems and third party providers; system
failures could harm our business....................................... 6
Any possible compromises of our systems or security could harm our
business............................................................... 6
We rely on E.D. & F. Man, Inc. for clearing purposes, and termination of
our agreement with E.D. & F. Man, Inc. or increased clearing costs
could harm our business................................................ 6
Margin calls to our customers which are not met could have a materially
adverse effect on our net capital...................................... 7
Failure to comply with net capital requirements could subject us to
suspension or revocation by the CFTC or expulsion by the NFA........... 7
There are significant risks to our business inherent in expanding our
online services to include new businesses in the e-commerce area....... 7
Mistakes on orders or "rogue brokers" could harm our business........... 7
Our competitors' greater resources could put us at a competitive
disadvantage that could ultimately harm our business................... 8
Restrictions on exercise of warrants may deny you full benefit of the
warrants............................................................... 8
You may lose most of the value of the warrants if we repurchase the
warrants............................................................... 8
Our failure to obtain or maintain Nasdaq SmallCap listing could harm our
common stock and warrants and your ability to sell them................ 8
Forward-looking Statements................................................ 8
Use of Proceeds........................................................... 9
Dividend Policy........................................................... 10
Capitalization............................................................ 11
Dilution.................................................................. 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 13
Business.................................................................. 19
Management................................................................ 29
Principal Stockholders.................................................... 38
Certain Transactions...................................................... 40
Description of Securities................................................. 42
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 47
Legal Matters............................................................. 50
Experts................................................................... 50
Where You Can Find More Information....................................... 50
Index to Financial Statements............................................. 51
</TABLE>
We have not authorized any dealer, salesperson or any other person to give any
information or to represent anything about this offering which is not already
in this prospectus. You must not rely on any unauthorized information. This
offer relates only to our securities described in this prospectus. This
prospectus is only valid in those jurisdictions where our securities can be
legally bought or sold. The information in this prospectus is current as of
, 1999.
2
<PAGE>
Prospectus Summary
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
may be important to you. To fully understand this offering, you should
carefully read the entire prospectus, including "Risk Factors" and our
financial statements. Unless otherwise indicated, all information in this
prospectus:
. gives effect to the recent tax-free transfer to our holding company of
100% of the ownership of Alaron Trading Corporation by certain of our
principal stockholders
. reflects a three-for-two stock split in June 1999
. reflects our recent European private placement of 996,450 shares of our
common stock at $4.50 per share in connection with which we issued an
additional 434,466 shares in lieu of a cash commission to the
distributor of this placement (all share amounts are post-split)
. assumes no exercise of the underwriters' over-allotment option
In this prospectus, unless it appears otherwise from the context in which it
is used, "Alaron.com," "Alaron," "we," "us" and "our" refer to Alaron.com
Holding Corporation and its wholly-owned subsidiary, Alaron Trading
Corporation.
The Alaron Trading(R) Logo and design are our registered trademarks.
Alaron.comsm and design, as well as Alaronlinesm are our servicemarks. This
prospectus also incudes trademarks of other companies.
Alaron.com Holding Corporation
We provide brokerage services to our customers for futures and options on
futures trading, and related products and services, through traditional methods
and the internet. Despite our name, we are not solely an online brokerage firm
which allows clients to trade futures directly over the internet. Since 1989,
our subsidiary, Alaron Trading Corporation, has provided traditional full and
discount brokerage services on futures and options on futures. Since September
1998, we have provided online futures and options on futures brokerage services
through "Alaronline," our internet trading service located on our website.
. Customer accounts have grown 50% from 3,696 customer accounts at
September 30, 1998 to 5,526 at September 30, 1999
. Customer funds we hold have grown more than 60% from $22,960,708 in
customer funds at September 30, 1998 to $36,889,252 at September 30,
1999
. The number of contracts traded by our customers grew 43% from 48,145
contracts traded during September 1998 to 69,072 in September 1999
. Monthly page views of our website have grown from 29,350 page views in
November 1998 to 1,387,778 in September 1999
Our principal executive offices are located at 822 West Washington
Boulevard, Chicago, Illinois 60607, and our telephone number is 312.563.8000.
Our world wide web address is www.alaron.com. Information contained in our
website should not be considered part of this prospectus.
3
<PAGE>
Summary of the Offering
securities offered... . 1,500,000 shares of common stock
. 1,500,000 redeemable common stock purchase
warrants
. Although our securities may be purchased in this
offering only on the basis of one share of common
stock together with one warrant, our common stock
and warrants will be separately tradeable
immediately following the completion of this
offering
securities outstanding.... . 10,324,199 shares of common stock prior to the
offering
. 11,827,199 shares of common stock after the
offering, whether or not the underwriters
exercise their over-allotment option
. 1,728,000 warrants after the offering, if the
underwriters exercise their over-allotment option
. underwriters' warrants to acquire 150,000 shares
of common stock and/or 150,000 warrants, after
the offering
warrants............. . each warrant entitles you to purchase one share
of common stock at a price of $ (140% of the
public offering price of the common stock)
. you may exercise the warrants to purchase shares
of common stock beginning on the date of this
prospectus
. we can reduce the exercise price of the warrants
on 30 days prior notice
. the warrants expire three years from the date of
this prospectus
. beginning one year after the date of this
prospectus, we have the right to repurchase the
warrants at $0.10 per warrant on 30 days' prior
written notice, provided the average closing
price of the common stock is or exceeds $
(200% of the public offering price of the common
stock) for any 20 trading days within a period of
30 consecutive trading days
. you may not exercise the warrants if there is no
current prospectus covering the exercise of the
warrants and we intend to keep this prospectus
current for that purpose
estimated net proceeds.... .$14,200,000
use of proceeds...... .$5,865,000to increase working capital,
acquisitions and for general corporate
purposes
.$5,000,000to increase regulatory capital to
satisfy the net capital requirements of
the NFA
.$1,500,000to expand marketing of our services and
pay the salaries of our marketing staff
.$1,000,000to enhance our website and improve the
efficiency of customer transactions
.$ 835,000to pay the salaries of six senior
management officers in fiscal year 2000
4
<PAGE>
Summary Combined Financial Information
The following tables set forth certain summary combined financial data of
Alaron.com Holding Corporation. The summary combined statement of operations
data are derived from the historical consolidated financial statements of
Alaron.com Holding Corporation. The financial statements for the periods
indicated appear elsewhere in the prospectus. The data in these tables should
be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the accompanying notes appearing
elsewhere in this prospectus. The balance sheet data, as adjusted, gives effect
to the sale of 1,500,000 shares of common stock and 1,500,000 warrants in this
offering at an estimated initial public offering price of $10.00 per share and
$0.10 per warrant and the initial application of the net proceeds therefrom.
<TABLE>
<CAPTION>
Historical
Alaron.com Holding Corporation
------------------------------------
Fiscal Year Ended Fiscal Year Ended
July 31, 1999 July 31, 1998
------------------ -----------------
<S> <C> <C>
Statement of Operations Data:
Total Revenues............................. $12,843,531 $13,509,158
Net Loss................................... $(1,080,384) $(1,437,684)
Net Loss per Share......................... $ (.10) $ (.14)
Weighted Average Shares Outstanding........ 10,321,199 10,321,199
<CAPTION>
July 31, 1999
------------------------------------
Historical
------------------
Alaron.com Holding
Corporation As Adjusted
------------------ -----------------
<S> <C> <C>
Balance Sheet Data:
Total Assets............................... $33,151,148 $47,287,847
Subordinated Debt.......................... $ 1,100,000 $ 1,100,000
Total Liabilities.......................... $29,123,736 $29,123,736
Stockholders' Equity....................... $ 4,027,412 $18,164,111
</TABLE>
5
<PAGE>
Risk Factors
We have experienced operating losses for the last three fiscal years which may
continue in the future.
In the past, our results of operations have been adversely affected by a
variety of factors, such as variations in the volume of futures and options
trading and changes in interest rates. These factors have resulted in operating
losses for the past three years. Low trading volume and lack of price
volatility generally means that we receive fewer commissions from our
customers. In addition, since interest earned on customer deposited funds tends
to be a material portion of our revenues, lower interest rates means that we
earn less on customer deposited funds.
We depend on Joel W. Greenberg, Steven A. Greenberg, Barry S. Issacson, Carrie
A. Greenberg and Michael A. Greenberg, and the loss of any of their services
could harm our business.
We believe that our success depends to a significant degree on the continued
services of our senior management team of our Chairman, Joel W. Greenberg, our
President, Steven A. Greenberg, our Executive Vice-President, Barry S.
Issacson, our Executive Vice-President and Secretary-Treasurer, Carrie A.
Greenberg, and our Chief Technology Officer, Michael A. Greenberg. We have
entered into employment agreements with each of these individuals. Competition
for key personnel and other highly qualified technical and managerial personnel
is intense. The loss of the services of any of these individuals or the
inability to identify, hire, train and retain other qualified personnel in the
future could harm our business.
We rely heavily on electronic systems and third party providers; system
failures could harm our business.
We rely heavily on a number of electronic systems including the internet and
the telephone, providers of back office computer services as well as third
party providers to generate new business, receive and process trade orders and
conduct our e-commerce business. If our current providers experience system
failures or other related problems, we could experience delays in processing
customers' orders which could result in substantial losses for our customers,
which in turn, could subject us to customer claims for losses. While we have
not experienced any major problems in the past due to heavy stress, system
failures, or problems with third party providers, there are a very limited
number of back office system providers in the industry, so replacement back
office resources are limited.
Any possible compromises of our systems or security could harm our business.
The secure transmission of confidential information over public networks is
a critical element of our operations. However, we cannot assure you that
advances in computer capabilities, new discoveries in the field of cryptography
or other events or developments will not result in a compromise of the
technology or other algorithms we and our vendors use to protect client
transaction and other data. Any compromise of our systems or security could
harm our business. To the best of our knowledge, to date, we have not
experienced any security breaches in the transmission of confidential
information. Moreover, we continually evaluate advanced encryption technology
to try to ensure the continued integrity of our systems.
We rely on E.D. & F. Man, Inc. for clearing purposes, and termination of our
agreement with E.D. & F. Man, Inc. or increased clearing costs could harm our
business.
Because we are not currently an exchange clearing member, we do not clear
trades for our customers. Instead, we pay E.D. & F. Man, Inc., a competitor of
the Company, to provide clearing services. By virtue of our clearing agreement
with E.D. & F. Man, Inc., we are dependent on E.D. & F. Man, Inc. for the
orderly processing of transactions. Termination of this agreement or any
interruption of E.D. & F. Man, Inc.'s operations could harm our business. We
attempt to cover our clearing costs through commission fees charged to our
customers. However, if our clearing costs are increased and we are unable to
also increase our commission
6
<PAGE>
rates, our profitability would be adversely affected. Also, we have agreed to
indemnify E.D. & F. Man, Inc. for claims, suits, actions, or any other
proceedings relating to our customers. Although we currently plan to become a
clearing member, we cannot assure you that we will be successful in doing so.
Margin calls to our customers which are not met could have a materially adverse
effect on our net capital.
We are required by our clearing firm to make up any deficits of our
customers. We require our customers to deposit funds with us in an amount
sufficient to meet margin requirements. These deposits function as a partial
performance bond to assure the customer's performance of a futures contract.
Our margin requirements are equal to or greater than the various exchanges'
minimum levels. When the market value of a particular open futures position
changes to a point where the funds on deposit do not satisfy the maintenance
margin requirements, we make a margin call to the customer which, if not met,
allows us to liquidate the customer's position. Unmet margin calls that we are
required to cover could have a materially adverse effect on our net capital.
Failure to comply with net capital requirements could subject us to suspension
or revocation by the CFTC or expulsion by the NFA.
The Commodity Futures Trading Commission, the National Futures Association
and various other regulatory agencies have stringent rules with respect to the
maintenance of specific levels of net capital by futures commission merchants.
Failure to maintain the required net capital may subject us to suspension or
revocation of registration by the CFTC and suspension or expulsion by the NFA
and other regulatory bodies and ultimately could require our liquidation.
We have never violated our minimum net capital requirements, but on two
occasions we were required under applicable rules to provide the NFA and CFTC
with early warning reports that we needed additional capital. In those reports,
we disagreed with the need for the early warning. A change in the net capital
rules, the imposition of new rules or any unreasonably large charge against net
capital could limit our operations that require the intensive use of capital,
such as the financing of client account balances. A significant operating loss
or any unusually large charge against net capital could adversely affect our
ability to expand or even maintain our present levels of business, which could
harm our business.
There are significant risks to our business inherent in expanding our online
services to include new businesses in the e-commerce area.
We have recently expanded our traditional futures and options brokerage
services to include online brokerage and related services. If we are unable to
manage this growth effectively or enter into new markets, our results of
operations could be materially adversely affected. To be successful in our e-
commerce business, we must continually adapt to technological advances. Hiring
the appropriate people and updating computer equipment and software to stay
current places significant demands on our administrative, operational and
financial resources. Updating our technology may result in less rigorous
testing of our systems, which could lead to performance problems.
Mistakes on orders or "rogue brokers" could harm our business.
If we make a mistake on a customer's order, we may be obligated to bear the
burden of any losses which occur. These losses could be very large and could
materially adversely affect us or even compromise our ability to conduct our
business.
We are also responsible for supervising our brokers in their dealings with
customers. Therefore, we may be obligated to cover losses in a customer's
account caused by the improper trading activity of a broker. While we have a
rigorous compliance program, we cannot assure you that we will be able to
always identify the occasional "rogue broker" and that could lead to customer
complaints and our incurring substantial losses.
7
<PAGE>
Our competitors' greater resources could put us at a competitive disadvantage
that could ultimately harm our business.
We compete with many other businesses, many of which offer a broader range
of financial services and have substantially greater resources and operating
efficiencies than we do, such as Lind-Waldock & Company, First American
Discount Corp., Jack Carl Futures division of E.D. & F. Man, Inc. and LFG, LLC.
We are often at a disadvantage in competing with these companies. The intense
competition among futures brokerage firms, and our relative lack of resources
may prevent us from successfully competing. While presently our competition in
the electronic futures brokerage market is relatively small, there are no
significant barriers to entry into this market by current online securities
brokerage firms like E*Trade Group, Inc. and Charles Schwab Corporation.
Restrictions on exercise of warrants may deny you full benefit of the warrants.
You will not be able to exercise the warrants unless at the time you
exercise a registration statement covering exercise of the warrants is
effective. You will not be able to exercise the warrants unless they are
registered under the securities laws of your state of residence, if not exempt
from such laws. The value of the warrants may be greatly reduced if a current
registration statement covering the exercise of the warrants is not available
or if the sale of the underlying shares of common stock is not registered or
exempt from registration in your state.
You may lose most of the value of the warrants if we repurchase the warrants.
Beginning one year from the date of this prospectus, we have the right to
repurchase the warrants under certain conditions on 30 days' prior written
notice for a price of $0.10 per warrant. We are likely to repurchase the
warrants at a time when this is favorable to us and not to you. If we give
notice of our intention to repurchase the warrants, you will lose your right to
exercise the warrants unless you exercise the warrants and pay for the shares
prior to the redemption date.
Our failure to obtain or maintain Nasdaq SmallCap listing could harm our common
stock and warrants and your ability to sell them.
We have submitted an application to have our common stock and warrants
listed to trade on the Nasdaq SmallCap Market. If we are unable to satisfy the
entry standards for listing, or even if our common stock and warrants are
listed but we are unable to satisfy Nasdaq standards for continued listing, any
trading in our common stock and warrants could be limited to being conducted on
the over-the-counter Bulletin Board or in the so-called "pink sheets". This
would result in it being more difficult for you to sell our common stock and
warrants and could result in lower market prices and larger spreads between the
bid and ask prices for our common stock and warrants.
Investing in our securities is very risky. You should not buy our securities
unless you can afford to lose your entire investment. Our business operating
results and financial condition could be adversely affected by any of the
preceding risks. You should carefully consider the preceding risks and the
other information in this prospectus before reaching your decision to buy our
securities. These risks are not the only ones we face. Additional risks that
generally apply to publicly traded companies and companies in our industry,
that we have not yet identified or that we think are immaterial, may also
impair our business operations. The trading price of our securities could
decline due to any of these risks. You should also refer to the other
information set forth in this prospectus, our financial statements and the
related notes for other risk factors.
Forward-looking Statements
We have included in this prospectus forward-looking statements within the
meaning of the federal securities laws. These are statements about our
expectations, beliefs, intentions or strategies for the future. You will be
able to identify these types of statements since they are indicated by words or
phrases such as
8
<PAGE>
"anticipate," "expect," "intend," "plan," "will," "we believe," "management
believes" and similar language. In addition, these statements may be qualified
by certain risks, uncertainties and assumptions which we explain more fully in
each particular case. We have based our forward-looking statements on our
current expectations and on information currently available to us. Our actual
results may differ materially from the results that we have anticipated in the
statements. We will not update these statements.
Use of Proceeds
We will receive approximately $14,200,000 from the sale of 1,500,000 shares
of common stock and 1,500,000 warrants at the estimated offering price of
$10.00 per share and $0.10 per warrant ($14,222,500 if the over-allotment
option is exercised). Steven A. Greenberg, the Greenberg Family Trust, Michael
A. Greenberg and Carrie A. Greenberg have granted to the underwriters an option
to purchase an aggregate of up to 225,000 shares of common stock and we have
granted to the underwriters a similar option to purchase up to 225,000 warrants
to cover over-allotments. Additionally, these stockholders have agreed to
provide the shares of common stock underlying the warrants issued by us as part
of the underwriters' over-allotment option.
Steven A. Greenberg, Michael A. Greenberg and Carrie A. Greenberg have each
agreed to use any proceeds received by them upon exercise of the underwriters'
over-allotment option to repay debt incurred by them to capitalize Alaron
Trading. This repayment would reduce the approximately $190,000 in aggregate
non-discretionary cash bonuses which are to be paid to them by us in fiscal
year 2000 to pay interest and principal due under these loans.
The amounts below represent the net proceeds after deducting underwriting
discounts, the underwriters' non-accountable expense allowance and additional
estimated offering expenses payable by us and estimated to be $350,000. We
expect to use the net proceeds substantially as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Amount Percentage Use
----------- ----------- ---
<C> <C> <C> <S>
$ 5,865,000 41% . to increase working capital, acquisitions and for
general corporate purposes such as paying salaries
(other than those of senior management described
below), occupancy expenses, recruiting of
employees and other things
$ 5,000,000 35% . to increase regulatory capital which will be
maintained in relatively liquid form to satisfy
the net capital requirements of the NFA
$ 1,500,000 11% . to expand marketing of our services through a
national marketing and advertising campaign
including advertisements in national newspapers,
trade publications and on the internet and to pay
the salaries of our marketing staff
$ 1,000,000 7% . to enhance our website and information technology
necessary to allow for more efficient execution of
transactions over the internet, including the
acquisition of additional computer equipment and
software
$ 835,000 6% . to pay the salaries of six senior management
officers in fiscal year 2000, not including an
aggregate of approximately $190,000 in non-
discretionary bonuses payable in fiscal year 2000
to Steven, Michael and Carrie Greenberg to enable
them to pay interest and principal due under
personal loans incurred to contribute to the
capital of Alaron Trading
----------- ----
$14,200,000 100%
=========== ====
</TABLE>
We have broad discretion to adjust the application and allocation of the net
proceeds of this offering in order to address changing circumstances and
opportunities. Although we have tentatively allocated the net proceeds from
this offering for various uses, these projected expenditures are merely
estimates and
9
<PAGE>
approximations and are not firm commitments by us. Actual expenditures may vary
substantially from these estimates depending upon many factors, such as the
cost of additional print and electronic media advertising and expansion of
various activities in the futures brokerage business through internal growth or
acquisition.
We currently do not have any financing arrangements to fund regulatory
capital or other requirements, nor do we contemplate any. Pending use of the
proceeds from this offering, we may invest all or portion of these proceeds in
short-term bank certificates of deposit, U.S. Government obligations, money
market investments and short-term investment grade securities. We believe that
the proceeds of this offering combined with the cash flow from our operations
will be sufficient for our planned operations for at least 12 months following
the date of this prospectus.
Any additional net proceeds realized from the exercise of the warrants will
be added to our working capital.
Dividend Policy
We have never paid cash dividends on our common stock and we do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain any earnings we may have to finance the development and expansion of our
business. Our board of directors decides when dividends are to be paid. This
decision is based upon many factors, such as the board's assessment of the
financial condition of the Company, its earnings, need for funds, capital
requirements and applicable laws and regulations. Accordingly, we cannot assure
you that dividends of any kind or amount will ever be paid in the future. If
you need immediate or future income by way of dividends, you should not
purchase our securities.
10
<PAGE>
Capitalization
The following table sets forth the subordinated debt and the capitalization
of Alaron.com Holding Corporation as of July 31, 1999, and on a pro forma basis
as adjusted to give effect to the sale of the securities we are offering by
this prospectus. The table reflects the sale of the securities at an estimated
initial public offering price of $10.00 per share and $0.10 per warrant and the
initial application of the net proceeds of $14,200,000 (after deducting the
underwriting discounts, the underwriters' non-accountable expense allowance and
the estimated expenses of this offering) as described under "Use of Proceeds."
You should read the information in this table together with our financial
statements and notes which begin on page F-1 of this prospectus.
<TABLE>
<CAPTION>
Alaron.com
Holding
Corporation
July 31, After
1999 Offering
----------- -----------
<S> <C> <C>
Subordinated debt.................................... $ 1,100,000 $ 100,000
Stockholders' equity:
Preferred stock; $.01 par value, 10,000,000 shares
authorized; no shares outstanding................. -- --
Common stock; $.01 par value, 30,000,000 shares
authorized; 10,321,199 shares issued and
outstanding; 11,827,199 shares after offering..... $ 103,212 $ 118,272
Common stock subscription.......................... $ -- $ --
Additional paid-in capital........................... $ 9,640,451 $23,769,090
Accumulated deficit.................................. $(5,716,251) $(5,716,251)
----------- -----------
Total stockholders' equity....................... $ 4,027,412 $18,164,111
Total Capitalization................................. $ 5,127,412 $18,264,111
=========== ===========
</TABLE>
The preceding table:
. does not reflect the issuance of and the exercise price paid for up to
1,500,000 shares of our common stock on the exercise of the warrants
offered together with the common stock
. does not reflect the issuance of up to 1,050,000 shares of common stock
on exercise of options which may be granted under our stock option plans
. does not reflect the issuance of up to 150,000 shares of our common
stock on exercise of the underwriters' warrants
. does not reflect the issuance of up to 150,000 shares of our common
stock on exercise of the warrants issued on exercise of the
underwriters' warrants
. does not reflect the issuance, after July 31, 1999, of 3,000 shares of
common stock to one of our European private placement purchasers
. reflects the repayment of $1,000,000 of subordinated debt in October
1999
11
<PAGE>
Dilution
Net tangible book value per share is our total tangible assets minus our
total liabilities and divided by the number of shares of common stock
outstanding. Dilution is the difference between the price per share of common
stock to be paid by new investors and the net tangible book value per share as
of July 31, 1999, after giving effect to this offering. At July 31, 1999, the
net tangible book value of the common stock was $3,951,961 in the aggregate, or
$0.39 per share. After the issuance of an additional 3,000 shares of common
stock after July 31, 1999 as part of our European private placement, resulting
in net proceeds of $12,150, and after completion of the issuance of 1,500,000
shares of common stock offered in this prospectus at the estimated initial
public offering price of $10.00 per share, resulting in estimated net proceeds
of $14,050,000 (after deducting underwriting discounts and estimated offering
expenses), the pro forma net tangible book value of the common stock as of July
31, 1999, would have been $18,014,111 in the aggregate, or $1.52 per share.
This represents an immediate increase in net tangible book value of $1.13 per
share to the current stockholders and an immediate dilution per share of $8.48
or 85%, to new investors in this offering.
The following table illustrates the dilution to investors on a per share
basis. It does not reflect:
. the issuance, and net proceeds received from the sale, of 1,500,000
warrants in this offering
. the issuance of and the exercise price paid for up to 1,500,000 shares
of our common stock on exercise of the 1,500,000 warrants offered
together with the common stock
. the issuance of up to 150,000 shares of common stock if the
underwriters' warrants are exercised
. the issuance of up to 150,000 shares of common stock if the warrants
underlying the underwriters' warrants are exercised
. the reservation of up to 1,050,000 shares of common stock for issuance
under our stock option plans
<TABLE>
<S> <C> <C>
Estimated Initial public offering price per share........... $10.00
Net tangible book value per share before public offering
......................................................... $0.39
Pro forma increase in net tangible book
value per share after public offering ................... $1.13
Adjusted pro forma net tangible book value per share after
offering .................................................. $ 1.52
------
Dilution per share to public investors ..................... $ 8.48
======
</TABLE>
On conclusion of this offering, investors in this offering will own
1,500,000 (approximately 13%) of the issued and outstanding shares of common
stock, for which they will have paid $15,000,000 or $10.00 per share. This
compares with 10,324,199 shares of common stock held by our original and pre-
offering stockholders, for which they have paid an aggregate consideration of
$10,203,180, or $0.99 per share, and which will constitute approximately 87% of
the outstanding shares of common stock following this offering. If the
underwriters exercise the entire over-allotment option, our pre-offering
stockholders will own approximately 86% of our outstanding shares.
12
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Overview
We provide brokerage services in futures and options on futures brokerage
trading and related products and services through traditional methods and the
internet. We offer our services 24 hours a day, 365 days a year. We have not
and do not intend to trade for ourselves to generate investment income or to
manage our risks.
Our revenues consist principally of transaction revenues, which include
brokerage commissions and interest. Brokerage commissions are generated through
customer trades through our full service retail and discount operations. We
have recently begun to generate commission revenues from our internet
operations through our "Alaronline" trading platform located at our website,
www.alaron.com. Interest revenues are generated by customer funds on deposit
with us. The amount of interest earned on these funds is dependent on the
amount of customer funds and interest rates.
We have experienced substantial growth in annual revenue since our
inception. Although increases in the overall activity in the futures and
options markets have contributed to our growth, we believe that our growth has
also been the result of our successful advertising campaigns which have brought
us increased recognition. We have attempted to shift the focus of our
advertising to take advantage of the growth of the internet and online trading.
13
<PAGE>
Results of Operations
The following table summarizes our operating results for each of the periods
indicated and the increase (or decrease) by item as a percentage of the amount
for the prior period:
<TABLE>
<CAPTION>
Alaron.com Holding
Corporation
---------------------------
Year Ended Year Ended Percentage
July 31, 1999 July 31, 1998 Increase
($000's) ($000's) (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Revenues:
Commissions......................... $11,773 $12,054 (2)%
Interest............................ 1,034 1,341 (23)
Other............................... 36 114 (68)
------- ------- ---
Total Revenues.................... $12,843 $13,509 (5)%
Expenses:
Brokers' Commissions................ $ 5,691 $ 5,748 (1)%
Employee Compensation............... 2,414 2,370 2
Clearing Costs...................... 1,963 2,552 (23)
Additional Compensation to Service
Debt............................... 189 647 (71)
Communications...................... 748 550 36
Advertising......................... 888 609 46
Errors, Bad Debt, Arbitrations...... 169 697 (76)
Computer Related Expenses........... 610 688 (11)
Occupancy & Equipment Expenses...... 638 422 51
Other Expenses...................... 482 546 (12)
Interest Expense.................... 131 118 11
------- ------- ---
Total Expenses.................... $13,923 $14,947 (7)%
------- ------- ---
Net Loss.......................... $(1,080) $(1,438) (25)%
======= ======= ===
</TABLE>
Revenues
Commission revenues decreased 2% to $11,773,000 in fiscal 1999 from
$12,054,000 in fiscal 1998. The decrease in revenues was a result of our shift
in focus from traditional brokerage services to online trading, beginning in
the first quarter of fiscal 1999. During the first two quarters of fiscal 1999,
this shift in focus caused a reduction in revenue because of a decrease in
customer funds and contracts traded. As our online trading activities began to
develop in the third and fourth quarters of fiscal 1999, customer funds held by
us grew and our number of contracts traded increased. For example, customer
funds grew 39% to $32,363,000 at the end of the fourth quarter of fiscal 1999
from $23,357,000 at the end of the first quarter of fiscal 1999 and our
contracts traded grew 30% to 65,000 contracts traded during the fourth quarter
of fiscal 1999 from 50,000 contracts during the first quarter of fiscal 1999.
Interest revenues decreased 23% to $1,034,000 in fiscal 1999 from $1,341,000
in fiscal 1998. This decrease was due to an overall decrease in customer funds
on deposit compared to the prior period combined with a lower interest rate
earned by the Company from financial institutions on those funds.
Losses
Net loss decreased 25% to $1,080,000 in fiscal 1999, as compared to a net
loss of $1,438,000 in fiscal 1998. This decrease in net losses was attributable
in part to a decrease in bad debt and arbitration settlements and a decrease in
the additional compensation that was paid to our principal stockholders to
service personal debt. The proceeds from this debt was used to add to the
capital of Alaron Trading. This debt will be further reduced by the net
proceeds received by these stockholders if the underwriters exercise their
over-allotment option.
14
<PAGE>
We have experienced losses due to our efforts to establish Alaron as a brand
name and to establish the necessary infrastructure to support the growth of our
expanding customer base.
Employee Compensation
Employee compensation, other than the additional compensation paid to our
principal stockholders described above, increased 2% to $2,414,000 in fiscal
1999 from $2,370,000 in fiscal 1998, principally because we added personnel in
computer related areas.
Brokers' Commissions
Brokers' commissions decreased 1% to $5,691,000 in fiscal 1999 from
$5,748,000 in fiscal 1998. The reduction resulted principally from an increase
in the use by our active trading clients of our discount brokerage services
which have lower commission rates than retail brokerage services.
Clearing Costs
Clearing costs decreased 23% to $1,963,000 in fiscal 1999 from $2,552,000 in
fiscal 1998. The substantial decrease in clearing costs was related to an
increase in electronically traded contracts, which have lower trade execution
costs. We plan to become a clearing firm though we cannot assure you that we
will be approved as a clearing member firm. If we are approved as a clearing
member, we will incur significant nonrecurring costs associated with training
employees to perform the functions of a clearing firm. We will also incur
recurring personnel costs for additional employees to perform the functions of
a clearing firm. However, we expect that these one-time expenditures will
ultimately lead to lower, long-term clearing costs in the future.
Advertising
Advertising expense increased 46% to $888,000 in fiscal 1999 from $609,000
in fiscal 1998. The increase in expenditure has been a direct result of
advertising our new online internet services. Advertising expenditures directly
affect the number of leads generated by us and, in turn, the number of new
customers and ultimately the amount of our total commission revenues. We have,
however, refocused our advertising expenditures toward our online brokerage
services which we believe will be more effective. These areas include new
publications, target banner advertising on the internet and selected television
programs and channels. In addition, we have revamped our website in order to
make it more attractive to those with an interest in futures and options.
Errors, Bad Debt, Arbitrations
Errors, bad debt and arbitrations decreased 76% to $169,000 in fiscal 1999
from $697,000 in fiscal 1998. Management believes this decrease is due to
improved risk management systems and techniques we have employed. For example,
we have hired additional margin clerks and improved its risk management systems
to prevent recurrence of past events. We have also hired an in-house attorney
to work on collection of customer deficit and debit balances.
Occupancy & Equipment Expenses
Occupancy and equipment expenses increased 51% to $638,000 in fiscal 1999
from $423,000 in fiscal 1998, due primarily to the expense of opening
additional branch offices, as well as the acquisition of new equipment and
hardware systems in our Chicago headquarters.
Computer Related Expenses
Computer related expenses in fiscal 1999 decreased 11% to $610,000 in fiscal
1999 from $688,000 in fiscal 1998. Although there was a decrease in fiscal
1999, we are currently in the process of expanding further our computer network
to include our branch offices, as well as enhancing our online trading
operations, updating software and enhancing our web page, all of which will
contribute to an increase in computer expenses in the future.
15
<PAGE>
Liquidity and Capital Resources
Alaron is governed by the minimum net capital requirements of the CFTC and
the NFA and we will be governed by similar requirements of any futures exchange
of which we may become a clearing member. These regulations require registered
futures commission merchants to maintain minimum net capital based on a
percentage of client segregated funds. We have experienced a substantial
expansion in our business, and the related amount of client segregated funds
has increased. Accordingly, the minimum net capital we are required to maintain
has also increased. We have historically satisfied our need for additional
funds from internally generated profits, and more recently, from capital
contributions from our principal stockholders and through subordinated loans.
Subordinated loans are traditional promissory notes that conform to NFA
standards and are, by agreement with the lender, subordinated to the claims of
all other creditors. Due to the fact that these loans are subordinated and that
they contain certain prepayment and repayment restrictions, CFTC and NFA rules
permit us to consider our subordinated loans as part of our net capital. We
intend to repay the subordinated loans as they reach their maturity. We also
recently completed a European private placement of shares of our common stock.
With the completion of this initial public offering, we will further expand our
equity capital base. This will enhance our liquidity and our ability to meet
our net capital requirements.
Cash and cash equivalents at July 31, 1999 were $2,258,019 as compared to
$2,525,421 at July 31, 1998. Working capital at July 31, 1999 was $3,362,550 as
compared to $2,181,246 at July 31, 1998. Our ratio of current assets to current
liabilities was 1.14 to 1 at July 31, 1999, compared to 1.11 to 1 at July 31,
1998.
Under the CFTC's minimum financial requirements, we are currently
effectively required to maintain net capital of the greater of $375,000 or 6%
of customer funds required to be segregated under the Commodity Exchange Act,
as amended. At July 31, 1999, we had net capital of $4,475,053, which was
$3,164,929 in excess of our minimum financial requirements.
Net cash used by operating activities was $3,808,363 at July 31, 1999 and
$1,172,002 at July 31, 1998. The increase in cash flow used by operating
activities was primarily the result of an increase in securities owned at July
31, 1999 of $(11,048,760) offset by an increase of $7,913,441 at July 31, 1999.
Net cash provided by financing activities was $3,752,683 at July 31, 1999,
compared to $1,339,194 at July 31, 1998. The decrease in cash flows from
financing activities was a result of a $100,000 subordinated loan received in
1999 compared to a $1,000,000 loan received in 1998.
Based on currently proposed plans and assumptions relating to the
implementation of our current plans, we believe that the proceeds of this
offering, combined with cash flow from operations, will enable us to fund our
planned operations for a period of at least 12 months from the date of this
prospectus. However, we cannot assure you that we will realize sufficient cash
flow from operations. If not, or if our plans change, our assumptions change or
prove to be inaccurate, or if the proceeds of this offering otherwise prove to
be insufficient to implement our business plans, we may require additional
financing and may seek to raise funds through subsequent equity or debt
financings or other sources. If we need additional funds, they may not be
available in adequate amounts or on acceptable terms. If funds are needed but
are not available, our business would be harmed.
We presently anticipate that we will make capital expenditures of
approximately $1,000,000 through the fiscal year ended July 31, 2000. These
expenditures will be primarily for the acquisition of computer equipment and
the development of software to increase the number of users capable of
accessing our systems, create a more user-friendly trading environment and
continue to enhance our worldwide website, as well as for Year 2000 readiness.
16
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. This could result in system
failures or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities. Therefore, the software and
computer systems of many companies may need to be upgraded or replaced in order
to comply with these year 2000 requirements.
Failures of our systems or the systems of third parties upon which we depend
could result in:
. interruption of our services to our customers
. our inability to collect for services rendered
. settlements of trades not being processed
. incomplete or inaccurate accounting, recording or processing of trades
. generation of erroneous results of traders
. disruption of telecommunications and electrical power
. disruption of our capital flows
. reduction in general market activity
. increased technology related expenses
. allocation of our resources away from other crucial areas
. increase in our litigation costs due to customer losses
We do not have any significant non-information technology equipment or
systems. As a result, our year 2000 readiness efforts have primarily addressed
computer hardware and software performance.
We have conducted a review of our internal computer systems to identify the
systems that could be affected by the Year 2000 issue and to develop a plan to
resolve any issues. While we have completed substantially all of the testing
required on our internal network, including our accounting, management, back
office and operating systems, this testing is not finished completely. We are
still in the process of upgrading and replacing certain software and computer
systems in use by our firm. Nevertheless, we have determined that we will not
be required to materially modify or replace our information technology systems
to properly recognize and utilize dates beyond December 31, 1999.
We presently believe our network and operating systems will be Year 2000
compliant by the end of 1999. However, failure of third parties, to which we
are financial or operationally linked, to address their own system problems
could have a material adverse effect on us. Furthermore, the investing and
trading patterns of clients may be affected by Year 2000 issues as clients
become concerned about the Year 2000 issue and the effect it will have on the
U.S. and international stock markets and the securities industry generally.
Changes in these patterns may harm our business.
We continue to monitor and review the Year 2000 issue and, as appropriate,
modify or replace software (and replace some hardware) in our computer systems
in our main and branch offices. Our monitoring is expected to involve major
market participants, including competing firms and financial intermediaries,
such as stock exchanges and clearing agencies that are prominent in the U.S. We
have initiated communications with counter-parties, intermediaries and vendors
with whom we have important financial and operational relationships to
determine the extent to which they are vulnerable to the Year 2000 issue. We
have not yet received sufficient information from these parties about their
remediation plans to predict the outcome of their efforts.
17
<PAGE>
To date, Year 2000 readiness has cost us an estimated $100,000 (including
purchasing new equipment and upgrades to existing systems) and will cost
approximately $25,000 more to complete. Our Year 2000 program costs will be
funded from the proceeds of this offering. These costs are expensed as
incurred. We cannot assure you that these estimates will be correct, and thus
actual results could differ materially from our plans. In the event it becomes
necessary due to unanticipated problems, we will develop a contingency plan to
address those situations that may result if we, or third parties to which we
are linked, are not year 2000 compliant.
18
<PAGE>
Business
Overview
Alaron.com Holding Corporation, incorporated in Delaware in December 1998,
provides brokerage services in futures and options on futures trading and
related products and services through traditional methods and the internet. We
are not solely an online brokerage firm which allows clients to trade futures
directly over the internet. Since 1989, our subsidiary, Alaron Trading
Corporation, has provided traditional full and discount brokerage in futures
and options on futures trading assisting our clients with money management and
trading discipline and providing other related services. Since September 1998,
through "Alaronline," our internet trading service located on our website,
www.alaron.com, our clients have been directly trading futures and options on
futures online quickly and simply and have had direct access to our proprietary
online research.
. Customer accounts have grown 50% from 3,696 customer accounts at
September 30, 1998 to 5,526 at September 30, 1999
. Customer funds we hold have grown more than 60% from $22,960,708 in
customer funds at September 30, 1998 to $36,889,252 at September 30,
1999
. The number of contracts traded by our customers grew 43% from 48,145
contracts traded during September 1998 to 69,072 in September 1999
. Monthly page views of our Alaron.com website, www.alaron.com, have grown
from 29,350 page views in November 1998 to 1,387,778 in September 1999
Alaron Trading Corporation is a registered futures commission merchant with
the Commodity Futures Trading Commission and a member of the National Futures
Association. Through Alaron Trading, we offer a full range of commodity futures
and options on futures brokerage services. We maintain our headquarters in
Chicago, Illinois, near the Chicago Mercantile Exchange and have branch offices
in Pompano Beach, Florida, Northbrook, Illinois, San Francisco, California, and
Sparta, New Jersey. At these locations, we offer traditional and online and
internet brokerage services through our "Alaronline" service. We also offer
educational services, ranging from basic market knowledge to money market
strategies, and trading techniques. From advanced trading technology and
extensive research, quotes, charts and futures news, to ease of navigation,
online forms and special services, we believe we provide everything today's
futures and options investor needs to trade with ease. We also have an
affiliated introducing broker called Greenstreet Discount Corp., owned by
Steven, Michael and Carrie Greenberg.
Our mission is to be a leader in both traditional and online brokerage
services, as well as in related e-commerce. Our focus will be on technology,
research, execution and customer service. We continue to broaden our name
recognition by marketing and enhancing our "Alaronline" website.
Futures and Options Trading
Futures. Futures contracts are standardized contracts made on organized
exchanges which provide for the future delivery of various agricultural and
industrial commodities, foreign currencies, financial instruments, financial
indexes, stock indexes and others at a specified price, date, time and place.
The contractual obligations may be satisfied either by taking or making
physical delivery of an approved grade of the commodity or cash settlement in
the case of financial-related or certain other futures contracts or by making
an offsetting or liquidating sale or purchase of an equivalent futures contract
prior to the expiration date of the futures contract.
Futures prices can be highly volatile and are influenced by many factors,
such as changing supply and demand relationships, government agricultural,
commercial, and trade programs and policies, interest rate and equities price
fluctuations, national and international political and economic events, weather
and climate conditions, insects and plant diseases and purchases and sales by
foreign countries.
19
<PAGE>
Futures traders fall into two broad classifications: hedgers and
speculators. Hedging is a protective procedure designed to minimize the price
risk inherent in a cash market position. The usual objective of the hedger is
to protect the profit which he expects to earn in his business rather than to
profit from his futures trading. For example, a farmer would attempt to protect
the amount he expects to earn on a corn crop (his cash market position) by
taking a position in corn futures.
The speculator generally expects neither to deliver nor receive the physical
commodity or cash settlement. Instead, the speculator risks his capital with
the hope of profiting from price fluctuations in futures contracts. The
speculator is, in effect, the risk bearer who assumes the risks which the
hedger seeks to avoid. Most of our clients trade futures for speculative rather
than hedge purposes.
Options. Trading of options on futures contracts on domestic exchanges is
permitted as well. Among traded options are options on U.S. Treasury Bond
futures, gold futures, stock index futures, agricultural futures, financial
futures and various foreign currencies. Options are the right, but not the
obligation, to purchase or sell futures contracts at any time until expiration
of the option. We do not engage in the trading of securities options.
Margins. Futures trading requires margin deposits which are the minimum
amount of funds which must be deposited by the futures customer with his or her
broker in order to initiate futures trading or to maintain open positions in
futures contracts. A margin deposit may be as little as less than one percent
of the total purchase price of a contract being traded. Because of these low
margins, price fluctuations occurring in futures markets may create profits and
losses which are greater than are customary in other forms of investment or
speculation.
A futures margin deposit is not a partial payment by the customer as it is
in connection with the purchase of securities, but rather functions as a
partial performance bond. It helps assure the customer's performance of the
futures contract. Since margin deposits do not involve a loan from the broker
toward the futures contract purchase price, the customer does not pay interest
to his broker on any remaining balance. Futures brokerage firms may increase
the amount of margin deposit required as a matter of policy. We require our
customers to meet margin requirements which are equal to or greater than
exchange minimum levels. Generally, we retain the interest earned on our
customers' margin deposits.
As is the general practice in the industry, when the market value of a
particular open futures position changes to a point where the margin on deposit
does not satisfy the maintenance margin requirements, we will make a margin
call to the customer. If the margin call is not met within a reasonable time,
we have the right to close out or liquidate the customer's position. We compute
margin requirements throughout and at the end of each day. Margin calls to our
customers which are not met could have a materially adverse effect on our net
capital since we will be required by our clearing firm to make up any deficits.
History
Alaron.com Holding Corporation's business is operated by our wholly-owned
subsidiary, Alaron Trading Corporation. Alaron Trading was formed in 1989, with
$1,000 in capital, as a two employee guaranteed introducing broker. One year
later we were registered as a commodity trading advisor. We have since evolved
into a futures commission merchant with approximately 101 employees, more than
100 registered brokers and approximately 5,500 clients. We began our
"Alaronline" brokerage services through our website in September, 1998. Our
main operations are headquartered in a 30,000 square foot facility located just
west of Chicago's futures exchanges and financial district. We maintain a staff
24 hours a day, 365 days a year.
Our Futures and Options Operations
Full Service. Our full service brokers assist our clients with money
management strategies and trading discipline. These brokers are supported by
our in-house team of market analysts (approximately 10 persons, one of whom is
a full-time analyst) which provide both fundamental and technical analyses of
the fast-paced
20
<PAGE>
futures and options markets. For full service brokerage, we generally charge
between $25 and $100 per contract in round turn commissions, i.e., a completed
transaction involving both a purchase and a liquidating sale, or a sale
followed by a covering purchase.
Discount. Our discount trading clients are primarily introduced to us
through Greenstreet Discount Corporation. We are able to offer discounted
commissions by eliminating the cost of a full service broker servicing the
client. Order entry specialists take clients' orders and enter them into a
computerized order entry system or telephone them directly to an exchange
trading floor without providing other services. The discount trading desk is
staffed 24 hours a day, 365 days a year. Discount clients are generally charged
between $10 and $25 per contract in round turn commissions.
Online Trading. Our "Alaronline" service, which strives to be one of the
industry leaders, provides our customers with futures and options brokerage
services over the internet. Through the "Alaronline" service located on our
website, we offer automated order placement, portfolio tracking, price
quotations, charting research, news and other informational services. We
generally charge between $10 and $25 per contract in round turn commissions for
online trading. Our clients have access to real-time quotes, charts, futures
news indexed by keyword, and up-to-the-click account balances. We offer a
number of proprietary research pages each day, as well as market reports such
as "Logical Economics" and "Special Situation" commodity reports. Our dedicated
customer service is available 24 hours a day, 365 days a year.
Clearing Trades. We are not currently a member of any exchange and,
therefore, we are only able to effectuate futures and options on futures
transactions for our clients through arrangements with other futures commission
merchants which are exchange clearing members. We are required to pay a fee to
clearing firms for executing the transactions. We currently maintain our client
omnibus account with the LIT Division of E.D. & F. Man, Inc., a registered
futures commission merchant and clearing member of the Chicago Mercantile
Exchange, the Chicago Board of Trade and other principal futures exchanges. The
fact that E.D. & F. Man, Inc. is responsible for actual order execution, record
keeping and clearance of clients transactions is not disclosed to our clients
on our account statements. Although we currently plan to become a clearing
member of a futures exchange, we cannot assure you that we will be successful
in doing so.
Back Office. Our back office is where we maintain our internal office
management including the processing of all trade orders, and our office
administration, accounting and bookkeeping operations. Currently, we have
agreements with Rolfe & Nolan (USA), Inc., to utilize their computer software
and electronic systems to run our back office. Presently, we have approximately
40 full time employees in our back office.
Introducing Brokers. An introducing broker is a CFTC-registered firm that
handles customer orders but does not handle customer funds. We began developing
our network of introducing brokers in 1994. Currently, we have agreements with
approximately 60 introducing brokers, seven of which are located outside the
United States and 50 of which are guaranteed by us as to certain obligations
under the Commodity Exchange Act. We generally charge clients of introducing
brokers commissions determined by the introducing brokers, typically between
$15 and $99 per contract in round turn commissions. We generally retain between
$10 and $25 of the commissions charged. In addition, as a joint marketing
vehicle, we have conducted educational seminars highlighted by keynote
speakers, with various introducing brokers seeking a regional clientele.
Risk Management. Trading in futures and options involves utilizing
substantial leverage which creates a high financial risk/reward ratio. Since we
may be obligated to pay our customers' losses, we maintain a pro-active risk
management approach in an attempt to identify accounts and trading patterns
which may involve unacceptable risk to us. While we believe the program
significantly reduces the risk of losses, no program like this can eliminate
all risk. Among the steps we take are the following:
. trade desk managers review margin reports throughout the day and at the
end of each day
. accounts are subject to immediate demands for margin calls
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. accounts are subject to three-tiered margin monitoring, beginning with
the order clerks, followed by the trade desk manager and then senior
management
. margins are reviewed constantly and adjusted as market conditions
warrant. Our margins are set in excess of exchange minimum requirements
if management deems it necessary; margins are determined based on an
analysis of market volatility and commodity concentrations of client
positions
. trade desk managers monitors concentrations of contracts; where
concentrations exist, increased margins are required
. senior management reviews all accounts where heightened risk levels have
been identified; problem accounts are notified of their status, at which
time a proposed resolution of the account risk is communicated to the
broker or client
We have the right to liquidate any customer's position when we believe that
the customer's account balance is or will be insufficient to cover a potential
loss. Furthermore, as is generally done in the industry, we may withhold
commissions from brokers for the errors or losses of their customers in order
to reimburse the firm.
Future Growth. To date, we have built our core business in the traditional
full-service and discount brokerage areas. This means that most of our business
comes in through our individual registered futures and options brokers. At
present, we have approximately 100 of these types of brokers in our offices. We
intend to grow our brokerage business in three principal ways:
. by continuing to recruit and train new individual brokers
. by continuing to develop our online internet trading services
. by better developing customer leads
Since we began offering our services through the internet in September 1998,
the number of customers having access through "Alaronline" has increased
dramatically from less than 20 in the first month to over 3,200 in September
1999. Online revenues in the month when we began offering our online services
were insignificant but have grown each month since then. For example, in
September 1999, online revenues were approximately $286,000. We are
experiencing greater numbers of customers using "Alaronline" and intend to
continue to develop that business through increased marketing efforts.
In our opinion, online trading in general, and "Alaronline" in particular,
will not replace the full-service broker. Rather, we believe our online
services will give our brokers greater tools to service their customers. In
order to capitalize on this belief, we recently installed a wide area computer
network through which all of our brokers are connected. On this network, which
is a broker version of our "Alaronline" service, our brokers can retrieve live
quotes, enter customer orders and more efficiently manage and monitor a
customer's trading activity.
Other Electronic Commerce Business in General and Online Trading
General. Advances in telecommunications and information technology have
fundamentally altered the way individuals conduct business. For example, the
development of the microprocessor and the personal computer revolutionized the
way individuals use computers by providing inexpensive and powerful
capabilities. Consumers have embraced the personal computer and expressed
strong preferences for the convenience and control it provides.
Just as the microprocessor revolutionized the use of computers, the
emergence of the internet as a tool for communications and commerce is driving
a revolution in the world of financial transactions and information services.
Consumers are rapidly embracing the internet because it is simple to access,
makes vast amounts of
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information available instantaneously, and allows individuals to communicate
with one another regardless of location. With the proliferation of personal
computers and modems and the development of easy-to-use web browsers, use of
the internet is growing exponentially.
The Emergence of Electronic Commerce. The internet and online services
provide innovative ways of conducting business. With the emergence of the
internet as a globally accessible, fully interactive and individually
addressable communications and computing medium, companies that have
traditionally conducted business in person, through the mail or over the
telephone are increasingly utilizing electronic commerce or "e-commerce".
Increased use of credit cards, automated teller machines, or ATMs, the
incidence of electronic funds transfers, online banking and online bill payment
has automated, simplified and reduced the costs of financial transactions for
consumers, businesses and financial institutions.
Consumers are showing strong preferences for transacting certain types of
business such as paying bills, booking airline tickets, trading securities and
purchasing consumer products such as personal computers, books and cars
electronically, rather than in person or over the telephone. These transactions
are being streamlined through online e-commerce and can now be performed
directly by individuals virtually anywhere at any time. These self-directed
online transactions are less expensive, faster and more convenient than
transactions conducted through a human intermediary.
Development of Online Investing and Information Services. In the past,
investors could access the financial markets only through a full-commission
broker, who would give investment advice and place trades. With the
deregulation of brokerage commissions in 1975 and the resulting unbundling of
brokerage services, investors began to realize that they could separate
financial advisory services from trading. This brought about the advent of the
discount brokerage firm, which provided an alternative investment approach by
completing trades at a reduced cost.
With the emergence of electronic investing services, investors can further
eliminate the costs associated with the human interaction required by full-
commission and traditional discount brokerage firms. By requiring personnel to
handle each transaction, most traditional brokerage firms restrict their
customers' access to trading and information to the availability of the person
processing the transaction. In addition, although full-commission and discount
brokerage firms are able to offer electronic trading services, their continued
reliance on personnel, branch offices and the associated infrastructure for a
major part of their business prevents them from reducing their cost structure
to the lower level achievable through an all electronic model. Due to these
factors, online investing accounts are gaining popularity and the aggregate
value of these accounts is expected to grow.
We believe that the proliferation of automated teller machines, the
increasing presence of banks in supermarkets, the expansion of do-it-yourself
financial transaction software, the growth of discount and online securities
brokerage firms and a variety of other indicators evidence a shift in societal
norms that is fundamentally altering the way consumers manage their personal
financial assets. We also believe that, based on customer feedback and the
rapid acceptance by consumers of online transactions, consumers are
increasingly taking direct control over their personal financial affairs, not
simply because they are able to do so, but because they find it more convenient
and less expensive than relying on financial intermediaries. Investors want the
flexibility to transact business at times and places that are convenient for
them.
In addition, the broad availability of financial information online has
dramatically narrowed the gap between the resources available to the individual
investor and the institutional investor. Individual investors have become
increasingly sophisticated and knowledgeable about investing, having
experienced greater access to stock and futures quotes, company financial
information, investment advice and other investment information on the web or
through other online services. As investors obtain even more access to
investment information, we believe they will desire greater control over their
financial decisions and seek alternative ways to invest more conveniently and
cost-effectively and with less interaction with brokers and other financial
services professionals. We believe that this trend has created a growing
opportunity to provide online investing services that are easy to access, easy
to use, cost-effective and secure.
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www.alaron.com. From our website, www.alaron.com, clients can directly trade
futures and options quickly and simply. The website provides our clients with
access to real-time quotes, charts, futures news indexed by keyword, and up-to-
the-click account balances. The research available is one of the biggest online
trading benefits. Each day, we offer eleven proprietary research pages, as well
as market reports such as "Logical Economics" and "Special Situation" commodity
reports. We believe that our website provides for more simple navigation than
competitive websites. Research, real time news, quotes and charts are easily
accessible. Moreover, proprietary research pages and other news stories with
respect to the futures and options industry are available through our site. New
account forms can be printed from our website along with proprietary market
reports. All of these online functions are supported by dedicated online
support staff and customer service. Alaron Trading is open 24 hours a day, 365
days a year.
Our Revenues
As a brokerage firm, Alaron Trading's gross revenues relate directly to the
volume of its clients' orders. Our revenues are primarily derived from
transactions effected for individual clients. Our revenues will vary because of
the different commission rates we charge our clients. For example, commissions
charged to clients who trade online are at a lesser rate than clients who use
our full service in their trading. Therefore, depending on how the clients
trade, as overall volume goes up our revenues may not go up in the same
proportion, if at all.
In addition, a portion of our revenues is derived from interest earned on
client margin deposits held in segregated accounts. This accords with CFTC
regulation and standard industry practice. The amount of client margin deposits
we can hold at any time is limited by the amount of our regulatory capital. For
example, for every $10,000,000 in customer margin deposits, we must have at
least $600,000 in regulatory capital. Thus, any growth in our customer base
could be significantly limited by the amount of our regulatory capital.
Marketing
Our marketing and advertising activities had in the past centered around the
print media, primarily newspapers and magazines, which report on the futures
markets and activities, television, radio, direct and mass marketing campaigns,
educational seminars and the internet through our website. Currently, we have
begun to develop a broad marketing campaign designed to capture market share
and bring brand name recognition to Alaron.com and "Alaronline." We plan to do
this with extensive use of the internet, websites, strategic alliances, and
advertising promotions. We find that marketing our e-commerce services on the
internet is the most cost effective means for reaching prospective customers.
The emergence of the internet as a tool for marketing, communication and
commerce is driving a revolution in the world of online trading affecting the
entire industry of financial services. The securities industry has experienced
a proliferation of online trading which has changed the way the world invests.
The futures and options industry has just begun to trade online and we intend
to continue marketing our brokerage and trading services over the internet in
order to expand our client base to other countries. The internet provides a
marketing and educational tool which may enable us to effectively reach trading
prospects in a manner which in the past was ineffective and cost prohibitive.
"Alaronline" also provides a cost effective means of transacting international
clients' business.
Finally, we believe that, with proper marketing and education, we may
capture additional online futures trading, including securities day traders
crossing over to trade the highly leveragable S&P 500 futures and Dow Jones
futures contracts and electronically traded contracts like the e-mini S&P and
e-mini Nasdaq index contracts recently developed.
Research
In addition to our one full-time analyst, we utilize analyses generated by
as many as ten of our individual registered "associated persons" conducting
research in various futures markets. An associated person is an
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individual who solicits orders or customers on our behalf and is required to be
registered with the CFTC. We then report this research each business day
featuring both fundamental and technical analyses. These reports are broadcast
on a daily telephone hotline as well as on our website. At any given time, our
officers, directors and other personnel may have market positions which may
agree or disagree with the research opinions expressed in the various reports.
Furthermore, any decision to purchase or sell in reliance on any of this
research is the full responsibility of our customer or the person authorizing
the transaction on behalf of our customer.
Competition
The futures brokerage business exists in an intense and highly competitive
environment. This environment has caused a contraction in the number of
registered futures brokerage firms. A significant number of these firms,
ranging from small introducing brokers to major clearing operations, have been
forced to withdraw from the industry or have been acquired. Nonetheless,
throughout this period of consolidation, worldwide futures and options trading
volume has continued to increase. We compete with other brokerage firms, both
full service and discount, which may offer clients a broader range of financial
services than Alaron.com. These other firms often have substantially greater
resources and operating efficiencies than us. These competitors include
brokerage firms like Lind-Waldock & Company, First American Discount Corp.,
Jack Carl Futures division of E.D. & F. Man, Inc. and LFG, LLC. These firms
also offer electronic brokerage services.
Other institutions, notably large securities brokerages, offer their
customers some of the services which we presently provide. At the same time,
the number of active participants in futures trading is relatively small when
compared to those engaged in securities trading. Furthermore, additional
independent securities and futures brokerage firms may engage in direct
competition with us. As usually occurs when competition increases, there is
corresponding downward pressure on prices and profit margins, either of which
could materially and adversely affect us. Our ability to compete in the future
will depend upon many factors, including the ability to attract new customers.
The electronic commerce market is new, rapidly evolving and intensely
competitive. The market for information resources is more mature but also
intensely competitive. We expect competition to continue to intensify in the
future. In addition to the traditional futures brokerage firms listed above, we
currently or potentially compete with various electronic brokerage businesses
like E*Trade Group, Inc. and Charles Schwab Corporation, as well as a number of
indirect competitors that specialize in electronic commerce or derive a
substantial portion of their revenue from electronic commerce. We may not be
able to maintain a competitive position against current or future competitors
as they enter the markets in which we compete. Our failure to maintain a
competitive position within the market could have a material adverse effect on
our business, financial condition and results of operations.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than us. Consequently, these
competitors may be able to devote greater resources to marketing and
promotional campaigns and devote substantially more resources to website and
systems development than us. New technologies and the expansion of existing
technologies may increase the competitive pressures on us. For example,
applications that select specific titles from a variety of websites may channel
customers to electronic brokerage businesses that compete with us. Companies
that control access to transactions through a network or web browsers could
also promote our competitors or charge us a substantial fee for inclusion. In
addition, vendors of information resources, such as technology based training,
could provide direct access to training programs online. There can be no
assurance that we will be able to compete successfully against current and
future competitors, and competitive pressures we face may have a material
adverse effect on our business, financial condition and results of operations.
Regulation
Futures exchanges and professionals in the United States are subject to
extensive regulation by the CFTC under the Commodity Exchange Act. The
principal function of the CFTC is to promote orderly and efficient commodity
futures markets through regulation.
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With respect to domestic futures and options trading, the Commodity Exchange
Act requires all futures commission merchants, such as Alaron Trading, and all
introducing brokers, to meet and maintain specified fitness and financial
requirements, account separately for all clients' funds, property and
positions, and maintain specified books and records on customer transactions
open to inspection by the staff of the CFTC. Failure to meet its regulatory
requirements could subject Alaron Trading to disciplinary actions, including
fines, censure, suspension or revocation of registration.
Futures professionals and organizations are governed by regulatory oversight
by the futures exchanges or self-regulatory organizations such as the NFA, of
which they are members. In addition, the CFTC has delegated its registration
and certain regulatory functions to the NFA. The NFA, a self-regulatory body,
has established and enforces training standards and proficiency tests, minimum
financial requirements and standards of fair practice for futures commission
merchants. As a designated self-regulatory organization, the NFA has authority
to enforce its rules, the violation of which could lead to various penalties,
including expulsion. Since NFA membership is mandatory for all CFTC registered
commodity professionals, loss or suspension of this membership would preclude a
firm from engaging in business. Alaron Trading is a member of the NFA. We are
also planning to become a clearing member of a futures exchange. If that
happens, our direct regulator would be the exchange instead of the NFA.
As a registered futures commission merchant and member of the NFA, we are
governed by minimum financial requirements under the Commodity Exchange Act.
The minimum financial requirements which specifies minimum net capital
requirements for registered futures commission merchants, is designed to
measure the general financial integrity and liquidity of a futures commission
merchant and requires that at least a minimum part of its assets be kept in
relatively liquid form. In general, net capital is defined as net worth (assets
minus liabilities), plus qualifying subordinated borrowings and certain
discretionary liabilities, and less certain mandatory deductions that result
from excluding assets that are not readily convertible into cash and from
valuing conservatively certain other assets. Among these deductions are
adjustments (called "haircuts"), which reflect the possibility of a decline in
the market value of an asset prior to disposition.
Failure to maintain the required net capital may subject a firm to
suspension or revocation of registration by the CFTC and suspension or
expulsion by the NFA and other regulatory bodies and ultimately could require
the firm's liquidation. The minimum financial requirement prohibits payments of
dividends, redemption of stock, the prepayment of subordinated indebtedness and
the making of any unsecured advance or loan to a stockholder, employee or
affiliate, if the payment would reduce the firm's net capital below a certain
level.
Under the minimum financial requirements, we must maintain in net capital
the greater of $375,000 or 6% of customer funds required to be segregated under
the Commodity Exchange Act in order not to be required to file early warning
reports. Failure to maintain adjusted net capital the greater of $250,000 or 4%
of customer segregated funds will suspend us immediately from doing any
business. In addition, the minimum financial requirements provide that the
total outstanding principal amount of a futures commission merchant's
indebtedness under certain subordination agreements, the proceeds of which are
included in its net capital, may not exceed 70% of the sum of all our capital
accounts and long term debt for a period in excess of 90 days.
A change in the minimum financial requirements, the imposition of new rules
or any unusually large charge against net capital could limit those of our
operations that require the intensive use of capital, such as the financing of
client account balances, and also could restrict our ability to pay dividends,
repay debt or repurchase shares of our outstanding stock. A significant
operating loss or any unusually large charge against net capital could
adversely affect our ability to expand or even maintain our present levels of
business, which could harm our business.
The above-described regulatory structure may be modified by the CFTC or by
legislative changes enacted by the Congress. Furthermore, the fact of CFTC
registration or the NFA membership of Alaron Trading does not imply that either
the CFTC or NFA has passed upon or approved this offering as described in this
prospectus.
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With respect to electronic commerce, we anticipate that we may be subject to
additional regulation as the market for online commerce evolves. Because of the
growth in the electronic commerce market, Congress has held hearings on whether
to regulate providers of services and transactions in the electronic commerce
market. In addition, federal or state authorities could enact laws, rules or
regulations affecting our business or operations. We also may be governed by
federal, state and foreign money transmitter laws and state and foreign sales
and use tax laws. If enacted or deemed applicable to us, these laws, rules or
regulations could be imposed on our activities or our business. Due to the
increasing popularity of the internet, it is possible that laws and regulations
may be enacted with respect to the internet, covering issues such as user
privacy, pricing, content and quality of products and services. The
Telecommunications Act of 1996 prohibits the transmission over the internet of
certain types of information and content. Although certain of these
prohibitions have been held unconstitutional, the increased attention focused
upon these liability issues could adversely affect the growth of internet and
private network use.
Employees and Associated Persons
We have:
. 101 full-time employees
. five handling compliance matters
. one in marketing
. three in accounting
. eight in operations, including seven who also handle administration
. 65 in administration and support
. 19 CFTC registered associated persons
. 102 CFTC registered associated persons, including our 19 CFTC registered
employees
Properties
We lease a building of approximately 30,000 square feet as our principal
offices and operations headquarters at 822 West Washington Boulevard, Chicago,
Illinois, from Alaron Development, L.L.C., a limited liability company owned
and controlled by Steven, Michael and Carrie Greenberg. The lease provides for
a base rent of $100,000 for the first five years, and $250,000 for the next
five years. Commencing January 1, 1996, the base rent increases 4% each year
until the lease expires on December 31, 2004. The lease was not negotiated at
arm's length; however, we believe that it is on as favorable terms to us as
could be obtained from unaffiliated parties in light of prevailing leases for
similar properties in the same general geographic area.
Alanorth, L.L.C., an affiliate of ours, leases approximately 2,600 square
feet of office space for use by us as a branch office at 633 Skokie Boulevard,
Northbrook, Illinois. We pay on average $41,000 per year under the lease which
expires on December 31, 2002. The lease is with an unaffiliated third party.
We lease approximately 5,000 square feet of office space as a branch office
at 660 South Federal Highway, Pompano Beach, Florida from Alaron Development,
L.L.C., which is owned and controlled by Steven, Michael and Carrie Greenberg.
Lease payments under the lease are $90,000 per year and the lease expires on
June 30, 2002. The lease was not negotiated at arm's length; however, we
believe that it is on as favorable terms to us as could be obtained from
unaffiliated parties in light of prevailing leases for similar properties in
the same general geographic area.
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We lease as branch offices:
. approximately 1,156 square feet of office space at 442 Post Street, San
Francisco, California, from an unaffiliated individual at $15,420 per
year under a lease expiring on August 31, 2000; and
. approximately 550 square feet of office space at 191 Woodport Road,
Sparta, New Jersey, from an unaffiliated party at $8,040 per year under
a lease expiring on October 31, 1999.
We believe that our existing office space is adequate to meet our
requirements for the future.
Litigation
In General. As a brokerage firm having numerous customers and
correspondents, we are, from time to time, a party to various lawsuits,
including civil litigation, arbitrations and reparations proceedings, and to
administrative proceedings by futures industry regulators relating principally
to customers and regulatory requirements. These matters range from those in
which we seek to collect deficit amounts due from customers, to customer
complaints and allegations by regulatory authorities of alleged improprieties
by us filed against us. In those actions in which we are the defendant, the
complaints may request monetary penalties, license suspensions or revocations
and the like. After consultation with legal counsel, management is of the
opinion that the estimated costs of disposition of these complaints, matters of
litigation and administrative proceedings will not have a material adverse
effect on our financial condition.
Alaron Trading Corporation. In July, 1995, the NFA Business Conduct
Committee issued a complaint against us which alleged violations of various NFA
financial requirements, failure to adequately supervise our employees and the
conduct of our futures activities, failure to maintain adequate books and
records and use of promotional materials in violation of NFA compliance rules.
Without admitting or denying the allegations and without a hearing, we
consented to the imposition of a $40,000 fine, to continue to employ a
qualified and experienced senior financial and operations executive and to
conduct a field audit of each of our guaranteed introducing brokers at least
once each year. We believe we have complied with all of the stipulations above
to which we consented.
On February 19, 1999, NFA's Business Conduct Committee filed a complaint
against Alaron Trading, Steven A. Greenberg, our President, and Jeffery H.
Spencer, a registered associated person of Alaron Trading and formerly its
Director of Introducing Broker Services, alleging that:
. Alaron Trading associated with unregistered individuals and did business
with non-members of NFA, in violation of NFA by-laws
. Alaron Trading and Mr. Spencer failed to observe high standards of
commercial honor and just and equitable principals of trade, in
violation of an NFA compliance rule
. Alaron Trading and Messrs. Spencer and Greenberg failed to diligently
supervise, in violation of another NFA compliance rule.
On August 11, 1999, Alaron Trading, Mr. Greenberg and Mr. Spencer filed an
answer to the complaint in which they denied the material allegations and
requested a hearing before NFA's Hearing Committee. Alaron Trading and the
individual respondents believe that they have meritorious defenses to the
allegations. However, rather than expend the substantial time, effort and
financial resources which would be necessary to defend successfully against
these allegations at a hearing, they have commenced discussions with the NFA
Staff to the Business Conduct Committee in an effort to dispose of these
allegations without a hearing. Of course, there is no assurance that the
respondents and the NFA Business Conduct Committee will reach a settlement of
this matter or that if a settlement is reached, that it will not result in
significant fines or penalties. If no settlement is reached, Alaron Trading
will vigorously defend against the allegations at the hearing. Based upon
Alaron Trading's own internal investigation into the allegations and
consultation with its counsel in this matter, Alaron Trading believes that this
matter will not have a material adverse effect on our business and operations,
although there can be no assurance of this.
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Management
Directors and Executive Officers
The Company's Executive Officers, Director Nominees and Directors, all of
whom will serve in such capacities until their successors are duly elected and
qualified in accordance with our by-laws, are:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Joel W. Greenberg....... 60 Chairman of the Board of Directors
Steven A. Greenberg..... 32 President and Director
Barry S. Isaacson....... 34 Chief Operating Officer and Director
Robert S. Pagliuco...... 41 Chief Financial Officer
Carrie A. Greenberg..... 27 Executive Vice-President, Secretary,
Treasurer and Director
Daniel F. Lazarus....... 45 General Counsel and Vice President for Regulatory Affairs
Stefan Kallabis......... 36 Director Nominee
Mara Greenberg.......... 38 Director Nominee
Robert H. Daskal........ 58 Director Nominee
</TABLE>
Mr. Joel Greenberg is the father of Steven Greenberg, Carrie Greenberg and
Michael Greenberg, and the father-in-law of Mara Greenberg, who is Michael
Greenberg's wife. Mr. Barry S. Isaacson is the brother-in-law of Steven A.
Greenberg.
Joel W. Greenberg, a founder of Alaron.com and Alaron Trading, has served as
the Chairman of both since their respective inceptions. A member of the Chicago
Mercantile Exchange since 1967, Mr. Greenberg has more than 30 years experience
in the futures industry. He served as a member of the Chicago Mercantile
Exchange Board of Governors from 1976 to 1979, including service as First Vice-
Chairman, and was second Vice-Chairman during 1996 and 1997. From 1969 to 1986,
Mr. Greenberg was Vice-President of Heinold Commodities, Inc., a futures
commission merchant, and from 1987 to 1989, he was a Vice-President of Shearson
Lehman Brothers, Inc., a futures commission merchant. Mr. Greenberg served as a
director from 1988 through 1995 of Incomnet, Inc. which filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code in September 1999. He
has been a member of the International Monetary Market, the International
Options Market and Growth and Emerging Market divisions of the Chicago
Mercantile Exchange, and of the Chicago Board of Trade. Mr. Greenberg is a
director of various private and civic organizations. In addition, Mr. Greenberg
was a director of Smithfield Foods, Inc., a publicly traded company, from July
1986 through September 1999. Mr. Greenberg holds a B.S. degree from the
University of Illinois.
Steven A. Greenberg, a founder of Alaron.com and Alaron Trading, has served
as President and director of both since their respective inceptions. He has
been a member of the Chicago Mercantile Exchange since 1988, where he acted as
a broker and trader through 1991 and from the Spring of 1998 to the present. He
is also a member of the International Monetary Market and Growth and Emerging
Market divisions of that Exchange. He has served and continues to serve on
various committees at the Chicago Mercantile Exchange and is involved in
various civic organizations. Steven Greenberg holds a B.A. in International
Relations from Boston University.
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Barry S. Isaacson, a founder of Alaron.com, has been employed by Alaron
Trading in various capacities since 1989, serving as its Executive Vice-
President since 1991. Mr. Isaacson has been a director of Alaron.com since its
inception. Mr. Isaacson holds a B.S. from Southern Methodist University.
Robert S. Pagliuco was appointed our Chief Financial Officer in September
1999. From 1998 until September 1999, he was a vice president in the Foreign
Exchange Division at Rosenthal Collins Group in Chicago, where he was
responsible for the management of operations, trading centers and dealing
groups. His responsibilities included financial preparation, reporting and
analysis, regulatory compliance, risk management, automation of processes and
the procurement of new business. From 1990 through 1998, Mr. Pagliuco was the
Chief Financial Officer at Saul Stone & Co. and its affiliates in Chicago,
where he had broad responsibilities directing the operations for all the
affiliated companies, including its futures commission merchant in all
financial areas. As Chief Financial Officer, he reported directly to the
directors, owners or business partners of each entity. From 1981 through 1990,
Mr. Pagliuco was on the audit and surveillance staff of the Chicago Mercantile
Exchange, where he performed, managed, directed and reviewed financial and
regulatory compliance examinations of member firms. He was the Exchange's
representative on the Joint Exchange Audit and Regulatory Compliance Committee
whose members are all the futures exchanges and self-regulatory organizations
in the United States. Mr. Pagliuco holds a B.S. in accounting and finance from
Northern Illinois University and is a certified public accountant. He is the
senior executive of Alaron Trading in charge of all financial matters.
Carrie A. Greenberg, a founder of Alaron.com, has been Treasurer, Secretary
and a director of Alaron Trading since 1991 and Executive Vice President,
Secretary, Treasurer and a director of Alaron.com since its inception. She has
been a member of the Chicago Mercantile Exchange's International Options Market
division since 1993. Ms. Greenberg holds a B.A. from the University of
Illinois.
Daniel F. Lazarus was appointed our General Counsel and Vice President for
Regulatory Affairs in July, 1999. For the past five years, he has been a lawyer
at the Chicago Mercantile Exchange where he acted as principal legal advisor in
Exchange disciplinary and arbitration hearings. While at the Chicago Mercantile
Exchange, he provided legal support in regulatory, compliance and trade
practice and clearing matters, as well as other legal issues. For nine years in
the 1980s, Mr. Lazarus was employed by Merrill Lynch Futures, Inc., where he
managed all functions pertaining to customer position and monetary balancing,
regulatory reporting, processing and clearing of customer and firm accounts at
various futures exchanges. He has been a member of the International Monetary
Market and an Assistant Chicago Mercantile Exchange Floor Manager for Shearson
Hayden-Stone, Inc. Mr. Lazarus holds a B.A. with highest honors from DePaul
University and a J.D. from The University of Michigan Law School. He is the
senior executive of Alaron Trading in charge of all regulatory and compliance
matters.
Stefan Kallabis. Immediately following the offering, Mr. Kallabis will
become an independent director. He is the president and owner of Prime Asset
Management AG, the firm which handled our recent European private placement of
stock. He founded Prime in January 1997. Before establishing Prime, beginning
in August, 1994, Mr. Kallabis was engaged in distribution, marketing and
organization of a number of investment magazines and newsletters. From November
1991 through August 1994, he was employed by HYPO Capital Management, Berlin,
Germany, as a financial consultant to high net worth and high income
individuals. Mr. Kallabis has been involved in various aspects of the
securities and futures businesses since 1986 and holds a number of diplomas
from various programs in business administration, economics and corporate
finance.
Mara Greenberg will become a director immediately following the offering.
She has been a Senior Executive Assistant with the Boston Consulting Group in
Chicago since 1995. From 1992 through 1994, she was Assistant to the Chief
Financial Officer of Mirage Resorts, Inc., Las Vegas, Nevada. From 1983 through
1992, Ms. Greenberg was an Equity Research Associate with two major securities
brokerages. She holds a B.S. in finance from Ithaca College.
30
<PAGE>
Robert H. Daskal. Immediately following the offering, we also intend to
appoint Robert H. Daskal as an independent director. Mr. Daskal has served as
Senior Vice President, Chief Financial Officer and Treasurer of the Olympic
Cascade Financial Corporation, the parent company of National Securities
Corporation, since its inception in February 1997. Also, Mr. Daskal is
presently a director of Inco Homes Corporation, a property development company.
From 1994 to 1997, Mr. Daskal was Executive Vice President, Chief Financial
Officer and a Director of Inco Homes Corporation, and from 1985 to 1994 he was
Executive Vice President--Finance, Chief Financial Officer and a Director of
UDC Homes, Inc. (and its predecessors), a property development company. UDC
Homes, Inc. filed a petition for relief under Chapter 11 of the Bankruptcy Code
in May 1995. Mr. Daskal, a former Tax Partner with Arthur Andersen & Co.,
became a CPA in Illinois in 1967. He received his B.B.A. and J.D. from the
University of Michigan.
Certain Significant Persons
Michael A. Greenberg, a founder of Alaron.com and Alaron Trading, serves as
its Chief Technology Officer in which he provides consultation to the President
and other senior officers about the strategic direction of the Company. He was
Chief Executive Officer and a director of Alaron Trading from its inception
until September 1997. Michael Greenberg has been a member of the Chicago
Mercantile Exchange since 1989, where he has traded for his own account. Mr.
Greenberg has served on various committees at the Chicago Mercantile Exchange.
He holds a B.A. in Finance from Indiana University.
Cheryl B. Fitzpatrick, Esq., served as Alaron Trading's General Counsel from
August 1996 until August 1999. She is now Alaron Trading's senior corporate
counsel. Prior to joining Alaron Trading, Ms. Fitzpatrick served as a staff
attorney for JG Industries, Inc., a publicly owned department store, from
October 1989 to June 1990, the National Association of Securities Dealers from
June, 1990 to April, 1991, and was corporate counsel for Lind-Waldock &
Company, a registered futures commission merchant, from April, 1991 to August,
1996. Ms. Fitzpatrick holds a B.S. in Journalism from Southern Illinois
University and a J.D. from IIT Chicago-Kent College of Law.
Stanley W. Preston III, Esq. has served as Alaron Trading's corporate
counsel since November, 1997. Mr. Preston holds a B.S. in accounting and
finance from Ohio State University and a J.D. from IIT Chicago-Kent College of
Law. Mr. Preston served in the United States Marine Corps from 1984 through
1988.
Joseph L. Ehrlich has been Vice President--Operations of Alaron Trading
since September, 1996. He has also been Manager of Risk Management Operations
for Alaron Trading since 1995. He has been with Alaron Trading since 1992.
Prior to 1992, Mr. Ehrlich was an Account Executive at Index Futures Group,
Inc., and a Manager at Lind-Waldock & Company, both of which are registered
futures commission merchants.
Dennis M. Dunne has served as Alaron Trading's Controller since March, 1995.
Mr. Dunne, who has 23 years experience in the industry, was the regulatory
accountant for First Options of Chicago from 1990 to 1995. Mr. Dunne holds a
B.S. in Commerce from DePaul University and is a certified public accountant.
Director Compensation
Directors are not currently compensated but may be reimbursed for out of
pocket expenses incurred by them in connection with their duties as directors.
We anticipate that the board of directors will meet at least four times a year.
The underwriters' representative, National Securities Corporation, has the
right to designate two people to attend each meeting of the board of directors.
We have agreed to reimburse the designees of the representative for their out-
of-pocket expenses incurred in connection to attending these meetings. The
underwriters' representative has the right to cause us to use our best efforts
to elect one of its designees to the board of directors for five years after
the date they are elected. Mr. Robert H. Daskal is that designee.
31
<PAGE>
Committees of the Board of Directors
Our board of directors has established an audit committee and a compensation
committee.
Audit Committee. Our audit committee, which is responsible for nominating
our independent accountants for approval by the board of directors, reviewing
the scope, results and costs of the audit with our independent accountants, and
reviewing the financial statements, audit practices and internal controls of
the Company, will be comprised of directors, a majority of whom will be
independent directors.
Compensation Committee. Our compensation committee is responsible for
recommending compensation and benefits for our executive officers to the board
of directors and for administering our stock option plans. Our compensation
committee will be comprised of independent directors.
Limitation of Liability and Indemnification
As permitted by the Delaware General Corporation Law ("DGCL"), we have
included in our certificate of incorporation a provision to eliminate the
personal liability of our directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders
. for acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of law
. in respect of certain unlawful dividend payments or stock redemptions or
repurchases, as provided in Section 174 of the DGCL
. for any transaction from which the director derived an improper personal
benefit
The effect of this provision in the certificate of incorporation is to
eliminate our rights and the rights of our stockholders (through stockholders'
derivative suits on our behalf) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director except in the situations
described above. This provision does not limit nor eliminate our rights or the
rights of any of our stockholders to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
These provisions will not alter the liability of directors under federal
securities laws.
Our certificate of incorporation and by-laws provide that we are required
and permitted to indemnify our officers and directors, employees and agents
under certain circumstances. In addition, if permitted by law, we are required
to advance expenses to our officers and directors as incurred in connection
with proceedings against them in their capacity as a director or officer for
which they may be indemnified upon receipt of an undertaking by or on behalf of
a director or officer to repay an amount if it shall ultimately be determined
that this person is not entitled to indemnification. At present, we are not
aware of any pending or threatened litigation or proceeding involving a
director, officer, employee or agent in which indemnification would be required
or permitted. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors and officers under the above provisions or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, this type of indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
32
<PAGE>
Executive Compensation
The following table sets forth certain information with respect to the
compensation paid to our principal executive officer and each of our other
executive officers who received aggregate salary and bonus compensation in
excess of $100,000 for services rendered to us (collectively, the "named
executive officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------
Fiscal
Name and Principal Position Year Salary Bonus
- --------------------------- ------ -------- --------
<S> <C> <C> <C>
Steven A. Greenberg, President........................ 1999 $198,140 $ 84,327
1998 197,178 291,257
1997 223,600 284,524
Barry S. Isaacson, Chief Operating Officer............ 1999 55,383 62,834
1998 25,000 91,055
1997 25,000 94,383
Carrie A. Greenberg, Secretary and Treasurer,
Executive Vice President ............................ 1999 82,755 20,387
1998 81,238 64,838
1997 94,052 63,505
</TABLE>
The preceding table:
. reflects in the bonus column bonuses which were paid to Steven A.
Greenberg and Carrie A. Greenberg to enable them to pay interest and
principal under loans incurred by them to contribute to the capital of
Alaron Trading
. does not include any other compensation in the form of perquisites and
other benefits which, in the aggregate, did not constitute the lesser of
$50,000 or 10% of the total of annual salary and bonus for any named
executive officer
Employment Agreements
We have entered into five-year employment agreements, ending February 28,
2004, with each of Steven A. Greenberg, Michael A. Greenberg, Carrie A.
Greenberg, Barry S. Isaacson and Joel W. Greenberg. The employment agreements
entitle each employee to participate in our employee benefit plans, such as
group health and life insurance. Under each of these employment agreements,
employment terminates, among other reasons, upon death or disability of the
employee and may be terminated by us if the employee is convicted of
embezzlement, theft or fraud. Dependent on certain conditions, each employment
agreement will automatically renew for additional one year terms after February
28, 2004. The employment agreements also contain restrictive covenants
including confidentiality and non-competition provisions.
Under their respective employment agreements:
. Steven A. Greenberg will receive an annual base salary of $200,000 for
the first year of the term of the agreement
. Michael A. Greenberg will receive an annual base salary of $200,000 for
the first year of the term of the agreement
. Carrie A. Greenberg will receive an annual base salary of $135,000 for
the first year of the term of the agreement
. Barry S. Isaacson will receive an annual base salary of $121,000 for the
first year of the term of the agreement
. Joel W. Greenberg will receive an annual base salary of $50,000 for the
first year of the term of the agreement
33
<PAGE>
In addition, during each month of the term of their employment agreements:
. Steven A. Greenberg will receive a nondiscretionary monthly cash bonus
of $6,794.85 to enable him to pay interest on the personal loan he
incurred in order to contribute to our capital until the loan is repaid
. Michael A. Greenberg will receive a nondiscretionary monthly cash bonus
of $6,794.85 to enable him to pay interest on the personal loan he
incurred in order to contribute to our capital until the loan is repaid
. Carrie A. Greenberg will receive a nondiscretionary monthly cash bonus
of $1,659.76 to enable her to pay interest on the personal loan she
incurred in order to contribute to our capital until the loan is repaid
Steven A. Greenberg, Michael A. Greenberg and Carrie A. Greenberg have
agreed to use all of the net proceeds, if any, they receive from the exercise
of the over-allotment option granted to the underwriters to prepay a portion of
these loans.
The annual base salary of each employee may be increased each year in an
amount determined by the Board of Directors in its discretion but must increase
by at least five percent of the base salary for the prior year. In addition,
each employment agreement provides for the employee to receive an incentive
bonus equal to a percentage of our annual operating income, as defined in the
agreement, in excess of $1,000,000. These bonuses aggregate 14.95% of our
annual operating income in excess of $1,000,000.
Stock Option Plans
1999 Stock Option Plan and 1999 Executive Stock Option Plan. We recently
adopted our 1999 Stock Option Plan (the "Plan") and our 1999 Executive Stock
Option Plan (the "Executive Plan"), each of which enables us to grant options
for shares of our common stock. The following description of the Plan and the
Executive Plan is qualified in its entirety by reference to the full text of
the Plan and the Executive Plan, as the case may be.
Awards and Eligibility. The Plan authorizes the grant of options to purchase
up to an aggregate of 700,000 shares of common stock to all full-time salaried
or commissioned employees. The number of individuals who currently would be
eligible to receive options under the Plan is approximately 100. The Executive
Plan authorizes the grant of options to purchase up to an aggregate of 350,000
shares of common stock to all of our executive officers and members of the
board. The number of individuals who currently would be eligible to receive
options under the Executive Plan is nine. Both the Plan and the Executive Plan
provide for the granting of incentive stock options as defined in Section 422
of the U.S. Internal Revenue Code of 1986, as amended, and options which do not
qualify as incentive stock options.
Purpose. The purpose of both the Plan and the Executive Plan is to advance
the interests of stockholders by enhancing our ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
our business. This is accomplished by providing these people with equity
ownership opportunities and performance-based incentives and thereby better
aligning their interests with those of our stockholders.
Administration. The board of directors has delegated its authority under the
Plan and the Executive Plan to the compensation committee. The compensation
committee has the authority to grant awards under the Plan and the Executive
Plan and to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the Plan and the Executive Plan as it deems advisable.
The compensation committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan and the Executive Plan or any award
under the Plan and the Executive Plan in the manner and to the extent it, in
its sole and final judgment, deems expedient to carry the Plan and the
Executive Plan into effect. All decisions by the compensation committee are
final and binding on all persons having or claiming any interest in the Plan
and the Executive Plan or in any award under the Plan and the Executive Plan.
No director or person acting under the authority delegated by the board shall
be liable for any action or determination relating to or under the Plan and the
Executive Plan made in good faith.
34
<PAGE>
Amendment. The Plan and the Executive Plan or any portion thereof can be
amended, suspended or terminated by the compensation committee or the board of
directors at any time; provided, however, that without approval of
stockholders, no amendment shall be made which:
. increases the maximum number of shares of common stock or changes the
class of shares which may be subject to stock options granted under the
Plan and the Executive Plan, except for specified adjustment provisions
. extends the term of the Plan and the Executive Plan
. changes the requirements as to eligibility for participation in the Plan
or the Executive Plan
Exercise Price. Stock options may be granted to purchase common stock under
the Plan and the Executive Plan at a price to be determined by the compensation
committee but not less than the fair market value of the common stock on the
date of grant. The exercise price of incentive stock options granted to someone
owning more than ten percent of the outstanding voting stock must be 110% of
the fair market value of the common stock on the date of the grant.
Grant Limitation. The maximum number of shares for which options may be
granted under the Plan and the Executive Plan during any calendar year to any
single recipient may not exceed 35,000. Other than these limits of 35,000
options per year, there is no limitation on the aggregate number of stock
options which may be granted to any optionee under the Plan or the Executive
Plan.
No Outstanding Options. As of the date of this prospectus, there have not
been any options granted under the Plan or the Executive Plan except as
follows. We have granted our General Counsel, Daniel F. Lazarus, 20,000 stock
options, and our Chief Financial Officer, Robert S. Pagliuco, 10,000 stock
options under the Executive Plan.
Exercisability. Stock options are exercisable at the times and governed by
the terms and conditions determined by the compensation committee.
Termination of Option. Options granted pursuant to the Plan and the
Executive Plan expire on the tenth anniversary of the date of grant, unless
otherwise earlier terminated. The Plan and the Executive Plan provide that if a
stock option, or portion thereof, expires, lapses without being exercised or is
terminated, canceled or surrendered for any reason without being exercised in
full, the unpurchased shares of common stock which were governed by that stock
option or portion thereof shall be available for future grants of stock options
under the Plan or the Executive Plan, as the case may be.
Mechanics of Exercise.Under the terms of the Plan and the Executive Plan,
the exercise price for all options must be paid in cash or by check, or with
common stock owned by the optionee and having a fair market value on the date
of exercise equal to the aggregate exercise price of the shares to be so
purchased, or by delivery of a promissory note on terms acceptable to the
compensation committee, or by delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver sufficient funds to pay the
exercise price, or a combination thereof.
Non-transferability of Options. Except as the compensation committee may
otherwise provide, options granted under the Plan and the Executive Plan will
not be assignable or transferable except by will or the laws of intestate
succession, and during the life of an optionee, may only be exercised by that
person.
Changes in Our Capital Structure. The purchase price and the number and kind
of shares that may be purchased upon exercise of options granted under the
Plan, and the number of shares which may be granted under the Plan, are subject
to adjustment in certain events, including stock splits, recapitalizations,
mergers, and reorganizations.
Acquisition. The Plan and the Executive Plan each provide, among other
things, that, immediately prior to the occurrence of an "Acquisition Event" (as
defined in the Plan and the Executive Plan), fifty percent of the common shares
covered by options which are not then exercisable shall become fully
exercisable in the manner set forth in the option.
35
<PAGE>
Legal Proceedings Involving Directors, Officers and Affiliates
Alaron Securities Corporation. In 1993, Steven, Michael and Carrie Greenberg
organized and owned Alaron Securities Corporation, a separate securities
brokerage firm which was registered with the Securities and Exchange
Commission, various states, and a member of the National Association of
Securities Dealers, Inc. ("NASD"). Michael A. Greenberg was the President and
Chief Executive Officer and an unrelated individual was its Chief Operating
Officer.
During the first half of 1995, Alaron Securities Corporation became the
subject of disciplinary proceedings and complaints from the States of Illinois,
Maryland and Wisconsin and the NASD. As part of the Illinois proceedings,
Alaron Securities Corporation ceased all operations as of May 31, 1995, and
subsequently withdrew its broker/dealer registration and NASD membership.
The various proceedings alleged, among other things, failure to register the
firm or personnel, failure to maintain minimum net capital requirements in
light of alleged mischaracterization of customer accounts as proprietary
accounts, securities law fraud, and record keeping and reporting violations.
Alaron Securities Corporation settled the Illinois proceedings, without a
hearing and without admitting or denying the allegations, by accepting a
revocation of its Illinois securities registration, paying an administrative
fine of $10,000 and reimbursing $20,000 to the Illinois Secretary of State for
costs. As part of the settlement, proceedings against Alaron Securities
Corporation officers and directors by Illinois were dismissed.
Proceedings in Wisconsin were based upon a summary broker-dealer license
denial caused by Alaron Securities Corporation's alleged failure to complete
its pending application for registration in that state. Following a hearing,
Alaron Securities Corporation was allowed to withdraw its application for
registration in Wisconsin.
The Maryland Securities Commissioner brought an action against Alaron
Securities Corporation, Steven A. Greenberg and Michael A. Greenberg for their
failure to comply with the procedural guidelines in connection with
registration of Alaron Securities Corporation as a broker/dealer in the state
of Maryland. In settlement of that proceeding, without a hearing and without
admitting or denying the allegations, the respondents, Alaron Securities
Corporation and Messrs. Greenberg consented to the entry of an order under
which they paid the State of Maryland an administrative fine of $20,000 and
Messrs. Greenberg each agreed not to apply for securities registration in
Maryland for a period of three years commencing from the date of the Consent
Order, October 14, 1996.
On March 10, 1997, a Consent Order disposing of the NASD proceeding was
entered by the NASD National Business Conduct Committee under which, without a
hearing and without admitting or denying the truth of the allegations, Alaron
Securities Corporation was censured and received a suspended fine of $25,000,
Steven A. Greenberg was censured, suspended from association with any NASD
member for 30 days and fined $10,000, Michael A. Greenberg was censured,
suspended from association with any NASD member for five years from the date of
the Consent Order, was barred from acting in any principal capacity with any
NASD member firm and received a suspended fine of $50,000, and the unaffiliated
former Chief Operating Officer of Alaron Securities Corporation was censured,
barred from any association with any NASD member firm and received a suspended
fine of $100,000.
Joel W. Greenberg. On July 30, 1998, the Securities and Exchange Commission
instituted a cease and desist proceeding and simultaneously accepted a
settlement with Mr. Greenberg in a matter relating to Incomnet, Inc., a
publicly traded company of which Mr. Greenberg was an outside director from
1988 through 1995. Without admitting or denying the SEC findings and without a
hearing, Mr. Greenberg consented to the entry of an order that he cease and
desist from committing or causing any violations under the federal securities
laws and regulations. The SEC's findings as to Mr. Greenberg were that, as an
outside director, Mr. Greenberg should have made independent inquiry and not
have relied on information and documents provided him by the
36
<PAGE>
former chief executive officer of Incomnet and that Mr. Greenberg was
responsible for, or should have prevented, certain inaccuracies contained in
Incomnet's public statements. In addition, the SEC found that Mr. Greenberg
failed to file with the SEC an amended disclosure form concerning his
collateralization of a personal loan with the shares of Incomnet stock owned by
him.
Steven A. Greenberg. On February 19, 1999, the Business Conduct Committee of
the NFA filed a complaint against Mr. Greenberg, Alaron Trading and one of our
associated persons. See "Business--Litigation."
37
<PAGE>
Principal Stockholders
The following table sets forth certain information regarding beneficial
ownership of our common stock as of the date of this prospectus by each person
or entity known by us to own beneficially more than five percent of the common
stock, by each of our directors and director-nominees, by each named executive
officer, and by all of our executive officers and directors as a group. Except
as indicated, to our knowledge, the persons named in the table below have the
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
Steven, Carrie and Michael Greenberg are the children of Joel Greenberg, and
Mara Greenberg, the wife of Michael Greenberg, is Joel Greenberg's daughter-in-
law. Barry S. Isaacson is the brother-in-law of Steven A. Greenberg. Upon
completion of this offering, the Greenberg family will have the ability to vote
approximately 75% of the issued and outstanding shares.
<TABLE>
<CAPTION>
Percent Beneficially Owned
------------------------------------
Upon Full
Exercise of
Number of Shares Prior to After Over-allotment
Name and Address Beneficially Owned Offering Offering Option
- ---------------- ------------------ -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Steven A. Greenberg.... 3,645,000 35% 31% 30%
President and Director
Joel W. Greenberg
(individually and as
Trustee) ............. 3,547,449 34% 30% 29%
Chairman of the
Board of Directors
Carrie A. Greenberg.... 810,000 8% 7% 7%
Executive Vice
President,
Secretary, Treasurer
and
Director
Barry S. Isaacson...... 88,934 1% * *
Chief Operating Officer
and Director
Stefan Kallabis........ 434,466 4% 4% 3%
Director Nominee
Prime Asset Management
AG
Borsenplatz 1
60313 Frankfurt-am-Main
Germany
Mara Greenberg......... -- -- -- --
Director Nominee
Robert H. Daskal....... -- -- -- --
Director Nominee
875 North Michigan
Avenue
Suite 1560
Chicago, Illinois 60611
Michael A. Greenberg... 801,900 8% 7% 6%
Chief Technology
Officer
All executive officers
and directors as a
group................. 8,091,383 78% 68% 67%
</TABLE>
- --------
*Less than one percent.
38
<PAGE>
In the preceding table:
. the "after offering" percentages do not include 1,500,000 shares of
common stock issuable on exercise of the warrants
. the "upon full exercise of over-allotment option" percentages do not
include 225,000 shares of common stock issuable on exercise of the
warrants contained in the over-allotment option
. the address of our officers, director nominees and directors listed
above (except Messrs. Kallabis and Daskal) is 822 West Washington
Boulevard, Chicago, Illinois 60607
. the shares attributable to Mr. Joel W. Greenberg include 2,843,000
shares held by the Greenberg Family Trust for which Mr. Joel W.
Greenberg serves as trustee and the beneficiaries of which are all of
the descendants of Joel and Marcia Greenberg, other than Michael
Greenberg and his descendants
. the shares attributed to Mr. Kallabis were issued to Prime Asset
Management AG, a strategic consulting firm assisting start-up companies
to finance their growth, of which Mr. Kallabis is a principal
stockholder, which acted as the distributor for our recent European
private placement
. the shares attributed to Mr. Kallabis do not include warrants to
purchase 600,000 shares of our common stock at $7.50 per share, also to
be issued to Prime Asset Management AG by the Greenberg family, which
become exercisable for a period of 45 days after the date on which the
closing price of our common stock has been at or above $11.25 for at
least 20 days out of 30 consecutive trading days
Section 203 of the Delaware General Corporation Law
In our certificate of incorporation, we have elected not to be governed by
the provisions of Section 203 of the DGCL. This section provides, with certain
exemptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person, or affiliate or associate of a person,
who is an "interested stockholder" for a period of three years from the date
that that person became an interested stockholder unless certain conditions are
satisfied. An "interested stockholder" is defined to include any person, and
the affiliates and associates of a person, that is the owner of 15% or more of
the outstanding voting stock of the corporation or is an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether that person is
an interested stockholder.
39
<PAGE>
Certain Transactions
Reorganization. In April 1999, Steven A. Greenberg, Michael A. Greenberg,
Carrie A. Greenberg and the Greenberg Family Trust contributed all of the
outstanding stock of Alaron Trading to Alaron.com in a tax-free transfer.
Debt of Certain Directors and Officers. In September 1997, Joel W. Greenberg
loaned $1,000,000 to Alaron Trading under a Subordination Agreement approved by
the NFA. Interest is payable on the loan at the rate of 12 1/2% per annum. The
loan was paid in full in October 1999. In addition, on February 16, 1999, Mr.
Greenberg made an additional $100,000 subordinated loan to Alaron Trading
maturing on February 16, 2000.
During fiscal 1995, 1996, and 1997, in order to comply with regulatory
capital requirements, Steven, Michael and Carrie Greenberg contributed a total
of approximately $3,500,000 in equity to Alaron. These funds were the proceeds
of personal bank loans taken out by the Greenbergs. The Greenbergs recently
refinanced these loans which now mature in 2004. In the past two fiscal years,
in order to service these loans we have paid the Greenbergs the following:
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1999
-------- -------
<S> <C> <C>
Steven A. Greenberg...................................... $291,257 $84,327
Michael A. Greenberg..................................... $291,257 $84,327
Carrie A. Greenberg...................................... $ 64,838 $20,387
</TABLE>
In fiscal 2000, in connection with these loans, we expect to pay the
following:
<TABLE>
<CAPTION>
Fiscal
2000
-------
<S> <C>
Steven A. Greenberg............................................... $81,538
Michael A. Greenberg.............................................. $81,538
Carrie A. Greenberg............................................... $19,917
</TABLE>
The Company intends to continue to pay the Greenbergs additional
compensation to enable them to service the interest payments on this debt. We
estimate these payments will total approximately $190,000 per year. To reduce
this obligation, Steven, Michael and Carrie Greenberg have granted the
underwriters a 45-day option to purchase from them 225,000 shares of common
stock to cover over-allotments, and have agreed to use the proceeds to them, if
any, to pay down this debt. In addition, these stockholders have agreed to use
any proceeds received by them from the exercise of the warrants contained in
the underwriters' over-allotment option to further pay down this debt.
Compensation to Family Members. Michael Greenberg, the son of our director,
Joel W. Greenberg, the brother of our executive officers, Carrie and Steven
Greenberg, and the husband of our director nominee, Mara Greenberg, is employed
as our Chief Technology Officer. In the past two years, in addition to the
bonuses described above, we have paid him for his services as follows:
<TABLE>
<CAPTION>
Fiscal
Year Salary
------ --------
<S> <C> <C>
Michael A. Greenberg...................................... 1998 $197,178
1999 $198,140
</TABLE>
Affiliated Introducing Broker. Greenstreet Discount Corp., an introducing
broker organized by Steven, Michael and Carrie Greenberg in December 1992,
introduces discount customers to Alaron Trading. Greenstreet is a "guaranteed
introducing broker" of Alaron Trading and therefore is not required to maintain
its own independent regulatory capital. It operates under an introducing broker
clearing agreement with Alaron Trading substantially similar to those Alaron
Trading has with unaffiliated guaranteed introducing brokers.
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<PAGE>
In addition, Greenstreet is provided free space at Alaron Trading's
headquarters for its 46 associated persons, each of whom is dually registered
with Alaron Trading and is provided telephone, electronic, computer and other
administrative services by Alaron Trading all without charge. The space,
equipment and services provided to Greenstreet are of nominal value.
Leases with Related Parties. We lease a building of approximately 30,000
square feet as our principal offices and operations headquarters at 822 West
Washington Boulevard, Chicago, Illinois, from Alaron Development, LLC, a
limited liability company owned and controlled by Steven, Michael and Carrie
Greenberg. The lease provides for a net rental of $8.33 per square foot and
expires on December 31, 2004. The lease was not negotiated at arms length;
however, we believe that it is on as favorable terms to us as could be obtained
from unaffiliated parties in light of prevailing leases for similar properties
in the same general geographic area. We paid $250,000 in fiscal 1998, and
$108,134 in fiscal 1999, under this lease.
We lease approximately 5,000 square feet of office space as a branch office
at 660 South Federal Highway, Pompano Beach, Florida from Alaron Development,
L.L.C. which is owned and controlled by Steven, Michael and Carrie Greenberg.
Lease payments for the four year term of the lease are $90,000 per year and the
lease expires on June 30, 2002. The lease was not negotiated at arm's length;
however, we believe that it is on as favorable terms to us as could be obtained
from unaffiliated parties in light of prevailing leases for similar properties
in the same general geographic area. We paid $90,000 under this lease in each
of fiscal 1998 and fiscal 1999.
Recent European Private Placement. Between May and August 1999, we privately
sold an aggregate of 996,450 shares of our common stock at $4.50 per share to
45 investors. The sale of these shares was not registered. In accordance with
the requirements of Regulation S of the Securities and Exchange Commission,
these shares cannot be resold in United States markets or to United States
citizens for at least one year from their issuance. Thereafter, the shares may
be sold only if they are registered or are eligible for an exemption from
United States registration. Each investor has certified to us each investor's
understanding and agreement to those requirements.
In connection with the placement, we agreed to pay an associated person of
ours a finder's fee of approximately 10% of the gross proceeds ($448,403),
which included our paying certain of his expenses. Additionally, we paid Prime
Asset Management AG of Frankfurt, Germany ("Prime") 434,466 shares of the
Company's common stock in lieu of a cash commission as the distributor of the
European placement. Prime is a strategic consulting firm assisting development
and start-up companies in financing their growth. Prime's primary focus is on
internet related start-up companies in Germany. The shares issued to Prime
Asset Management AG are governed by the same Regulation S restrictions on
resale as are the shares sold to the 45 investors in Europe. Mr. Stefan
Kallabis, a nominee for director of the Company, is a principal stockholder of
Prime Asset Management AG.
In addition, in connection with the placement, the Greenberg family has
agreed to issue to Prime warrants to purchase 600,000 shares of our common
stock at $7.50 per share. Prime's warrants will expire on the earlier of three
years after the date of this prospectus or 45 days after the date on which the
closing price for our common stock has been at or above $11.25 for at least 20
out of 30 consecutive trading days. In other words, if our common stock's price
reaches $11.25 during the required period, Prime will have 45 days thereafter
to exercise and pay for up to 600,000 shares or it will lose that right even
earlier than the three-year final expiration of the warrants. We have also
agreed to register for resale by Prime any shares that it purchases by
exercising the warrants, subject to any applicable NASD limitations or
restrictions.
Future Transactions. All future transactions, including loans between us and
our officers, directors, principal stockholders and affiliates will be approved
by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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<PAGE>
Description of Securities
We are authorized to issue 30,000,000 shares of common stock, $0.01 par
value, of which 10,324,199 shares are currently outstanding and 10,000,000 of
preferred stock, $0.01 par value, of which none are currently outstanding.
After this offering, there will be 11,827,199 shares of common stock and
1,728,000 warrants each to purchase one share of common stock outstanding.
Common Stock
Holders of common stock are entitled to dividends when, as and if, declared
by the board of directors out of available funds, subject to any priority as to
dividends for any preferred stock that may be outstanding. Holders of common
stock are entitled to cast one vote for each share held at all stockholders
meeting for all purposes, including the election of directors. Cumulative
voting for the election of directors is not permitted. The holders of more than
fifty percent of the common stock issued and outstanding and entitled to vote,
present in person or by proxy, constitutes a quorum at meetings of
stockholders. The vote of the holders of a majority of common stock present at
meetings decides all questions before that meeting.
On liquidation or dissolution, the holder of each outstanding share of
common stock will be entitled to share ratably in the net assets of Alaron.com
available for distribution to that stockholder after the payment of debts and
other liabilities and after distributions to preferred stockholders, if any,
legally entitled to that distribution. Holders of common stock do not have any
preemptive or preferential rights to purchase or subscribe for any part of any
unissued or any additional authorized stock or any securities convertible into
shares of its stock. In addition, stockholders do not have redemption or
conversion rights. The outstanding shares of common stock are, and the
securities offered by this prospectus will be when issued and paid, fully paid
and nonassessable.
Under Nasdaq rules, from the balance of the approximately 18,172,800
authorized shares which will not be outstanding, we can issue at any one time
up to an additional 20% of the then outstanding common stock without getting
stockholder approval. Accordingly, we could at various times issue a
significant number of shares of common stock without stockholder approval. We
presently do not have any plans, agreements or undertakings involving the
issuance of any of these shares; however, we could use the issuance of these
shares as a method of discouraging, delaying or preventing a change in control
of Alaron.com. An issuance of additional shares could significantly dilute our
public ownership. This in turn could adversely affect the market price of our
securities. We may in the future issue additional shares.
Preferred Stock
Our board of directors is authorized to issue 10,000,000 shares of preferred
stock, $0.01 par value, without further stockholder approval. The preferred
stock may be issued in one or more series at a time or times and for
consideration as shall be authorized from time to time by the board of
directors. The board of directors is authorized to fix the designation of each
series of preferred stock and the relative rights, preferences, limitations,
qualifications, powers or restrictions thereof, including the number of shares
comprising each series, the dividend rates, redemption rights, rights upon
voluntary or involuntary liquidation, provisions with respect to a sinking
fund, conversion rights, voting rights, if any, other preferences,
qualifications, limitations, restrictions and the special or relative rights of
each series not inconsistent with the provisions of the certificate of
incorporation. We have no present plans to issue any shares of preferred stock.
Warrants
The following is a brief summary of certain provisions of the warrants. For
the complete terms, you should review the warrant and the warrant agreement
between Alaron.com Holding Corporation, National Securities Corporation and
American Stock Transfer & Trust Company. The warrant and the warrant agreement
are included in our registration statement filed with the SEC in connection
with this offering.
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<PAGE>
Exercise Price and Terms. Each warrant entitles you to purchase one share of
our common stock for $ per share (140% of the initial public offering
price of the common stock). The price is subject to adjustment in accordance
with certain provisions described below.
You may exercise a warrant at any time from the date of this prospectus
until the third anniversary of the date of this prospectus. You may not
exercise the warrants unless there is a current prospectus covering the
exercise of the warrants. We intend to keep this prospectus current for that
purpose.
You may exercise a warrant by surrendering the warrant certificate to the
warrant agent, with the subscription form on the reverse side of the warrant
certificate properly completed and signed, together with payment of the
exercise price. You may exercise the warrants at any time for all shares or
only some shares covered by the certificate.
Redemption. One year from the date of this prospectus, we may redeem the
warrants at $0.10 per warrant on 30 days' written notice. We may redeem the
warrants only if the closing bid price of the common stock, as quoted on the
Nasdaq SmallCap Market averages an amount equal to or exceeding $ (200%
of the public offering price of the common stock) per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. We cannot
redeem the warrants unless we have an effective registration statement for the
warrants at the time of redemption of the warrants. If we decide to redeem the
warrants, you may exercise your warrants until the close of business on the
redemption date. If you do not exercise any warrant before the close of
business on the redemption date, the warrant will no longer be exercisable and
you will be entitled only to $0.10 per warrant. Our redemption of the warrants
could force you either to:
. exercise the warrants and pay the exercise price at a time when it may
be less advantageous economically to do so, or
. accept $0.10 per warrant in consideration for cancellation of the
warrant, which could be substantially less than the market value of the
warrant
The exercise price of the warrants bears no relation to any objective
criteria of value. You should not consider the exercise price as an indication
of the future market price of the common stock.
We have reserved a sufficient number of shares of common stock to
accommodate the exercise of all warrants.
Adjustments. The exercise price and the number of shares of common stock
which may be purchased under a warrant are subject to adjustment upon the
occurrence of certain events. The events include:
. stock dividends
. stock splits
. stock combinations
. reclassifications of the common stock
Furthermore, in the event of a:
. consolidation or merger of Alaron.com
. sale of all or substantially all of our assets
the warrants will be exercisable for the kind and number of shares of stock or
other securities or property which you would have received had you exercised
the warrant before the consolidation, merger or sale. No adjustment to the
exercise price of the shares subject to the warrants will be made for dividends
(other than stock dividends), if any, paid on the common stock.
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<PAGE>
Transfer, Exchange and Exercise. The warrants will be registered in your
name and may be presented to the warrant agent for transfer, exchange or
exercise at any time prior to the expiration date. If a market for the warrants
develops, you may sell the warrants instead of exercising them. You cannot be
certain, however, that a market for the warrants will develop or continue. If
we are unable to qualify the shares of common stock underlying the warrants for
sale in a state in which you live, you will not be able to exercise the
warrants but will be required to sell them or allow them to expire.
Warrantholder Not a Stockholder. The warrants do not give you any voting or
any other rights as stockholders of Alaron.com.
Options
As of the date hereof, we have not granted any options to purchase shares of
common stock. A total of 1,050,000 shares of common stock are reserved for
future issuance for options granted under the 1999 Stock Option Plan and the
1999 Executive Stock Option Plan. Under an understanding between us and our
Chief Financial Officer, Robert S. Pagliuco, options to purchase 10,000 of the
shares of common stock reserved for future issuance under the Executive Plan
have been reserved for grant to Mr. Pagliuco immediately after the offering as
follows:
. options to purchase 5,000 shares of common stock at the initial public
offering price
. options to purchase 2,500 shares of common stock at 150% of the initial
public offering price
. options to purchase 2,500 shares of common stock at 200% of the initial
public offering price
In addition, under an understanding between us and our General Counsel,
Daniel F. Lazarus, options to purchase 20,000 shares of common stock reserved
for issuance under the Executive Plan have been reserved for grant to Mr.
Lazarus immediately after the offering as follows:
. options to purchase 10,000 shares of common stock at the initial public
offering price
. options to purchase 5,000 shares of common stock at 150% of the initial
public offering price
. options to purchase 5,000 shares of common stock at 200% of the initial
public offering price
Trading Symbol
We have applied for inclusion of our common stock and warrants on the Nasdaq
SmallCap Market under the symbol ALAR and ALARW. There is currently no public
trading market for our securities. Even if our securities are accepted for
quotation on the Nasdaq SmallCap Market, we cannot assure you that a public
trading market will ever develop or, if one develops, that it will be
maintained.
Anti-Takeover Effects of Our Certificate of Incorporation and By-laws
General. Certain provisions of our certificate of incorporation and by-laws
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt, including attempts that might result in a
premium being paid over the market price of the shares held by stockholders.
These provisions may not be amended in our certificate of incorporation or
bylaws without the affirmative vote of the holders of a majority of the
outstanding shares of common stock.
Special Meeting of Stockholders. Our certificate of incorporation and bylaws
provide that special meetings of our stockholders can be called only by the
board of directors, the Chairman or the President, or holders of a majority of
our outstanding voting stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our certificate of incorporation and by-laws provide that
stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
or special meeting of
44
<PAGE>
stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 60 days nor more than 90 days prior
to the meeting; provided, however, that in the event that less than 75 days'
notice of prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder, to be timely, must be received no
later than the close of business on the 15th day following the day on which the
notice of the date of the meeting was mailed or the public disclosure was made,
whichever is first. The by-laws also specify certain requirements as to the
content and form of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or
special meeting.
Transfer Agent and Warrant Agent
The Transfer Agent and Warrant Agent for our common stock and warrants is
American Stock Transfer & Trust Company, New York, New York.
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<PAGE>
Shares Eligible for Future Sale
Upon completion of the offering, we will have outstanding 11,827,199 shares
of common stock and warrants to purchase 1,728,000 shares of common stock. Of
these shares, the 1,500,000 shares of common stock and 1,500,000 warrants sold
in the offering and the 1,500,000 shares of common stock issuable upon exercise
of the warrants will be freely tradeable without restriction under the
Securities Act of 1933. The remaining 10,324,199 shares of common stock are
restricted securities as defined in Rule 144 and will become eligible for
public sale subject to the restrictions of Rule 144 commencing one year from
their date of acquisition.
In general, under Rule 144, if a period of at least one year has elapsed
since the later of the date the restricted shares were acquired from us and the
date they were acquired from an affiliate of ours, as that term is defined in
Rule 144, then the holder of the restricted securities (including an affiliate)
is entitled to sell a number of shares within any three-month period that does
not exceed the greater of 1% of the then outstanding shares of the common stock
or the average weekly reported volume of trading of the common stock during the
four calendar weeks preceding the sale. The holder may only sell the shares
through unsolicited brokers' transactions. Sales under Rule 144 are also
governed by certain requirements pertaining to the manner of the sales, notices
of the sales and the availability of current public information concerning us.
An affiliate may sell shares not constituting restricted shares in accordance
with the above volume limitations and other requirements but without regard to
the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted shares were acquired from us and the date they
were acquired from an affiliate, as applicable, a holder of these restricted
shares who is not an affiliate at the time of the sale and has not been an
affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described above.
Our directors and executive officers and 5% stockholders who own an
aggregate of 9,327,749 shares of common stock have entered into written
agreements not to sell, hedge or otherwise dispose of the shares of common
stock beneficially owned by them for 12 months after the date of this
prospectus without the consent of the Representative.
We can make no predictions as to the effect, if any, that sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the common
stock in the public market, or the perception that these sales may occur, could
adversely affect prevailing market prices.
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<PAGE>
Underwriting
Under certain terms and conditions contained in the underwriting agreement
among us, certain of our stockholders and National Securities Corporation, as
the representative of the underwriters (the "representative"), the underwriters
named below have severally agreed to purchase from us, and we have agreed to
sell to the several underwriters, the number of shares of common stock and
warrants set forth opposite their names below:
<TABLE>
<CAPTION>
Number of
Name of Underwriter Number of Shares Warrants
------------------- ---------------- ---------
<S> <C> <C>
National Securities Corporation................ 1,500,000 1,500,000
--------- ---------
Total...................................... 1,500,000 1,500,000
========= =========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the securities included in this offering are subject
to approval of certain legal matters by counsel and to various other
conditions. If any of the securities are purchased by the underwriters under
the underwriting agreement, all the securities (other than securities covered
by the over-allotment option described below) must be so purchased.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to certain
payments that the underwriters may be required to make in respect thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers or controlling persons, we have been
advised that in the opinion of the SEC the indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
The underwriters propose to offer the securities directly to the public at
$ per share and $ per warrant. The underwriters have advised us
that they will not engage in sales to discretionary accounts without the prior
specific written approval of the customer. The underwriters may allow certain
dealers, who are members of the NASD, concessions, not in excess of $
per share and $ per warrant of which not in excess of $ per share
and $ per warrant may be reallowed to other dealers who are members of
the NASD. The offering prices, reallowances and concessions will not be changed
until after this offering has been completed.
In connection with the offering, we will pay the underwriters $ per
share and $ per warrant ($ for all of the shares of common stock
and $ for all of the warrants) in underwriting discounts and commissions.
The amount paid by us to the underwriters is not affected by the exercise of
their option to purchase 225,000 additional shares of common stock and/or
225,000 additional warrants at the offering price of each less the underwriting
discount and commissions. If this over-allotment option is exercised in full:
. Steven A. Greenberg will sell up to 101,250 shares of common stock
and/or an additional 101,250 shares of common stock on exercise of the
warrants contained in the underwriters' over-allotment option
. The Greenberg Family Trust, with Joel W. Greenberg acting as trustee,
will sell up to 78,975 shares of common stock and/or 78,975 shares of
common stock on exercise of the warrants contained in the underwriters'
over-allotment option
. Michael A. Greenberg will sell up to 22,275 shares of common stock
and/or 22,275 shares of common stock on exercise of the warrants
contained in the underwriters' over-allotment option
. Carrie A. Greenberg will sell up to 22,500 shares of common stock and/or
22,500 shares of common stock on exercise of the warrants contained in
the underwriters' over-allotment option
. We will sell up to 225,000 warrants
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<PAGE>
If the underwriters exercise their over-allotment option in full or in part,
then each of the underwriters will be committed, subject to certain conditions,
to purchase the additional securities in approximately the same proportion as
set forth in the above table. The underwriters may exercise this option only to
cover over-allotments made in connection with the sale of the securities
offered in this prospectus.
We have agreed to pay the representative a non-accountable expense allowance
of 3% of the gross proceeds of this offering not including the over-allotment
option, of which $50,000 has been paid as of the date of this prospectus. We
have also agreed to pay the representative a non-accountable allowance of 3% of
the gross proceeds on exercise of the over-allotment option, if any. We have
also agreed to pay all expenses in connection with qualifying the securities
offered in this prospectus for sale under the laws of the states the
Representative designates, including expenses of counsel retained for that
purpose by the representative.
If the representative solicits the exercise of any warrants, to the extent
not inconsistent with the guidelines of the National Association of Securities
Dealers, Inc. and the rules and regulations of the SEC, we have agreed to pay
the representative a commission which shall not exceed 5% of the aggregate
exercise price of such warrants in connection with services provided in
connection with the warrant solicitation.
Our directors and executive officers and 5% stockholders who own an
aggregate of 9,327,749 shares of common stock have entered into written
agreements not to sell, hedge or otherwise dispose of any of their common
stock, options or warrants now owned or acquired later, for a period of 12
months from the date of this prospectus, without the prior written consent of
the representative.
Prior to this offering, there has been no public market for our securities.
Consequently, the initial public offering prices for the common stock and
warrants have been determined by negotiations between us and the underwriters
and is not necessarily related to our asset value, net worth or other
established criteria of value. The factors considered in these negotiations
included:
. prevailing market conditions
. history of and prospects for the industry in which we compete
. an assessment of our management
. prospects for our company
. our capital structure
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the common stock
and/or warrants. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, under which the
underwriters or selling group members may bid for or purchase the common stock
and/or warrants for the purpose of stabilizing the market price of the
securities.
The underwriters also may create a short position for the account of the
underwriters by selling more securities in connection with the offering than
they are committed to purchase from us and in that case may purchase our
securities in the open market following completion of the offering to cover all
or a portion of that short position.
The underwriters may also cover all or a portion of that short position, up
to 225,000 shares of common stock and/or 225,000 warrants, by exercising the
over-allotment option. In addition, the representative may impose penalty bids
under contractual arrangements with the underwriters, whereby it may reclaim
from an underwriter (or dealer participating in the offering) for the account
of other underwriters, the selling concession with respect to our securities
that are distributed in any offering but subsequently purchased for the account
of the underwriters in the open market. Any of the transactions described in
this paragraph may result in the maintenance of the price of the securities at
a level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
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<PAGE>
Under the securities laws of certain states, the securities may be sold in
those states only through registered or licensed broker-dealers or under
available exemptions from those requirements. In addition, in certain states
the securities may not be sold unless the securities have been registered or
qualified for sale in that state or an exemption from that requirement is
available and is complied with.
Underwriters' Warrants
We have agreed to sell to the representative and its designees for an
aggregate of $15.00, warrants (the "underwriters' warrants") to purchase up to
150,000 shares of common stock and/or 150,000 warrants at an exercise price of
$ per share (165% of the initial public offering price per share) and
$ per warrant (165% of the initial public offering price per warrant). The
underwriters' warrants may not be sold, transferred, assigned or hypothecated
for one year from the date of this prospectus, except to the officers and
partners of the representative and members of the underwriting syndicate and
selling group.
The underwriters' warrants are exercisable for warrants at any time and from
time to time, in whole or in part, during the two-year period commencing on the
first anniversary of closing date as defined in the underwriting agreement. In
addition, the underwriters' warrants are exercisable for common stock at any
time and from time to time, in whole or in part, during the four-year period
commencing on the first anniversary of the closing date. During the warrant
exercise terms, the holders of the underwriters' warrants are given, at nominal
cost, the opportunity to profit from a rise in the market price of the common
stock and/or warrants. To the extent that the underwriters' warrants are
exercised, dilution to the interests of our stockholders will occur. Further,
the terms upon which we will be able to obtain additional equity capital may be
adversely affected since the holders of the underwriters' warrants can be
expected to exercise them at a time when we would, in all likelihood, be able
to obtain any needed capital on terms more favorable to us than those provided
in the underwriters' warrants. Any profit realized by the underwriter on the
sale of the underwriters' warrants or the underlying securities may be deemed
additional underwriting compensation.
We have agreed, at the request of the holders of a majority of the
underwriters' warrants, at our expense (which may be substantial), to register
the underwriters' warrants and the securities underlying the underwriters'
warrants under the Securities Act on one occasion during the four-year period
commencing one year following the closing date.
Holders of the underwriters' warrants are protected against dilution of the
equity interest represented by the underlying securities upon the occurrence of
certain events including, but not limited to, stock dividends. The holders of
the underwriters' warrants have no voting, dividend or other rights as
stockholders with respect to the common stock and the warrants underlying the
underwriters' warrants until the underwriters' warrants and/or the warrants
underlying the underwriters' warrants have been exercised. We are obligated at
all times to set aside and have available a sufficient number of authorized but
unissued shares of common stock to be issued upon exercise of the underwriters'
warrants and the warrants underlying the underwriters' warrants.
The above does not purport to be a complete statement of the terms and
conditions of the underwriting agreement, copies of which are on file at the
offices of the underwriters, the Securities and Exchange Commission,
Washington, D.C., and the Chicago Regional Office of the Securities and
Exchange Commission, Chicago, Illinois.
Legal Matters
Wolin & Rosen, Ltd., 55 West Monroe Street, Chicago, Illinois, 60603, has
acted as counsel for the Company in connection with this offering and will pass
upon the legality of the securities offered in this prospectus. D'Ancona &
Pflaum LLC, 111 East Wacker Drive, Chicago, Illinois, 60601, has acted as
counsel for the underwriters in connection with this offering.
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<PAGE>
Wolin & Rosen, Ltd. is receiving up to 3,000 shares of common stock and
3,000 warrants as part of its legal fees. The firm may sell those shares of
common stock and warrants starting 60 days after the date of this prospectus,
or earlier if the underwriters allow it.
Experts
The consolidated financial statements of Alaron.com Holding Corporation,
both as of and for the years ended July 31, 1999 and 1998, included in the
registration statement and this prospectus, have been included herein in
reliance upon the report of Moore Stephens, P.C., independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Alaron Trading Company, both as of and for the
years ended July 31, 1998 and 1997, included in the registration statement and
this prospectus, have been included herein in reliance upon the report of Moore
Stephens, P.C., independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing.
Where You Can Find More Information
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2, including amendments, relating to the securities
offered by this prospectus. This prospectus does not contain all of the
information set forth in the Registration Statement and its accompanying
exhibits. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete; however,
all material information with respect to these contracts and documents are
disclosed in this prospectus. In each instance, we refer you to the copy of the
contract or other document filed as an exhibit to the Registration Statement,
each of those statements being qualified in all respects by the actual contract
or other document.
For further information with respect to us and the securities offered in
this prospectus, we refer you to the Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and will also be available for inspection and copying at
the regional offices of the SEC located at 7 World Trade Center, New York, New
York 10048 and at Citicorp Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of this material may also be obtained from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. This material may
also be accessed electronically by means of the Securities and Exchange
Commission's home page on the internet at http://www.sec.gov.
Following this offering, we will be governed by the reporting requirements
of the Securities Exchange Act of 1934 and, in accordance therewith, we will
file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission.
These reports, proxy statements and other information can be inspected and
copied at the public reference facilities of the Commission set forth above,
and copies of these materials can be obtained from the Commission's Public
Reference Section at prescribed rates. We intend to furnish our stockholders
with annual reports containing audited financial statements and any other
periodic reports we deem appropriate or as may be required by law.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Historical Financial Statements:
Report of Independent Auditors..................................... F-1
Consolidated Statement of Financial Condition as of July 31, 1999.. F-2
Consolidated Statements of Operations for the years ended July 31,
1999 and 1998..................................................... F-3
Consolidated Statements of Changes in Liabilities Subordinated to
Claims of General Creditors....................................... F-4
Consolidated Statements of Changes in Stockholders' Equity......... F-5
Consolidated Statements of Cash Flows for the years ended July 31,
1999 and 1998..................................................... F-6
Notes to Consolidated Financial Statements........................... F-7-F-14
ALARON TRADING COMPANY:
Report of Independent Auditors..................................... F-15
Statement of Financial Condition as of July 31, 1998............... F-16
Statements of Operations for the years ended July 31, 1998 and
1997.............................................................. F-17
Statements of Changes in Liabilities Subordinated to Claims of
General Creditors................................................. F-18
Statements of Changes in Stockholders' Equity...................... F-19
Statements of Cash Flows for the years ended July 31, 1998 and
1997.............................................................. F-20
Notes to Financial Statements...................................... F-21-F-26
</TABLE>
51
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Alaron.com Holding Corporation
Chicago, Illinois
We have audited the accompanying consolidated statement of financial
condition of Alaron.com Holding Corporation and subsidiary as of July 31, 1999,
and the related consolidated statements of operations, changes in liabilities
subordinated to claims of general creditors, changes in stockholders' equity
and cash flows for the years ended July 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material, respects, the financial position of Alaron.com
Holding Corporation and subsidiary as of July 31, 1999, and the results of its
operations and its cash flows for the years ended July 31, 1999 and 1998, in
conformity with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
September 10, 1999
F-1
<PAGE>
ALARON.COM HOLDING CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JULY 31, 1999.
<TABLE>
<S> <C>
Assets:
Cash and Cash Equivalents........................................ $ 2,258,019
Securities Owned................................................. 29,870,399
Due from Exchange Clearing Organization.......................... 153,381
Receivable from Customers [Net of Allowance of $565,000]......... 204,487
Furniture, Equipment and Leasehold Improvements--At Cost
[Net of Accumulated Depreciation and Amortization].............. 378,633
Other Assets..................................................... 210,778
Deferred Offering Costs.......................................... 75,451
-----------
Total Assets....................................................... $33,151,148
===========
Liabilities and Stockholders' Equity:
Liabilities:
Payable to Customers............................................. $26,775,453
Accrued Commissions.............................................. 570,830
Accounts Payable and Accrued Expenses............................ 677,453
Subordinated Borrowings--Related Party........................... 1,100,000
-----------
Total Liabilities.................................................. 29,123,736
-----------
Commitments and Contingent Liabilities............................. --
-----------
Stockholders' Equity:
Preferred Stock, 10,000,000 Shares Authorized,
$.01 Par Value, None Issued..................................... --
Common Stock, 30,000,000 Shares Authorized,
$.01 Par Value, 10,321,199 Shares Issued and Outstanding........ 103,212
Additional Paid-in Capital....................................... 9,640,451
Accumulated Deficit.............................................. (5,716,251)
-----------
Total Stockholders' Equity......................................... 4,027,412
-----------
Total Liabilities and Stockholders' Equity......................... $33,151,148
===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-2
<PAGE>
ALARON.COM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended July 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Commissions and Fees............................... $11,773,357 $12,053,658
Interest........................................... 1,034,218 1,341,301
Other Income....................................... 35,956 114,199
----------- -----------
Total Revenues..................................... 12,843,531 13,509,158
----------- -----------
Expenses:
Commissions........................................ 5,690,665 5,748,350
Employee Compensation and Related Benefits......... 2,605,531 3,015,802
Clearing Charges, Exchange Fees and Other Trade
Costs............................................. 1,962,981 2,551,977
Communications..................................... 747,518 550,114
Advertising and Marketing.......................... 887,509 609,004
Data Processing.................................... 609,815 688,364
Occupancy and Equipment Rental..................... 638,003 422,182
Bad Debt Expense................................... 103,837 465,000
Arbitration Settlements............................ 64,938 232,153
Interest Expense--Related Party.................... 130,831 117,627
Other Administrative Expenses...................... 482,287 546,269
----------- -----------
Total Expenses..................................... 13,923,915 14,946,842
----------- -----------
Net Loss........................................... $(1,080,384) $(1,437,684)
=========== ===========
Basic Net (Loss) Per Common Share.................. $ (.10) $ (.14)
=========== ===========
Diluted Net (Loss) Per Common Share................ $ (.10) $ (.14)
=========== ===========
Weighted Average Common Shares Outstanding--Basic.. 10,321,199 10,321,199
=========== ===========
Weighted Average Common Shares Outstanding--
Diluted........................................... 10,321,199 10,321,199
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-3
<PAGE>
ALARON.COM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN LIABILITIES SUBORDINATED TO CLAIMS OF
GENERAL CREDITORS
<TABLE>
<S> <C>
Subordinated Borrowings (Related Party) at July 31, 1997 ........... $ --
Maturities........................................................ --
Borrowings........................................................ 1,000,000
----------
Subordinated Borrowings (Related Party) at July 31, 1998............ 1,000,000
Maturities........................................................ --
Borrowings........................................................ 100,000
----------
Subordinated Borrowings (Related Party) at July 31, 1999............ $1,100,000
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-4
<PAGE>
ALARON.COM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred
Stock Common Stock Additional Total
------------- ----------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--July 31, 1997.. -- $-- 1,800,000 $ 5,667,521 $ -- $(3,198,183) $2,469,338
Issuance of Common
Stock.................. -- -- 176,285 84,265 -- -- 84,265
Capital Contributions... -- -- -- 1,157,984 -- -- 1,157,984
Capital Withdrawals..... -- -- -- (818,790) -- -- (818,790)
Assignment of Alaron
Trading Common Shares.. -- -- (1,976,285) (6,090,980) -- -- (6,090,980)
Issuance of Alaron.com
Common for Assignment
of Alaron Trading...... -- -- 8,893,283 88,933 6,002,047 -- 6,090,980
Net Loss................ -- -- -- -- -- (1,437,684) 1,437,684)
--- ---- ---------- ----------- ---------- ----------- ----------
Balance--July 31, 1998 . -- -- 8,893,283 88,933 6,002,047 (4,635,867) 1,455,113
Private Placement
Proceeds--Net of
Expenses............... -- -- 1,427,916 14,279 4,010,054 -- 4,024,333
Capital Contributions... -- -- -- -- 150,000 -- 150,000
Capital Withdrawals..... -- -- -- -- (521,650) -- (521,650)
Net Loss................ -- -- -- -- -- (1,080,384) (1,080,384)
--- ---- ---------- ----------- ---------- ----------- ----------
Balance--July 31, 1999.. -- $-- 10,321,199 $ 103,212 $9,640,451 $(5,716,251) $4,027,412
=== ==== ========== =========== ========== =========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-5
<PAGE>
ALARON.COM HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Operating Activities:
Net Loss.......................................... $ (1,080,384) $(1,437,684)
Adjustments to Reconcile Net Loss to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization................... 48,652 14,471
Provision for Doubtful Accounts................. 103,837 465,000
Issuance of Common Stock as Compensation........ -- 84,265
Changes in Assets and Liabilities:
[Increase] Decrease in:
Securities Owned.............................. (11,048,760) 7,349,537
Receivable from Clearing Broker............... (50,376) 669,685
Receivable from Customers..................... 4,338 (278,519)
Other Assets.................................. (153,475) (20,156)
Deferred Offering Cost........................ (74,451) --
Increase [Decrease] in:
Payable to Customers.......................... 7,913,441 (8,177,794)
Accounts Payable and Accrued Expenses......... 352,101 211,688
Accrued Commissions........................... 176,714 (52,495)
------------ -----------
Net Cash--Operating Activities.................... (3,808,363) (1,172,002)
------------ -----------
Investing Activities:
Purchase of Equipment............................. (211,722) --
------------ -----------
Financing Activities:
Private Placement Proceeds--Net of Costs.......... 4,024,333 --
Capital Contributions............................. 150,000 1,157,984
Capital Withdrawals............................... (521,650) (818,790)
Proceeds from Subordinated Borrowing--Related
Party............................................ 100,000 1,000,000
------------ -----------
Net Cash--Financing Activities...................... 3,752,683 1,339,194
------------ -----------
Net [Decrease] Increase in Cash and Cash
Equivalents...................................... (267,402) 167,192
Cash and Cash Equivalents--Beginning of Years....... 2,525,421 2,358,229
------------ -----------
Cash and Cash Equivalents--End of Years........... $ 2,258,019 $ 2,525,421
============ ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest........................................ $ 122,544 $ 117,627
Taxes........................................... $ -- $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-6
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Description of Business
Alaron.com Holding Corporation [the "Company"], was incorporated on December
4, 1998 [date of inception], under the laws of the State of Delaware [See Note
4]. Alaron.com Holdings Corporation has had no substantial operations since
inception. Alaron Trading Corporation ["ATC"] a wholly-owned subsidiary of the
Company incorporated in Illinois in 1989 and provides both "full" and
"discount" services to individual and corporate customers effecting
transactions in futures contracts and options. ATC is registered with the
Commodity Futures Trading Commission ["CFTC"] and the National Futures
Association ["NFA"]. Brokerage services provided by ATC are conducted through
branch offices in Florida, California, Illinois and New Jersey. Trading
activity is conducted through an omnibus account maintained with a clearing
member, who is a member of various commodity exchanges.
[2] Significant Accounting Policies
Principles of Consolidation--The accompanying financial statements include
operations of the Company's wholly-owned subsidiary, Alaron Trading
Corporation. All significant intercompany transactions have been eliminated in
consolidation.
Cash and Cash Equivalents--Cash and cash equivalents include highly liquid
instruments, with original maturities of less than ninety days, that are not
held for sale in the ordinary course of business.
Securities and Commodities Owned--Proprietary securities and commodities
transactions are recorded on the transaction date; positions are marked to
market with related gains and losses recognized currently in income. Gains and
losses on open commodity futures, options on futures contracts, and forward
contracts, which are marked to market, are recognized currently in income.
Depreciation and Amortization--Depreciation of furniture and equipment is
computed using the straight line method over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight line basis over the
lesser of the estimated useful lives of the assets or the lease term.
Income Recognition--Commissions and related expenses are recorded on a half-
turn basis for commodity futures and options transactions. Commission income is
presented net of commissions paid or accrued to introducing brokers.
Advertising--The Company expenses the production costs of advertising as the
costs are incurred.
Income Taxes--The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 ["SFAS 109"], "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Translation of Foreign Currencies--The Company accounts for its transactions
denominated in foreign currencies in accordance with Financial Accounting
Standards Board ["FASB"] SFAS No. 52, "Foreign Currency Translation." Assets
and liabilities denominated in foreign currencies are translated at year-end
rates of exchange, while the income statement accounts are translated at the
rate at time of trade. Gains or losses resulting from foreign currency
transactions are included in net income.
F-7
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates in the Preparation of Financial Statements--The
preparation of financial statements in conformity with generally accepted
accounting principles ["GAAP"] and prevailing industry practices require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements as well as
the reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
Reclassification--Certain previously reported amounts have been
reclassified to conform with current period presentation.
Earnings Per Share--The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings per
Share", which is effective for financial statements issued for periods ending
after December 15, 1997. Basic earnings per share is based on the weighted
average number of common shares outstanding without consideration of common
stock equivalents. Diluted earnings per share is based on the weighted average
number of common and common equivalent shares outstanding. The calculation
takes into account the shares that may be issued upon exercise of stock
options, reduced by the shares that may be purchased with the funds received
from the exercise, based on the average price during the year. For fiscal
years presented, diluted net income per common share is the same as basic net
income per common share.
Stock Options and Similar Equity Instruments--On January 1, 1996, the
Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," for stock options and similar equity instruments
[collectively "Options"] issued to employees and directors, however, the
Company will continue to apply the intrinsic value based method of accounting
for options issued to employees prescribed by Accounting Principles Board
["APB"] Opinion No. 25, "Accouning for Stock Issued to Employees" rather than
the fair value based method of accounting prescribed by SFAS No. 123. SFAS No.
123 also applies to transactions in which an entity issues its equity
instruments to acquire goods and services from non-employees. Those
transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
[3] Description of Securities
The authorized capital stock of the Company consists of 30,000,000 shares
of common stock, $.01 par value per share and 10,000,000 shares of preferred
stock, $.01 par value per share. The common stock carries no conversion rights
and is not subject to redemption or to any sinking fund provisions. All shares
of common stock are entitled to share equally in dividends from sources
legally available therefore when, as and if declared by the Board of Directors
and, upon liquidation or dissolution of the Company, whether voluntary or
involuntary, to share equally in the assets of the Company available for
distribution to stockholders.
In June 1999, the Company declared a 3-for-2 stock split. All share data
have been retroactively adjusted.
[4] Business Combinations
The Company entered into share assignment and contribution agreements dated
in April 1999 [the "Stock Assignment Agreement"] with the shareholders of ATC,
to accept the assignment and contribution of all issued and outstanding common
stock of ATC. The merger was structured as a tax-free reorganization and was
accounted for at historical cost in a manner similar to the pooling-of-
interests method of accounting. It is intended that ATC will operate as
wholly-owned subsidiary of the Company.
The accompanying consolidated financial statements are based on the
assumption that the companies were combined for the full year and financial
statements for July 31, 1998 have been restated to give effect to the
combination.
F-8
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
[5] Fair Value of Financial Instruments
Substantially all of the Company's assets and liabilities are considered
financial instruments as defined by SFAS No. 107. The financial instruments of
the Company are reported in the financial statements at market or fair value,
or at amounts that approximate fair value because of their short maturity. The
fair value estimate of the Company's subordinated borrowings approximate the
current rates offered to the Company with substantially the same
characteristics and maturities.
[6] Assets Segregated or Held in Separate Accounts Under Federal or Other
Regulations
Included in the statement of financial condition are assets segregated or
held in separate accounts under the Commodity Exchange Act and other domestic
regulations as follows:
<TABLE>
<CAPTION>
July 31,
1999
-----------
<S> <C>
Cash and Cash Equivalents.................................... $ 233,236
Securities Owned............................................. 27,192,113
-----------
Total Segregated Assets.................................... $27,425,349
===========
</TABLE>
[7] Receivables from and Payables to Customers
Receivables from and payables to customers represent balances arising in
connection with commodities transactions, including gains and losses on open
commodity futures contracts. Marketable, customer-owned securities, consisting
primarily of U.S. Government securities, are held by the Company as collateral
for receivables from customers. Customer-owned securities held by the Company
and the net value of customers' options on futures positions are not reflected
in the consolidated statement of financial condition. A portion of these
securities has been deposited as margin with exchange clearing organizations.
[8] Securities Owned
The components of securities owned, at market value, are as follows:
<TABLE>
<CAPTION>
July 31,
1999
-----------
<S> <C>
Overnight Investments........................................ $19,700,610
U.S. Treasury Obligations.................................... 10,169,789
-----------
Total...................................................... $29,870,399
===========
</TABLE>
Overnight investments represent the simultaneous purchase and resale of U.S.
Treasury obligations with same day settlement on the purchase and next day
settlement on the resale.
[9] Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
Estimated
July 31, Useful
1999 Lives
-------- ---------
<S> <C> <C>
Office Equipment....................................... $195,475 5 yrs
Leasehold Improvements................................. 356,192 5-10 yrs
Furniture and Fixtures................................. 14,473 7 yrs
--------
Total................................................ 566,140
Less: Accumulated Depreciation and Amortization...... 187,507
--------
Net.................................................... $378,633
========
</TABLE>
F-9
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation expense of $48,652 and $14,471 was recorded for the years ended
July 31, 1999 and 1998, respectively.
[10] Liabilities Subordinated to Claims of General Creditors
Liabilities subordinated to claims of general creditors at July 31, 1999
represent a $1,100,000 borrowing from a stockholder pursuant to a subordinated
loan agreement. The borrowing provides for interest at the rate of 12.50%
percent per annum. Approximately $1,000,000 of the subordinated debt matures in
September 1999 with the remaining $100,000 maturing February 2000. [See Note
22]
Subordinated stockholder borrowings are available in computing adjusted net
capital under the minimum capital requirements. To the extent that such
borrowings are required for the Company's continued compliance with minimum net
capital requirements, they may not be repaid.
For the years ended July 31, 1999 and 1998, the Company recorded $130,831
and $101,000, respectively, in interest expense related to the subordinated
borrowing.
"NFA" has approved this borrowing as acceptable regulatory capital. These
liabilities are subordinated to the claims of present and future general
creditors, and the loan agreements provide that the notes cannot be repaid if
such repayments will cause the Company to fail to meet the financial
requirements established by the CFTC.
[11] Income Taxes
The Company has net operating loss carryovers of approximately $495,000, as
of July 31, 1999, expiring in the years 2000 through 2015. However, utilization
of the loss carryovers is subject to Internal Revenue regulations where the
corporation has issued substantial additional stock. Accordingly, a portion of
this loss carryover may not be available to the Company.
Generally accepted accounting principles require the establishment of a
deferred tax asset for all deductible temporary differences and operating loss
carryforwards. The deferred tax asset attributable to operating loss
carryforwards amounted to approximately $198,000 at July 31, 1999. However, due
to continued loss from operations, any deferred tax asset established for
utilization of the Company's tax loss carryforwards would correspondingly
require a valuation allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these financial statements.
[12] Commitments and Contingencies
Financial instruments sold, not yet purchased, represent obligations of the
Company to deliver specified financial instruments or commodities at contracted
prices, thereby creating commitments to purchase the financial instruments or
commodities in the markets at the prevailing prices. Consequently, the
Company's ultimate obligation to satisfy the sale of financial instruments
sold, not yet purchased, may exceed the amounts recognized in the statement of
financial condition.
F-10
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company leases office space and equipment under lease agreements, two of
which are from an entity affiliated through common ownership, expiring December
31, 2004. At July 31, 1999, the aggregate minimum annual rental commitments
under the leases, exclusive of additional payments that may be required for
certain increases in operating expenses and taxes, are as follows:
<TABLE>
<CAPTION>
Years Ending
July 31, Affiliate Other Amount
- ------------ ---------- -------- ----------
<S> <C> <C> <C>
2000............................................. $ 350,000 $ 58,818 $ 408,818
2001............................................. 360,400 44,533 404,933
2002............................................. 371,216 21,942 393,158
2003............................................. 292,465 -- 292,465
Thereafter....................................... 152,082 -- 152,082
---------- -------- ----------
Totals........................................... $1,526,163 $125,293 $1,651,456
========== ======== ==========
</TABLE>
Rent expense for the years ended July 31, 1999 and 1998 was $395,002 and
$194,430, respectively. This includes $340,000 and $108,134 paid to an
affiliate for the years ended July 31, 1999 and 1998, respectively.
Various legal actions are pending against the Company, many involving
ordinary routine litigation incidental to the business. In the opinion of
management, after consultation with outside counsel, it is not anticipated that
the ultimate liability, if any, in excess of amount currently recorded, will
have a material effect on the financial condition, results of operations or
liquidity of the Company. Nevertheless, due to uncertainties inherent in the
legal process, it is at least reasonably possible that management's view of the
outcome will change in the near term.
Stock Option Plan and Executive Stock Option Plan--The Company adopted a
stock option plan [the "Plan"] and Executive Stock Option Plan [the "Executive
Plan"] in April 1999. The Plan authorizes the grant of options to purchase up
to an aggregate of 700,000 shares of its common stock to all full-time salaried
or commissioned employees of the Company. The Executive Plan authorizes the
grant of options to purchase up to an aggregate of 350,000 share of the
Company's common stock to all executive officers and members of the Board of
Directors.
Stock options granted to purchase common stock under the Plan and the
Executive plan at a price are to be determined by the compensation committee of
the Board of Directors but may not be less than the fair market value of the
common stock. The exercise price of incentive stock options granted to persons
owning more than ten percent of the outstanding voting stock of the Company
must be at 110% of the fair market value of the common stock on the date of the
grant. The maximum number of shares for which options may be granted under the
Plan and the Executive Plan during any calendar year to any single recipient
may not exceed 35,000.
Employment Agreements--In April 1999, the Company entered into five-year
employment agreements with each principal stockholder of the Company. Each
employment agreement will automatically renew for additional one year terms.
The agreements provide for an aggregate of $706,000 to be paid as base
salaries during the first year of employment. Individually each employment
agreements provides for first year compensation ranging between $50,000 to
$200,000. Annual base compensation may be increased in an amount to be
determined by the Board of Directors but must be increased by at least 5% of
the base salary of the prior year for each succeeding year.
F-11
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each agreement also provides for annual incentive bonuses equal to a
percentage of income in excess of $1,000,000.
Consulting Agreement--The Company entered into a consulting agreement for
the implementation of new trading software. Terms of the agreement provide for
an estimated project cost of $100,000 which is expected to be completed by
September 1999.
[13] Private Placement
In May through July 1999, Prime Asset Management ["Prime"] acted as a
distributor of a foreign private placement of 993,450 shares of the Company's
common stock at a sales price of $4.50 per share. The sale of these shares was
not registered. Prime received 434,466 shares of the Company's common stock for
being distributor of the placement. In addition, Prime received warrants to
purchase 600,000 shares of the Company's common stock at $7.50 per share. If
Prime exercises the warrants, the shares of common stock will come from
holdings of certain significant shareholders and not from the Company. Prime's
warrants will expire on the earlier of three years after the date of the
prospectus or 45 days after the closing price for the Company's common stock
being at or above $11.25 for at least 20 out of 30 consecutive trading days.
In connection with the private placement, a placement agent will receive a
finders fee of 10% of the gross proceeds of the private placement.
[14] Related Party Transactions
An entity affiliated through common ownership introduces customers to the
Company. The affiliate operates under an introducing broker clearing agreement
with ATC substantially similar to those ATC has with unaffiliated guaranteed
introducing brokers.
[15] Off-Balance-Sheet Risk and Concentration of Credit Risk
The Company is a futures commission merchant responsible for the credit risk
of the customers it introduces to, and which are carried on an omnibus basis on
the books of, its clearing broker. The Company's customers are primarily
individual investors, some of whom are introduced to the Company by introducing
brokers. To reduce its risk, the Company requires its customers to meet, at a
minimum, the greater of the margin requirements established by each of the
exchanges at which contracts are traded or the margin requirement established
by its clearing broker. In addition, the Company has entered into agreements
for accounts originating from other introducing brokers whereby such amounts
are guaranteed by these brokers. Margin is a good faith deposit from the
customer, which reduces risk to the Company of failure on behalf of the
customer to fulfill any obligation under these contracts. To minimize its
exposure to risk of loss due to market variation, the Company adjusts these
margin requirements as needed. Customers may also be required to deposit
additional funds, securities or other collateral. As a result of market
variation, the Company may satisfy margin requirements by liquidating certain
customer positions. Management believes the margin deposits and collateral held
at July 31, 1999 were adequate to minimize the risk of material loss that could
be created by positions held at that time.
The Company enters into various transactions with futures commission
merchants and other financial institutions. In the event counterparties do not
fulfill their obligations, the Company may be exposed to risk. The risk of
default depends on the creditworthiness of the counterparties to these
transactions. It is the Company's policy to monitor the creditworthiness of
each counterparty with which it conducts business.
[16] Concentrations of Credit
As a futures commission merchant, the Company is engaged in brokerage
activities whose counterparties primarily include individual investors, broker-
dealers, banks, and other financial institutions. The Company's
F-12
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exposure to credit risk associated with nonperformance of the customers in
fulfilling their contractual obligations pursuant to futures transactions can
be directly affected by volatile trading markets that may impair the customer's
ability to satisfy their obligations to the Company. It is the Company's policy
to review, as necessary, the credit standing of each counterparty with which it
conducts business.
The Company does not anticipate nonperformance by clients or counterparties
in the preceding situations. If either a customer or a counterparty fails to
perform, the Company may be required to discharge the obligation of the
nonperforming party and, in such circumstances, the Company may sustain a loss.
The Company has a policy of reviewing, as considered necessary, the credit
standing of each counterparty with which it conducts business.
At July 31, 1999, the Company maintained cash balances (excluding repurchase
agreements) of approximately $2,600,000 in excess of FDIC insured limits.
[17] Pension Plan
Effective January 1999, the Company offered a 401(K) Pension Plan [the
"Plan"] to full-time employees who have completed one year of service. Eligible
employees may make elective contributions which are capped and subject to an
annual cost of living adjustment ["COLA"]. The Company may make matching
contributions in an amount that will be discretionary and determined by the
Company each year. Contributions made for the year ended July 31, 1999 were
$12,700.
[18] Net Capital Requirements
The Company is subject to the minimum capital rules of several commodity
regulatory organizations. Under the more restrictive of these rules, the
Company is required to maintain "adjusted net capital" equivalent to the
greater of $250,000 or 4 percent of its "funds required to be segregated for
the net capital computation," as these terms are defined. Adjusted net capital
and funds required to be segregated for the net capital computation change from
day to day, but at July 31, 1999, the Company had adjusted net capital and
adjusted net capital requirements of approximately $3,164,929. Regulatory net
capital requirements may effectively restrict the payment of cash dividends,
the repayment of subordinated loans [Note 11], and the withdrawal of capital.
[19] New Authoritative Pronouncements
In June 1998, the Financial Accounting Standards Board ["FASB"] issued
Statement of Financial Accounting Standards ["SFAS"] No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 is not expected to have a
material impact on the Company.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprises." SFAS No. 134 is not expected to have a
material impact on the Company.
In February 1999, the FASB issued SFAS No. 135, which is a recission of SFAS
No. 75, "Deferral of the Effective Date of Certain Accounting Requirements for
Pension Plans of State and Local Government Units" SFAS No. 135 is not expected
to have a material impact on the Company.
The FASB has had on its agenda a project to address certain practice issues
regarding Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for
Stock Issued to Employees." The FASB plans on issuing various interpretations
of APB Opinion No. 25 to address these practice issues. The proposed effective
date of these interpretations would be the issuance date of the final
Interpretation, which is expected to be in
F-13
<PAGE>
ALARON.COM HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
October 1999. If adopted, the Interpretation would be applied prospectively but
would be applied to plan modification and grants that occur after December 15,
1998. The FASB's tentative interpretations are as follows:
. APB Opinion No. 25 has been applied in practice to include in its
definition of employees, outside members of the board or directors and
independent contractors. The FASB's interpretation of APB Opinion No. 25
will limit the definition of an employee to individuals who meet the
common law definition of an employee [which also is the basis for the
distinction between employees and nonemployees in the current U.S. tax
code]. Outside members of the board of directors and independent
contractors would be excluded from the scope of APB Opinion No. 25
unless they qualify as employees under common law. Accordingly, the cost
of issuing stock options to board members and independent contractors
not meeting the common law definition of an employee will have to be
determined in accordance with FASB Statement No. 123, "Accounting for
Stock-Based Compensation," and usually recorded as an expense in the
period of the grant [the service period could be prospective, however,
depending on the terms of the options].
. Options [or other equity instruments] of a parent company issued to
employees of a subsidiary should be considered options, etc. issued by
the employer corporation in the consolidated financial statements and
accordingly, APB Opinion No. 25 should continue to be applied in such
situations. This interpretation would apply to subsidiary companies
only; it would not apply to equity method investees or joint ventures.
. If the terms of an option [originally accounted for as a fixed option]
are modified during the option term to directly change the exercise
price, the modified option should be accounted for as a variable option.
Variable grant accounting should be applied to the modified option from
the date of the modification until the date of exercise. Consequently,
the final measurement of compensation expense would occur at the date of
exercise. The cancellation of an option and the issuance of a new option
with a lower exercise price shortly thereafter [for example, within six
months] to the same individual should be considered in substance a
modified [variable] option.
. Additional interpretations will address how to measure compensation
expense when a new measurement date is required.
[20] Proposed Public Offering
The Company has entered into a letter of intent with an underwriter to which
the underwriter will purchase from the Company on a firm commitment basis of
1,500,000 shares of common stock and 1,500,000 redeemable common stock purchase
warrants, each to purchase one share of common stock at an estimated price of
$14.00 per share.
Warrants are exercisable during the three year period commencing with the
effective date of the proposed public offering. The warrants are redeemable
under certain conditions. Proceeds to the Company after underwriters commission
and other cost are expected to be $14,200,000. There can be no assurance that
the proposed public offering will be consummated.
[21] Subsequent Events
In August 1999, the Company issued 3,000 additional private placement
shares, to an individual investor, for net proceeds of $12,150.
[22] Subsequent Events--Unaudited (Subsequent to Date of Report of Independent
Auditors)
In October 1999, the Company repaid $1,000,000 of subordinated borrowings.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Alaron Trading Corporation
Chicago, Illinois
We have audited the accompanying statement of financial condition of Alaron
Trading Corporation as of July 31, 1998, and the related statements of
operations, changes in liabilities subordinated to claims of general creditors,
changes in stockholders' equity and cash flows for the years ended July 31,
1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material, respects, the financial position of Alaron Trading Corporation
as of July 31, 1998, and the results of its operations and its cash flows for
the years ended July 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 12, 1999
F-15
<PAGE>
ALARON TRADING COMPANY
STATEMENT OF FINANCIAL CONDITION AS OF JULY 31, 1998.
<TABLE>
<S> <C>
Assets:
Cash and Cash Equivalents....................................... $ 2,525,421
Securities Owned................................................ 18,821,639
Due from Exchange Clearing Organization......................... 103,005
Receivable from Customers [Net of Allowance of $453,112]........ 312,662
Furniture, Equipment and Leasehold Improvements--At Cost [Net of
Accumulated Depreciation and Amortization]..................... 216,564
Other Assets.................................................... 57,303
-----------
Total Assets.................................................... $22,036,594
===========
Liabilities and Stockholders' Equity:
Liabilities:
Payable to Customers............................................ $18,862,013
Accrued Commissions............................................. 394,116
Accounts Payable and Accrued Expenses........................... 325,352
-----------
Total Liabilities............................................... 19,581,481
-----------
Subordinated Borrowings--Related Party............................ 1,000,000
-----------
Commitments and Contingent Liabilities............................ --
-----------
Stockholders' Equity:
Common Stock, No Par Value; 20,000,000 Shares Authorized,
1,976,285 Shares Issued and Outstanding........................ 6,090,980
Accumulated Deficit............................................. (4,635,867)
-----------
Total Stockholders' Equity...................................... 1,455,113
-----------
Total Liabilities and Stockholders' Equity...................... $22,036,594
===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-16
<PAGE>
ALARON TRADING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended
July 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Commissions and Fees............................... $12,053,658 $11,046,203
Interest........................................... 1,341,301 1,148,476
Other Income....................................... 114,199 109,915
----------- -----------
Total Revenues..................................... 13,509,158 12,304,594
----------- -----------
Expenses:
Commissions........................................ 5,690,665 5,668,973
Employee Compensation and Related Benefits......... 3,015,802 2,800,355
Clearing Charges, Exchange Fees and Other Trade
Costs............................................. 2,551,977 2,040,188
Communications..................................... 550,114 537,729
Advertising and Marketing.......................... 609,004 531,488
Data Processing.................................... 688,364 458,067
Occupancy and Equipment Rental..................... 422,182 262,681
Bad Debt Expense................................... 465,000 366,507
Arbitration Settlements............................ 232,153 78,154
Interest Expense--Related Party.................... 117,627 --
Other Administrative Expenses...................... 546,269 513,774
----------- -----------
Total Expenses..................................... 14,946,842 13,257,916
----------- -----------
Net Loss........................................... $(1,437,684) $ (953,322)
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-17
<PAGE>
ALARON TRADING COMPANY
STATEMENTS OF CHANGES IN LIABILITIES SUBORDINATED TO CLAIMS OF
GENERAL CREDITORS
<TABLE>
<S> <C>
Subordinated Borrowings (Related Party) at July 31, 1996 $ --
Maturities........................................................ --
Borrowings........................................................ --
----------
Subordinated Borrowings (Related Party) at July 31, 1997 --
Maturities........................................................ --
Borrowings........................................................ 1,000,000
----------
Subordinated Borrowings (Related Party) at July 31, 1998 $1,000,000
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-18
<PAGE>
ALARON TRADING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Total
-------------------- Accumulated Stockholders'
Shares Amount Deficit Equity
--------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance--July 31, 1996......... 1,800,000 $4,341,846 $(2,244,861) $ 2,096,985
Capital Contributions........ -- 1,325,675 -- 1,325,675
Net Loss..................... -- -- (953,322) (953,322)
--------- ---------- ----------- -----------
Balance--July 31, 1997......... 1,800,000 5,667,521 (3,198,183) 2,469,338
Issuance of Common Stock..... 176,285 84,265 -- 84,265
Capital Contributions........ -- 1,157,984 -- 1,157,984
Capital Withdrawals.......... -- (818,790) -- (818,790)
Net Loss..................... -- -- (1,437,684) (1,437,684)
--------- ---------- ----------- -----------
Balance--July 31, 1998......... 1,976,285 $6,090,980 $(4,635,867) $ 1,455,113
========= ========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-19
<PAGE>
ALARON TRADING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Operating Activities:
Net Loss............................................ $(1,437,684) $ (953,322)
Adjustments to Reconcile Net Loss to Net Cash [Used
for] Operating Activities:
Depreciation and Amortization..................... 14,471 10,564
Provision for Doubtful Accounts................... 465,000 366,507
Issuance of Common Stock as Compensation.......... 84,265 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Securities Owned.................................. 7,349,537 (8,404,054)
Receivable from Clearing Broker................... 669,685 (241,503)
Receivable from Customers......................... (278,519) (384,787)
Other Assets...................................... (20,156) 2,973
Increase [Decrease] in:
Payable to Customers.............................. (8,177,794) 8,915,189
Accounts Payable and Accrued Expenses............. 211,688 (166,217)
Accrued Commissions............................... (52,495) 100,240
----------- ----------
Net Cash--Operating Activities...................... (1,172,002) (754,410)
----------- ----------
Investing Activities:
Purchase of Equipment............................... -- (11,939)
----------- ----------
Financing Activities:
Capital Contributions............................... 1,157,984 1,325,675
Capital Withdrawals................................. (818,790) --
Proceeds from Subordinated Borrowing--Related Party. 1,000,000 --
----------- ----------
Net Cash--Financing Activities........................ 1,339,194 1,325,675
----------- ----------
Net Increase in Cash and Cash Equivalents........... 167,192 559,326
Cash and Cash Equivalents--Beginning of Years......... 2,358,229 1,798,903
----------- ----------
Cash and Cash Equivalents--End of Years............. $ 2,525,421 $2,358,229
=========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest.......................................... $ 117,627 $ --
Taxes............................................. $ -- $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
F-20
<PAGE>
ALARON TRADING CORPORATION
NOTES TO FINANCIAL STATEMENTS
[1] Description of Business
Alaron Trading Corporation [the "Company"] is an Illinois corporation
organized in 1989 and provides both "full" and "discount" services to
individual and corporate customers effecting transactions in futures contracts
and options. The Company is registered with the Commodity Futures Trading
Commission ["CFTC"] and the National Futures Association ["NFA"]. Trading
activity is conducted through an omnibus account maintained with a clearing
member, who is a member of various commodity exchanges.
[2] Significant Accounting Policies
Cash and Cash Equivalents--Cash and cash equivalents include highly liquid
instruments, with original maturities of less than ninety days, that are not
held for sale in the ordinary course of business.
Securities and Commodities Owned--Proprietary securities and commodities
transactions are recorded on the transaction date; positions are marked to
market with related gains and losses recognized currently in income. Gains and
losses on open commodity futures, options on futures contracts, and forward
contracts, which are marked to market, are recognized currently in income.
Depreciation and Amortization--Depreciation of furniture and equipment is
computed using the straight line method over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight line basis over the
lesser of the estimated useful lives of the assets or the lease term.
Income Recognition--Commissions and related expenses are recorded on a half-
turn basis for commodity futures and options transactions. Commission income is
presented net of commissions paid or accrued to introducing brokers.
Advertising--The Company expenses the production costs of advertising as the
costs are incurred.
Income Taxes--The Company has elected to be taxed as an "S corporation"
under provisions of the Internal Revenue Code. Under those provisions, the
stockholders are liable for individual federal income taxes on their respective
share of the Company's taxable income. Therefore, no provision or liability is
established for federal income taxes in the Company's financial statements. Due
to net losses incurred, pro forma income tax information is not presented as it
would not be significantly different from actual results of the Company.
Translation of Foreign Currencies--The Company accounts for its transactions
denominated in foreign currencies in accordance with Financial Accounting
Standards Board ["FASB"] Statement of Financial Accounting Standards No. 52,
["SFAS"] "Foreign Currency Translation." Assets and liabilities denominated in
foreign currencies are translated at year-end rates of exchange, while the
income statement accounts are translated at the rate at time of trade. Gains or
losses resulting from foreign currency transactions are included in net income.
Use of Estimates in the Preparation of Financial Statements-- The
preparation of financial statements in conformity with generally accepted
accounting principles ["GAAP"] and prevailing industry practices require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements as well as
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Reclassification-- Certain previously reported amounts have been
reclassified to conform with current period presentation.
F-21
<PAGE>
ALARON TRADING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
[3] Fair Value of Financial Instruments
Substantially all of the Company's assets and liabilities are considered
financial instruments as defined by SFAS No. 107. The financial instruments of
the Company are reported in the financial statements at market or fair value,
or at amounts that approximate fair value because of their short maturity. The
fair value estimate of the Company's subordinated borrowings approximate the
current rates offered to the Company with substantially the same
characteristics and maturities.
[4] Assets Segregated or Held in Separate Accounts Under Federal or Other
Regulations
Included in the statement of financial condition are assets segregated or
held in separate accounts under the Commodity Exchange Act and other domestic
regulations as follows:
<TABLE>
<CAPTION>
July 31,
1998
-----------
<S> <C>
Cash and Cash Equivalents.................................... $ 555,447
Securities Owned............................................. 18,406,062
-----------
Total Segregated Assets.................................... $18,961,509
===========
</TABLE>
[5] Receivables from and Payables to Customers
Receivables from and payables to customers represent balances arising in
connection with commodities transactions, including gains and losses on open
commodity futures contracts. Marketable, customer-owned securities, consisting
primarily of U.S. Government securities, are held by the Company as collateral
for receivables from customers. Customer-owned securities held by the Company
and the net value of customers' options on futures positions are not reflected
in the consolidated statement of financial condition. A portion of these
securities has been deposited as margin with exchange clearing organizations.
[6] Securities Owned
The components of securities owned, at market value, are as follows:
<TABLE>
<CAPTION>
July 31,
1998
-----------
<S> <C>
Overnight Investments........................................ $10,517,682
U.S. Treasury Obligations.................................... 8,270,319
Marketable Equity Securities................................. 33,638
-----------
Total...................................................... $18,821,639
===========
</TABLE>
Overnight investments represent the simultaneous purchase and resale of U.S.
Treasury obligations with same day settlement on the purchase and next day
settlement on the resale.
[7] Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
July 31, Estimated
1998 Useful Lives
--------- ------------
<S> <C> <C>
Leasehold Improvements............................ $ 339,643 5-10 yrs
Furniture and Equipment........................... 78,977 5-7 yrs
Less: Accumulated Depreciation and Amortization... (202,056)
---------
Net............................................. $ 216,564
=========
</TABLE>
F-22
<PAGE>
ALARON TRADING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
[7] Furniture, Equipment and Leasehold Improvements [continued]
Depreciation expense of $14,471 and $10,564 was recorded for the years ended
July 31, 1998 and 1997, respectively.
[8] Liabilities Subordinated to Claims of General Creditors
Liabilities subordinated to claims of general creditors at July 31, 1998
represent a $1,000,000 borrowing from a stockholder pursuant to a subordinated
loan agreement. The borrowing provides for interest at the rate of 12.50%
percent per annum and was renewed subsequent to July 31, 1998 to mature in
September 1999.
Subordinated stockholder borrowings are available in computing adjusted net
capital under the minimum capital requirements. To the extent that such
borrowings are required for the Company's continued compliance with minimum net
capital requirements, they may not be repaid.
For the year ended July 31, 1998, the Company recorded $101,000 in interest
expense related to the subordinated borrowing.
"NFA" has approved this borrowings as acceptable regulatory capital. These
liabilities are subordinated to the claims of present and future general
creditors, and the loan agreements provide that the notes cannot be repaid if
such repayments will cause the Company to fail to meet the financial
requirements established by the CFTC.
[9] Commitments and Contingencies
Financial instruments sold, not yet purchased, represent obligations of the
Company to deliver specified financial instruments or commodities at contracted
prices, thereby creating commitments to purchase the financial instruments or
commodities in the markets at the prevailing prices. Consequently, the
Company's ultimate obligation to satisfy the sale of financial instruments
sold, not yet purchased, may exceed the amounts recognized in the statement of
financial condition.
The Company leases office space and equipment under lease agreements, two of
which are from an affiliate, expiring December 31, 2004. At July 31, 1998, the
aggregate minimum annual rental commitments under the leases, exclusive of
additional payments that may be required for certain increases in operating
expenses and taxes, are as follows:
<TABLE>
<CAPTION>
Years Ending July 31, Affiliate Other Amount
--------------------- ---------- -------- ----------
<S> <C> <C> <C>
1999....................................... $ 340,000 $ 63,042 $ 403,042
2000....................................... 350,000 58,818 408,818
2001....................................... 360,400 44,533 404,933
2002....................................... 371,216 21,942 393,158
2003....................................... 292,465 -- 292,465
Thereafter................................. 152,082 -- 152,082
---------- -------- ----------
Totals..................................... $1,866,163 $188,335 $2,054,498
========== ======== ==========
</TABLE>
Rent expense for the year ended July 31, 1998 and 1997 was $194,430 and
$140,000, respectively. This includes $108,134 paid to an affiliate for the
year ended July 31, 1998, respectively.
Various legal actions are pending against the Company, many involving
ordinary routine litigation incidental to the business. In the opinion of
management, after consultation with outside counsel, the ultimate liability, if
any, in excess of amount currently recorded, will not have a material effect on
the financial condition, results of operations or liquidity of the Company.
F-23
<PAGE>
ALARON TRADING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
[10] Related Party Transactions
An entity affiliated through common ownership introduces customers to the
Company. For the years ended July 31, 1998 and 1997, net commissions from
customers introduced to the Company by this affiliate were approximately
$519,000 and $723,000, respectively.
[11] Off-Balance-Sheet Risk and Concentration of Credit Risk
The Company is a futures commission merchant responsible for the credit risk
of the customers it introduces to, and which are carried on an omnibus basis on
the books of, its clearing broker. The Company's customers are primarily
individual investors, some of whom are introduced to the Company by introducing
brokers. To reduce its risk, the Company requires its customers to meet, at a
minimum, the greater of the margin requirements established by each of the
exchanges at which contracts are traded or the margin requirement established
by its clearing broker. In addition, the Company has entered into agreements
for accounts originating from other introducing brokers whereby such amounts
are guaranteed by these brokers. Margin is a good faith deposit from the
customer, which reduces risk to the Company of failure on behalf of the
customer to fulfill any obligation under these contracts. To minimize its
exposure to risk of loss due to market variation, the Company adjusts these
margin requirements as needed. Customers may also be required to deposit
additional funds, securities or other collateral. As a result of market
variation, the Company may satisfy margin requirements by liquidating certain
customer positions. Management believes the margin deposits and collateral held
at July 31, 1998 were adequate to minimize the risk of material loss that could
be created by positions held at that time.
The Company enters into various transactions with futures commission
merchants and other financial institutions. In the event counterparties do not
fulfill their obligations, the Company may be exposed to risk. The risk of
default depends on the creditworthiness of the counterparties to these
transactions. It is the Company's policy to monitor the creditworthiness of
each counterparty with which it conducts business.
[12] Concentrations of Credit
As a futures commission merchant, the Company is engaged in brokerage
activities whose counterparties primarily include investors, broker-dealers,
banks, and other financial institutions. The Company's exposure to credit risk
associated with nonperformance of the customers in fulfilling their contractual
obligations pursuant to futures transactions can be directly affected by
volatile trading markets that may impair the customer's ability to satisfy
their obligations to the Company. It is the Company's policy to review, as
necessary, the credit standing of each counterparty with which it conducts
business.
The Company does not anticipate nonperformance by clients or counterparties
in the preceding situations. If either a customer or a counterparty fails to
perform, the Company may be required to discharge the obligation of the
nonperforming party and, in such circumstances, the Company may sustain a loss.
The Company has a policy of reviewing, as considered necessary, the credit
standing of each counterparty with which it conducts business.
[13] Net Capital Requirements
The Company is subject to the minimum capital rules of several commodity
regulatory organizations. Under the more restrictive of these rules, the
Company is required to maintain "adjusted net capital" equivalent to the
greater of $250,000 or 4 percent of its "funds required to be segregated for
the net capital computation," as these terms are defined. Adjusted net capital
and funds required to be segregated for the net
F-24
<PAGE>
ALARON TRADING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
capital computation change from day to day, but at July 31, 1998 and 1997, the
Company had adjusted net capital and adjusted net capital requirements of
approximately $2,134,000 and $915,000, respectively. Regulatory net capital
requirements may effectively restrict the payment of cash dividends, the
repayment of subordinated loans [Note 8], and the withdrawal of capital.
[14] Prior Period Adjustment
The Company has recorded an adjustment for an error in initially
depreciating its leaseholds improvements over a tax life versus the life of the
related lease term. This resulted in the Company understating the depreciation
expense for the year ended July 31, 1997 in the amount of $23,182. During the
year ended July 31, 1998, the Company recorded a charge of approximately
$110,000 to adjust accumulated amortization for lower depreciation expense
recorded in prior years. This resulted in an excess charge of approximately
$86,817 being incurred in operations for the year ended July 31, 1998. The
adjustment did not have any effect on income taxes for the period ended July
31, 1998 and 1997. The balance sheet, statement of operations, stockholders'
equity, and cash flow have been restated to reflect this adjustment.
[15] New Authoritative Pronouncements
The FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating
segments are reported in annual financial statements and requires the reporting
of selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pension and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 is not expected to have a material
impact on the Company.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprises." SFAS No. 134 is not expected to have a
material impact on the Company.
In February 1999, the FASB issued SFAS No. 135, which is a recission of SFAS
No. 75, "Deferral of the Effective Date of Certain Accounting Requirements for
Pension Plans of State and Local Government Units" SFAS No. 135 is not expected
to have a material impact on the Company.
The FASB has had on its agenda a project to address certain practice issues
regarding Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for
Stock Issued to Employees." The FASB plans on issuing various interpretations
of APB Opinion No. 25 to address these practice issues. The proposed effective
F-25
<PAGE>
ALARON TRADING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
date of these interpretations would be the issuance date of the final
Interpretation, which is expected to be in September 1999. If adopted, the
Interpretation would be applied prospectively but would be applied to plan
modification and grants that occur after December 15, 1998. The FASB's
tentative interpretations are as follows:
. APB Opinion No. 25 has been applied in practice to include in its
definition of employees, outside members of the board or directors and
independent contractors. The FASB's interpretation of APB Opinion No. 25
will limit the definition of an employee to individuals who meet the
common law definition of an employee [which also is the basis for the
distinction between employees and nonemployees in the current U.S. tax
code]. Outside members of the board of directors and independent
contractors would be excluded from the scope of APB Opinion No. 25
unless they qualify as employees under common law. Accordingly, the cost
of issuing stock options to board members and independent contractors
not meeting the common law definition of an employee will have to be
determined in accordance with FASB Statement No. 123, "Accounting for
Stock-Based Compensation," and usually recorded as an expense in the
period of the grant [the service period could be prospective, however,
depending on the terms of the options].
. Options [or other equity instruments] of a parent company issued to
employees of a subsidiary should be considered options, etc. issued by
the employer corporation in the consolidated financial statements and
accordingly, APB Opinion No. 25 should continue to be applied in such
situations. This interpretation would apply to subsidiary companies
only; it would not apply to equity method investees or joint ventures.
. If the terms of an option [originally accounted for as a fixed option]
are modified during the option term to directly change the exercise
price, the modified option should be accounted for as a variable option.
Variable grant accounting should be applied to the modified option from
the date of the modification until the date of exercise. Consequently,
the final measurement of compensation expense would occur at the date of
exercise. The cancellation of an option and the issuance of a new option
with a lower exercise price shortly thereafter [for example, within six
months] to the same individual should be considered in substance a
modified [variable] option.
. Additional interpretations will address how to measure compensation
expense when a new measurement date is required.
[16] Subsequent Events
In February 1999, the Company borrowed $100,000 from a stockholder pursuant
to a subordinated loan agreement. The borrowing provides for interest at the
rate of 12.50% percent per annum and is scheduled to mature in February 2000.
The NFA has approved this borrowing as acceptable regulatory capital.
In April 1999, shareholders of the Company entered into an assignment and
contribution agreement with Alaron.com Holding Corporation. This agreement
provides for all outstanding common shares of the Company to be transferred to
Alaron.com Holding Corporation. Accordingly, the Company will operate as a
wholly-owned subsidiary of Alaron.com.
F-26
<PAGE>
[Inside Back Cover]
[Presentation of pages from www.alaron.com]
[Text: Free quotes, charts, future news and daily research.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,500,000 Shares of Common Stock
1,500,000 Redeemable Common Stock Purchase Warrants
[LOGO OF ALARON.COM HOLDING CORPORATION]
----------------
PROSPECTUS
, 1999
----------------
National Securities Corporation
----------------
Until , 1999 (25 days after the date of this
prospectus), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation eliminates the personal
liability of directors to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty to the extent permitted by the DGCL. The
Registrant's Certificate of Incorporation and By-Laws provide that the
Registrant shall indemnify its officers and directors to the extent permitted
by Subsection 145 of the DGCL, which authorizes a corporation to indemnify
directors, officers, employees or agents of the Corporation in non-derivative
suits if the party acted in good faith and in a manner the party reasonably
believed to be in or not opposed to the best interest of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Subsection 145 further provides that
indemnification shall be provided if the party in question is successful on
the merits or otherwise.
Reference is made to the caption "Management--Limitation of Liability and
Indemnification" in the prospectus which is a part of this Registration
Statement for a description of indemnification arrangements between the
Registrant and its directors.
The form of Underwriting Agreement, included as Exhibit 1.1, provides for
indemnification of the Registrant and certain controlling persons under
certain circumstances, including liabilities under the Securities Act of 1933,
as amended ("Securities Act"). Insofar as indemnification for liabilities
under the Securities Act may be permitted to directors, officers or persons
controlling the Registrant under the above provisions of the Underwriting
Agreement, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission this type of indemnification is against
public policy as expressed in the Securities Act and therefore is
unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses of the distribution, all of which are to be borne by
the Registrant, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 13,089
*NASD Fee....................................................... 2,300
*Nasdaq Fees.................................................... 10,000
*Blue Sky Fees and Expenses..................................... 29,000
*Transfer Agent Fees............................................ 5,000
*Accounting Fees and Expenses................................... 45,000
*Legal Fees and Expenses........................................ 110,000
*Underwriters' Non-Accountable Expense Allowance................ 450,000
*Printing and Engraving Expenses................................ 75,000
*Miscellaneous Fees and Expenses................................ 60,611
--------
Total....................................................... $800,000
========
</TABLE>
- --------
*All amounts are estimates.
Item 26. Recent Sales of Unregistered Securities.
In December, 1998, the Registrant was organized and filed its Certificate
of Incorporation with the Secretary of State of the State of Delaware. In
connection with this organization, Steven A. Greenberg received 3,645,000
shares of common stock of the Registrant, Michael A. Greenberg received
801,900 shares of common stock of the Registrant, Joel W. Greenberg, as
Trustee of the Greenberg Family Trust, received 2,843,100 shares of common
stock of the Registrant, Carrie A. Greenberg received 810,000 shares of common
stock of the Registrant, Joel W. Greenberg received 704,349 shares of common
stock of the Registrant and
II-1
<PAGE>
Barry S. Isaacson received 88,934 shares of common stock of the Registrant. All
amounts reflect the three-for-two stock split in June, 1999.
In April, 1999, Steven A. Greenberg, Michael A. Greenberg, Carrie A.
Greenberg and the Greenberg Family Trust contributed all of the outstanding
stock of Alaron Trading Corporation to Alaron.com in a tax-free transfer.
In May through August 1999, the Registrant privately sold 996,450 shares of
common stock at a price of $4.50 per share to 45 European investors. The sale
of these shares was not registered and, in accordance with the requirements of
Regulation S of the Securities and Exchange Commission, these shares cannot be
resold in United States markets or to United States citizens for at least one
year from their issuance and thereafter they may be sold only if they are
registered or are eligible for an exemption from United States registration.
Each investor has certified to the Registrant each investor's understanding and
agreement to those requirements.
In connection with the placement, the Registrant agreed to pay Robert Stein,
an associated person of the Registrant, a finder's fee of 10% of the gross
proceeds ($426,803) and Prime Asset Management AG of Frankfurt, Germany,
received 434,466 shares of the Registrant's common stock as the distributor of
the European placement. The shares issued to Prime Asset Management AG are
governed by the same Regulation S restrictions on resale as are the shares sold
to the 45 investors in Europe.
Each of the above transactions was exempt from registration under the
Securities Act of 1933, as amended, under the provisions of Section 4(2)
thereof as not involving a public offering, and with respect to the European
private placement transacted in May through August 1999, Regulation S under the
Securities Act for offers and sales made outside the United States. With
respect to each transaction, no person acting on the Registrant's behalf
offered or sold securities by means of any form of general solicitation or
general advertising.
Item 27. Exhibits.
<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
3.1 Compiled Certificate of Incorporation of Alaron.com
Holding Corporation as filed December 3, 1993, as amended
March 17, 1999 and May 5, 1999
3.2 By-laws of Alaron.com Holding Corporation*
3.3 Articles of Incorporation of Alaron Trading Corporation
and amendment*
3.4 By-laws of Alaron Trading Corporation*
4.1 Form of Certificate for Common Stock of Alaron.com Holding
Corporation*
4.2 Form of Representative's Warrant Agreement
4.3 [withdrawn]
4.4 Form of Warrant Agreement including Form of Warrant
Certificate, among Alaron.com Holding Corporation,
National Securities Corporation and American Stock
Transfer & Trust Company
5.1 Opinion and consent of Wolin & Rosen, Ltd.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.1 Assignment, Contribution and Acknowledgment for transfers
of shares of Alaron Trading Corporation to Alaron.com
Corporation*
10.2 Employment Agreement dated March 1, 1999, between the
Registrant and Steven A. Greenberg*
10.3 Employment Agreement dated March 1, 1999, between the
Registrant and Michael A. Greenberg*
10.4a Employment Agreement dated March 1, 1999, between the
Registrant and Carrie A. Greenberg*
10.4b Amendment to Employment Agreement dated March 1, 1999,
between the Registrant and Carrie A. Greenberg
10.5a Employment Agreement dated March 1, 1999, between the
Registrant and Barry S. Isaacson*
10.5b Amendment to Employment Agreement dated March 1, 1999,
between the Registrant and Barry S. Isaacson
10.6 Employment Agreement dated March 1, 1999, between the
Registrant and Joel W. Greenberg*
10.7 Omnibus Clearing Agreement between Alaron Trading
Corporation and The LIT Division of E.D. &F. Man, Inc.,
dated October 11, 1996*
10.8 Lease dated August 1, 1994 for premises located at 822
West Washington Blvd., Chicago, Illinois, between Alaron
Development, L.L.C. and Alaron Trading Corporation*
10.9 Lease dated October 6, 1997 for premises located at 633
Skokie Boulevard, Northbrook, Illinois, between Alanorth,
L.L.C. and The Takiff Properties Group, Ltd.*
10.10 Lease dated July 1, 1998 for premises located at 660 S.
Federal Highway, Pompano Beach, Florida, between Alaron
Development, L.L.C. and Alaron Trading Corporation*
10.11 Lease dated September 1, 1998 for premises located at 442
Post Street, San Francisco, California, between Kinta
Haller and Alaron Trading Corporation*
10.12 Lease dated November 1, 1998 for premises located at 191
Woodport Road, Sparta, New Jersey, between J&K Realty,
Inc. and Alaron Trading Corporation*
10.13a 1999 Employee Stock Option Plan*
10.13b 1999 Executive Stock Option Plan*
10.14 Software License Agreement between Alaron Trading
Corporation and Rolfe & Nolan (USA) Inc. dated January 1,
1998*
10.15 Service Bureau Operation Agreement between Alaron Trading
Corporation and Rolfe & Nolan (USA), Inc. dated January 1,
1998*
10.16 Form of Guaranteed Introducing Broker Agreement*
10.17a Cash Subordinated Loan Agreement and Amendment between
Joel W. Greenberg and Alaron Trading Corporation dated
September 8, 1997*
10.17b Cash Subordinated Loan Agreement between Joel W. Greenberg
and Alaron Trading Corp. dated February 16, 1999*
10.18 [withdrawn]
10.19 Form of Regulation S Certification regarding European
private placement*
10.20 Form of Purchaser's Subscription and Acknowledgment
regarding European private placement*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
21 List of Subsidiaries+
23.1 Consent of Moore Stephens, P.C. (page II-5)
23.2 Consent of Wolin & Rosen, Ltd. (included in Exhibit 5.1)+
24 Power of Attorney with respect to certain signatures in
the Registration Statement*
</TABLE>
- --------
*Filed previously.
+To be filed by amendment.
Item 28. Undertakings.
(a) For determining any liability under the Securities Act, the registrant
will treat the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(b) For determining any liability under the Securities Act, the registrant
will treat each post-effective amendment that contains a form of prospectus as
a new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
(c) The registrant will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in this
registration statement; and
(iii) to include any additional or changed material information on the
plan of distribution.
(d) The registrant will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(e) The registrant will provide to the Representative of the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Representative of
the Underwriters to permit prompt delivery to each purchaser.
(f) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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.
(g) In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (SEC
File No. 333-83807) of our report dated September 10, 1999, on our audits of
the financial statements of Alaron.com Holding Corporation and of our report
dated February 12, 1999, on our audits of the financial statements of Alaron
Trading Corporation. We also consent to the reference to our firm under the
caption "Experts."
/s/ Moore Stephens, P.C.
By: _________________________________
Moore Stephens, P.C.
Certified Public Accountants
New York, New York
October 12, 1999
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago, State of Illinois, on the 12th day of
October, 1999.
Alaron.Com Holding Corporation
/s/ Steven A. Greenberg
By: _________________________________
Steven A. Greenberg
President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Form SB-2 Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Steven A. Greenberg President and Director October 12, 1999
____________________________________ (Principal Executive
Steven A. Greenberg Officer)
* Chairman of the Board of October 12, 1999
____________________________________ Directors
Joel W. Greenberg
* Director and Executive Vice October 12, 1999
____________________________________ President (Principal
Carrie A. Greenberg Financial Accounting
Officer)
* Director and Chief Operating October 12, 1999
____________________________________ Officer
Barry S. Isaacson
/s/ Robert S. Pagliuco Principal Financial Officer October 12, 1999
____________________________________
Robert S. Pagliuco
</TABLE>
/s/ Steven A. Greenberg
*By: _____________________
Steven A. Greenberg
attorney-in-fact
II-6
<PAGE>
Registration No. 333-83807
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
to
AMENDMENT NO. 1
TO FORM SB-2 REGISTRATION STATEMENT
of
ALARON.COM HOLDING CORPORATION
----------------
As filed with the Securities and Exchange Commission
on October 12, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
3.1 Compiled Certificate of Incorporation of Alaron.com Holding
Corporation as filed December 3, 1993, as amended March 17,
1999 and May 5, 1999
4.2 Form of Representative's Warrant Agreement
4.4 Form of Warrant Agreement including Warrant Certificate, among
Alaron.com Holding Corporation, National Securities
Corporation and American Stock Transfer & Trust Company
10.4b Amendment to Employment Agreement dated March 1, 1999, between
the Registrant and Carrie A. Greenberg
10.5b Amendment to Employment Agreement dated March 1, 1999, between
the Registrant and Barry S. Isaacson
23.1 Consent of Moore Stephens, P.C. (page II-5)
</TABLE>
<PAGE>
Exhibit 1.1
DRAFT 10/7/99
1,500,000 Shares of Common Stock and
1,500,000 Redeemable Common Stock Purchase Warrants
ALARON.COM HOLDING CORPORATION
UNDERWRITING AGREEMENT
New York, New York
__________, 1999
National Securities Corporation
As Representative of the Several Underwriters
875 North Michigan Avenue
Suite 1560
Chicago, IL 60611
Ladies and Gentlemen:
Alaron.com Holding Corporation, a Delaware corporation (the "Company"),
hereby agrees with National Securities Corporation ("National") and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 11), for whom National is acting as representative (in such capacity,
National shall hereinafter be referred to as "you" or the "Representative") with
respect to the sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of 1,500,000 shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), and 1,500,000 redeemable warrants
(the "Warrants," and collectively with the Common Stock, the "Firm Securities").
Each Warrant is to purchase one (1) share of Common Stock at an exercise price
of $________ (140% of the initial public offering price of a share of Common
Stock) exercisable at any time over a thirty-six-month period from _______, ____
until ________, ____ pursuant to a Warrant Agreement, as defined herein, to be
entered into on the Closing Date (as defined in Section 2(c) hereof). The Firm
Securities may be purchased in the offering only on the basis of one share of
Common Stock together with one Warrant. Immediately following the offering, the
Common Stock and Warrants will be separately transferable.
The Warrants will be redeemable by the Company at time after _______, 2000
at a redemption price of $0.10 per Warrant on thirty (30) days' prior written
notice provided that the average of the closing bid price of the Common Stock,
as quoted on the [Nasdaq SmallCap Market] averages an amount equal to or
exceeding $_____ (200% of the initial public offering price of the Common Stock)
per share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the notice of
redemption.
In addition, upon your request, as provided in Section 2(b) of this
Agreement, certain shareholders hereof of the Company listed on Exhibit B (the
"Selling Shareholders") hereby agree that they shall sell to the Underwriters,
acting severally and not jointly, up to 225,000
<PAGE>
shares of Common Stock for the purpose of covering over-allotments, if any. In
addition, the Company hereby agrees that it shall sell to the Underwriters,
acting severally and not jointly, up to 225,000 Warrants for the purpose of
covering over-allotments, if any. The Selling Shareholders further hereby agree
to provide the 225,000 common shares underlying the Warrants subject to the
over-allotment option. The 225,000 shares of Common Stock, 225,000 Warrants
subject to the over-allotment option and the 225,000 shares of Common Stock
underlying the Warrants are hereinafter referred to as the "Option Securities."
The Company also proposes to issue and sell to you pursuant to the
Representative's Warrant Agreement (the "Representative's Warrant Agreement")
warrants for the purchase of an additional 150,000 shares of Common Stock and
warrants for the purchase additional 150,000 Warrants (collectively, the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $_______ per share (165% of the initial public
offering price of a share of Common Stock) and $_____ per Warrant (165% of the
initial public offering price of a Warrant), respectively. The Representative's
Warrants are exercisable for Warrants for a period of thirty-six (36) months
commencing on the Closing Date. The Representative's Warrants are exercisable
for Common Stock for a period of sixty (60) months commencing on the Closing
Date. The shares of Common Stock and the Warrants underlying the
Representative's Warrants, and the shares of Common Stock underlying the
Warrants issuable upon exercise of the Representative's Warrants, are
hereinafter referred to as the "Representative Securities." The Firm Securities,
Option Securities, Representative's Warrants, and Representative's Securities
are more fully described in the Registration Statement and the Prospectus
referred to below.
1. Representations and Warranties of the Company and the Selling Shareholders.
--------------------------------------------------------------------------
A. The Company and the Selling Shareholders represent and warrant to, and
agree with, each of the Underwriters as of the date hereof, and as of the
Closing Date and the Option Closing Date, if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (SEC File No. 333-83807), including any related
preliminary prospectus (the "Preliminary Prospectus"), and a related
registration statement filed with the Commission pursuant to Rule 462(b) of the
Regulations (as defined below) for the registration of the Firm Securities, the
Option Securities, the Common Stock underlying the Warrants contained in the
Units, the Representative's Warrants and the Representative's Shares
(collectively, hereinafter referred to as the "Registered Securities") under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity with the
requirements of the Act, and the Regulations (as defined below) of the
Commission under the Act. The Company will not file any other amendment thereto
to which the Underwriters shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statements as amended, on file with the Commission at the time the
registration statements become effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
or incorporated therein and all information deemed to be a part thereof as of
such time pursuant to paragraph (b) of Rule 430(A) of the Regulations), are
hereinafter called the "Registration Statement," and the form of prospectus in
the form first filed with the Commission
2
<PAGE>
pursuant to Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any of the Preliminary Prospectus,
the Registration Statement or the Prospectus or any part thereof, and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, 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 Regulations, and none of the
Preliminary Prospectus, the Registration Statement or the Prospectus at the time
of filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or 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 in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined in Section 2(c) hereof)
and each Option Closing Date (as defined in Section 2(b) hereof), if any, and
during such longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus, as amended or supplemented as required, will
contain all statements which are required to be stated therein in accordance
with the Act and the Regulations, and will conform in all material respects to
the requirements of the Act and the Regulations; neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto.
(d) The Company and all subsidiaries in which it owns an interest, direct
or indirect (the "Subsidiaries"), have been duly organized and are validly
existing as corporations in good standing under the laws of the respective
states of their incorporation. The Company does not own or control, directly or
indirectly, any corporation, partnership, trust, joint venture or other business
entity other than the subsidiaries listed in Exhibit 21 of the Registration
Statement. Each of the Company and the Subsidiaries is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations require such qualification or licensing. Each of the Company and the
Subsidiaries 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; each of the Company and the
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Subsidiaries 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;
and neither the Company nor any of the Subsidiaries has 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 business affairs, operations, properties, or
results of operations of the Company and the Subsidiaries, taken as a whole. The
disclosures in the Registration Statement concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the Company's and the
Subsidiaries' businesses 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 headings
"Capitalization" and "Description of Securities," and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement,
including, but not limited to, any voting trust agreement, stockholders
agreement or other agreement or instrument, affecting the Common Stock or rights
or obligations of security holders of the Company or the Subsidiaries or
providing for any of the Company or the Subsidiaries to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement, the
Representative's Warrant Agreement and as described in the Prospectus. The
Registered Securities and all other securities issued or issuable by each of the
Company or the Subsidiaries conform or, when issued and paid for, will conform,
in all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding shares of
capital stock of the Company or any of the Subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
disclosed in or contemplated by the Prospectus and the financial statements of
the Company and the related notes thereto included in the Prospectus, neither
the Company nor any Subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements and the options or
other rights granted and exercised thereunder as set forth in the Prospectus
conforms in all material respects with the requirements of the Act. All issued
and outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and the holders thereof have no
rights of rescission with respect thereto and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company.
(f) The Registered Securities are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and will conform in all
material respects to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as such holders; all
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corporate action required to be taken for the authorization, issue and sale of
the Registered Securities has been duly and validly taken; and the certificates
representing the Registered Securities will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Registered Securities
to be sold by the Company hereunder, the Underwriters or the Representative, as
the case may be, will acquire good and marketable title to such Registered
Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect, or other restriction or equity of any kind
whatsoever. No stockholder of the Company has any right which has not been
waived in writing to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and sale of
the Registered Securities to be sold by the Company as contemplated herein.
(g) The financial statements of each of the Company and the Subsidiaries,
together with the related notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus fairly
present the financial position, changes in stockholders' equity and the results
of operations of the Company and the Subsidiaries at the respective dates and
for the respective periods to which they apply and such financial statements
have been prepared in conformity with generally accepted accounting principles
and the Regulations, consistently applied throughout the periods involved. There
has been no material adverse change or development involving a material
prospective change in the condition, financial or otherwise, or in the business,
affairs, operations, properties, or results of operation of the Company and the
Subsidiaries taken as a whole whether or not arising in the ordinary course of
business since the date of the financial statements included in the Registration
Statement and the Prospectus and the outstanding debt, the property, both
tangible and intangible, and the business of the Company and the Subsidiaries
taken as a whole conform in all respects to the descriptions thereof contained
in the Registration Statement and the Prospectus. Financial information set
forth in the Prospectus under the headings "Prospectus Summary -- Summary
Combined Financial Information," "Capitalization," "Selected Financial Data,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," fairly present, on the basis stated in the Prospectus, the
information set forth therein and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus.
(h) Each of the Company and the Subsidiaries has (i) paid all federal,
state, local, franchise, and foreign taxes for which it is liable, including,
but not limited to, withholding taxes and amounts payable under Chapters 21
through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), and
furnished all information returns it is required to furnish pursuant to the
Code, (ii) established adequate reserves for such taxes which are not due and
payable, and (iii) no tax deficiency or claims outstanding, proposed or assessed
against it.
(i) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters or the Representative in connection with (i) the
issuance by the Company of the Registered Securities, the Representative's
Warrants and the Representative's Shares, (ii) the purchase by the Underwriters
of the Registered Securities from the Company and the purchase by the
Representative of the Representative's Warrants or the Representative's Shares
from the Company, (iii) the consummation by the Company of any of its
obligations under this
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Agreement, the Warrant Agreement or the Representative's Warrant Agreement, or
(iv) resales of the Registered Securities in connection with the distribution
contemplated hereby.
(j) Each of the Company and the Subsidiaries maintains insurance policies,
including, but not limited to, general liability, property and product liability
insurance and surety bonds which insures the Company and the Subsidiaries and
their respective professional staffs against such losses and risks generally
insured against by comparable businesses. Neither the Company nor any of the
Subsidiaries has (A) failed to give notice or present any insurance claim with
respect to any matter, including, but not limited to, the Company's or any of
the Subsidiaries' businesses, property or professional staff, under any
insurance policy or surety bond in a due and timely manner, (B) any disputes or
claims against any underwriter of such insurance policies or surety bonds or has
failed to pay any premiums due and payable thereunder, or (C) failed to comply
with all conditions contained in such insurance policies and surety bonds. There
are no facts or circumstances under any such insurance policy or surety bond
which would relieve any insurer of its obligation to satisfy in full any valid
claim of the Company or any of the Subsidiaries.
(k) There is no claim, action, suit, proceeding, inquiry, arbitration,
mediation, investigation, litigation, governmental or other proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
businesses of, the Company or any of the Subsidiaries which (i) questions the
validity of the capital stock of the Company or any of the Subsidiaries, this
Agreement, the Warrant Agreement or the Representative's Warrant Agreement, or
of any action taken or to be taken by the Company or any of the Subsidiaries or
any of the Selling Shareholders pursuant to or in connection with this
Agreement, the Warrant Agreement or the Representative's Warrant Agreement, (ii)
is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the business,
affairs, position, stockholders' equity, operation, properties, or results of
operations of the Company and the Subsidiaries taken as a whole.
(l) The Company has the full legal right, corporate power and authority to
authorize, issue, deliver, and sell the Registered Securities and to enter into
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, and to consummate the transactions provided for in such agreements;
and this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement have each been duly and properly authorized, executed, and delivered
by the Company. Each of this Agreement, the Warrant Agreement and the
Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with
their respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law), and none of the Company's issue and sale of the Registered Securities,
execution, delivery or performance of this Agreement, the Warrant Agreement and
the Representative's Warrant Agreement, the consummation of the transactions
contemplated herein and therein, or the conduct by the Company and the
Subsidiaries of their businesses as described in the Registration Statement, the
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Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
or any of the Subsidiaries pursuant to the terms of (i) the certificates of
incorporation or bylaws of the Company or any of the Subsidiaries, as amended
and restated, (ii) any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or credit agreement
or any other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of them may be bound or to which their
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness of either the Company or any of the Subsidiaries, or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
or any of the Subsidiaries of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company of any of their
activities or properties.
(m) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement, and
the transactions contemplated hereby and thereby, including without limitation,
any waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Registered Securities,
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 the Underwriters'
purchase and distribution of the Registered Securities to be sold hereunder.
(n) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company or any of the Subsidiaries is a
party or by which any of them may be bound or to which either of their assets,
properties or businesses may be subject have been duly and validly authorized,
executed and delivered by the Company or any of the Subsidiaries, as the case
may be, and constitute the legal, valid and binding agreements of the Company or
any of the Subsidiaries, as the case may be, enforceable against the Company or
any of the Subsidiaries, as the case may be, 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). The descriptions in
the Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
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(o) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus, neither the Company nor any of the
Subsidiaries (i) has incurred any material liabilities or obligations, indirect,
direct or contingent, or entered into any material verbal or written agreement
or other transaction which is not in the ordinary course of business or which
could result in a material reduction in the future earnings of the Company or
any of the Subsidiaries; (ii) has sustained any material loss or interference
with its business or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) has paid or declared any
dividends or other distributions with respect to its capital stock, (iv) is in
default in the payment of principal or interest on any outstanding debt
obligations; (v) has had any change in its capital stock (other than upon the
sale of the Firm Securities, the Option Securities, the Representative's
Warrants, the Common Stock and Warrants underlying the Representative's
Warrants, and the Common Stock underlying the Warrants underlying the
Representative Warrants described in the Registration Statement) (other than in
the ordinary course of business) of, or indebtedness material to, the Company or
any of the Subsidiaries; (vi) has issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed money; or (vii) has
experienced any material adverse change in the condition (financial or
otherwise) of their respective businesses, properties, results of operations, or
prospects.
(p) Except as disclosed in or specifically contemplated by the Prospectus,
(i) the Company and the Subsidiaries have sufficient trademarks, trade names,
patent rights, copyrights, licenses, approvals and governmental authorizations
to conduct their respective businesses as now conducted; (ii) the expiration of
any trademarks, trade names, patent rights, copyrights, licenses, approvals or
governmental authorizations would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company or any of the Subsidiaries; (iii) the Company has no knowledge of
any infringement by it or its subsidiaries of trademark, trade name rights,
patent rights, copyrights, licenses, trade secret or other similar rights of
others; and (iv) there is no claim being made against the Company or any of the
Subsidiaries regarding trademark, trade name, patent, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company or any of the Subsidiaries.
(q) None of the Company or any of the Subsidiaries are, or with the giving
of notice or lapse of time or both, will be, in violation of or in default under
their respective charters or bylaws, and no default exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit agreement,
or any other material agreement or instrument evidencing an obligation for
borrowed money, or any other material agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound or to which the property or assets (tangible or
intangible) of the Company or any of the Subsidiaries are subject or affected.
(r) To the Company's knowledge, there are no pending investigations
involving the Company or any of the Subsidiaries by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state, local, or foreign laws and
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regulations. There is no unfair labor practice charge or complaint against the
Company or any of the Subsidiaries pending before the National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending
or to its knowledge threatened against or involving the Company or any of the
Subsidiaries. No representation question exists respecting the employees of the
Company or any of the Subsidiaries. No collective bargaining agreement, or
modification thereof is currently being negotiated by the Company or any of the
Subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
the Subsidiaries. No labor dispute with the employees of the Company or any of
the Subsidiaries exists or is imminent.
(s) Except as described in the Prospectus, neither the Company nor any of
the Subsidiaries maintains, sponsors or contributes to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multi-employer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor any
of the Subsidiaries maintains or contributes to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company or any of the Subsidiaries to any tax penalty on prohibited transactions
and which has not adequately been corrected. Each ERISA Plan is in compliance
with all material reporting, disclosure and other requirements of the Code and
ERISA as they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA Plan which
is intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. Neither the Company nor any of the
Subsidiaries has ever completely or partially withdrawn from a "multi-employer
plan."
(t) None of the Company, nor any of the Subsidiaries, nor any of their
employees, directors, stockholders, or affiliates (within the meaning of the
Regulations) of any of the foregoing has taken or will take directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Registered
Securities.
(u) Each of the Company and the Subsidiaries has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
or other restrictions or equities of any kind whatsoever other than those
referred to in the Prospectus and liens for taxes not yet due and payable.
(v) Moore Stephens, P.C. ("Moore Stephens"), whose report is filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Regulations.
(w) There are no claims, payments, arrangements or understandings, whether
oral or written, for services in the nature of a finder's or origination fee
with respect to the sale of the Registered Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company, the Subsidiaries, or any of their respective officers, directors,
stockholders, employees or affiliates that may affect the Underwriters'
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compensation as determined by the Commission and the National Association of
Securities Dealers, Inc. (the "NASD").
(x) The Registered Securities have been approved for quotation on the
Nasdaq SmallCap Market and Chicago Stock Exchange subject only to official
notice of issuance.
(y) Each of the Company and the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity 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.
(z) None of the Company, the Subsidiaries, nor any of their respective
officers, employees, agents or any other person acting on behalf of the Company
or any of the Subsidiaries 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 any of the Subsidiaries (or assist the
Company or any of the Subsidiaries in connection with any actual or proposed
transaction) which might subject the Company, the Subsidiaries, or any other
such person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign). Each of the Company's and the
Subsidiaries' internal accounting controls are sufficient to cause the Company
and the Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977,
as amended.
(aa) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, the Subsidiaries, or any "affiliate" or "associate"
(as these terms are defined in Rule 405 promulgated under the Regulations) of
any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or any of the Subsidiaries, or (B) purchases from or
sells or furnishes to the Company or any of the Subsidiaries any goods or
services, or (ii) a beneficiary interest in any contract or agreement to which
the Company or any of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries may be bound or affected. Except as set forth in the
Prospectus there are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, the Subsidiaries, and any officer,
director, principal shareholder (as such term is used in the Prospectus) of the
Company, or any affiliate or associate of any of the foregoing persons or
entities.
(bb) None of the Company or any of the Subsidiaries intends to conduct
their respective businesses in a manner in which it would become an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "1940 Act").
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(cc) Any certificate signed by any officer of the Company and delivered to
the Underwriters or to the Underwriters' Counsel (as defined in Section 4(d)
herein) shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(dd) The minute books of each of the Company and the Subsidiaries have been
made available to the Underwriters and contain a complete summary of all
meetings and actions of the directors and stockholders of each of the Company
and the Subsidiaries, since the time of their respective incorporation, and
reflect all transactions referred to in such minutes accurately in all material
respects.
(ee) Neither the Company nor any of the Subsidiaries has distributed nor
will distribute prior to the Closing Date any offering material in connection
with the offering and sale of the Registered Securities in this offering other
than the Prospectus, the Registration Statement and the other materials
permitted by the Act. Except as described in the Prospectus, no holders of any
securities of the Company or any of the Subsidiaries or of any options, warrants
or other convertible or exchangeable securities of the Company or any of the
Subsidiaries have the right to include any securities issued by the Company or
any of the Subsidiaries as part of the Registration Statement or to require the
Company or any of the Subsidiaries to file a registration statement under the
Act and no person or entity holds any anti-dilution rights with respect to any
securities of the Company or any of the Subsidiaries.
(ff) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba, and the Company further
agrees that if it commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(gg) The Company has entered into a warrant agreement (the "Warrant
Agreement") substantially in the form filed as Exhibit 4.4 to the Registration
Statement, with American Stock Transfer & Trust Company, and the Representative,
in form and substance satisfactory to the Representative, with respect to the
Warrants providing for the payment of commissions contemplated by Section 4(bb),
hereof. The Warrant Agreement has been duly and validly authorized by the
Company and, assuming due execution by the parties thereto other than the
Company, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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(hh) The Company has purchased "key man" life insurance on the life of
________ ____________ in the amount of [$ ] and the Company is named as the sole
beneficiary of such insurance policy.
(ii) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all persons or entities that directly
or beneficially own Common Stock, Units or Warrants, as of the effective date of
the Registration Statement, have agreed not to, directly or indirectly, offer,
offer to sell, sell, grant any option for the sale of, transfer, assign, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into Common Stock, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Regulations or otherwise) or dispose of any
interest therein for a period of 12 months from the date of the Prospectus,
without the prior written consent of National (the "Lock-up Agreements"). The
Company will cause the Transfer Agent (as defined herein) to place "stop
transfer" orders on the Company's stock ledgers in order to effect the Lock-up
Agreements.
B. Each of the Selling Shareholders represents and warrants to, and agrees
with, each of the Underwriters as of the date hereof, and as of the Option
Closing Date, if any, as follows:
(a) Such Selling Shareholder has (i) caused a certificate or certificates
for the number of shares of Common Stock, and underlying Common Stock to be sold
by the Selling Shareholder hereunder to be delivered to _________________ (in
its capacity as escrow agent, the "Escrow Agent"), duly endorsed in blank or
together with blank stock powers and/or warrant assignments duly executed, with
the signature of the Selling Shareholder appropriately guaranteed, such
certificate or certificates to be held in escrow by the Escrow Agent pursuant to
an escrow agreement for delivery, pursuant to the provisions hereof, on the
Option Closing Date, if any, and (ii) granted an irrevocable power of attorney
to the Escrow Agent to purchase all requisite stock transfer tax stamps, to sign
this Agreement (including agreeing on the price at which the Option Securities
are to be sold to the Underwriters) and thereafter to modify and amend this
Agreement, to waive any condition to the obligations of the Selling Shareholder
and to execute all other instruments and documents and to perform all other acts
necessary to carry out the provisions of this Agreement on behalf of the Selling
Shareholder (such escrow agreement together with such irrevocable powers of
attorney being herein called the "Escrow Agreement").
(b) There is no claim, action, suit proceeding, inquiry, arbitration,
mediation, investigation, litigation, governmental or other proceeding, domestic
or foreign, pending or threatened against such Selling Shareholder or any of
business properties, or assets owned by the Selling Shareholder. The Selling
Shareholder is not in violation of, or in default with respect to, any law rule,
regulation, order judgment, or decree; nor is the Selling Shareholder required
to take any action in order to avoid such violation or default.
(c) Such Selling Shareholder has all the requisite power and authority to
execute, deliver, and perform this Agreement and the Escrow Agreement. This
Agreement and the Escrow Agreement have been duly executed and delivered by the
Selling Shareholder, are the legal, valid, and binding obligations of the
Selling Shareholder and are enforceable as to the Selling Shareholder in
accordance with their respective terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any
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federal, state, local, or other governmental authority or any court or other
tribunal is required by the Selling Shareholder for the execution, delivery, or
performance of this Agreement (except filings under the Act which have been or
will be made before the Closing Date and such consents consisting only of
consents under "blue sky" or securities law which have been obtained at or prior
to the date of this Agreement) or the Escrow Agreement by the Selling
Shareholder. No consent of any party to any contract, agreement, instrument,
lease license, arrangement, or understanding to which the Selling Shareholder is
a party, or to which any of the properties or assets of the Selling Shareholder
are subject, is required for the execution, delivery, or performance of this
Agreement or the escrow Agreement; and the execution, delivery, and performance
of this Agreement and the Escrow Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call default under any such
contract, agreement, instrument, lease, license, arrangement, or understanding,
or violate, result in a breach of, or conflict with, any law, rule, regulation,
order, judgment, or decree binding on the operations, business, properties, or
assets of the Selling Shareholder are subject.
(d) Such Selling Shareholder has good title to the Option Securities to be
sold by him or her pursuant to this Agreement, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
and voting trusts (except those created by this Agreement and the Escrow
Agreement), and when delivered in accordance with this Agreement, the
Underwriters will receive good title to the Option Securities purchased by them
from such Selling Shareholder, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting trusts.
2. Purchase, Sale and Delivery of the Units and Representative's Warrants.
----------------------------------------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company, that aggregate
principal amount of Firm Securities set forth opposite the name of such
Underwriter in Schedule A hereto at a price equal to 90% of the principal amount
thereof, subject to such adjustment as the Representative in its discretion
shall make to eliminate any fractional sales or purchases, plus any additional
amount of Firm Securities which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Selling Shareholders hereby grant an option to the Underwriters,
severally and not jointly, to purchase all or any part of the Option Securities
at a price equal to 90% of the principal amount thereof from the Closing Date.
The maximum number of Option Securities to be sold by such Selling Shareholders
is set forth opposite their respective names on Schedule B hereof. The option
granted hereby will expire 45 days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Regulations, or (ii) the date of this Agreement if the Company has elected to
rely upon Rule 430A under the Regulations, and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Firm
Securities upon notice by the Representative to the Company and the Selling
Shareholders setting forth the aggregate principal amount of Option Securities
as to which the
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several Underwriters are then exercising the option and the time and date of
payment and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Representative,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter defined,
unless otherwise agreed upon by the Representative, the Company and the Selling
Shareholders. Nothing herein contained shall obligate the Underwriters to
exercise the over-allotment option described above. No Option Securities shall
be delivered unless the Firm Securities shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of National, 875 North Michigan
Avenue, Suite 1560, Chicago, Illinois, or at such other place as shall be agreed
upon by the Representative and the Company. Such delivery and payment shall be
made at 10:00 a.m. (New York time) on ________, 1999 or at such other time and
date as shall be agreed upon by the Representative and the Company, but no more
than three (3) business days after the date hereof (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above mentioned office of
National or at such other place as shall be agreed upon by the Representative,
the Company and the Selling Shareholders on each Option Closing Date as
specified in the notice from the Representative to the Company. Delivery of the
certificates for the Firm Securities and the Option Securities, if any, shall be
made to the Underwriters against payment by the Underwriters, of the purchase
price for the Firm Securities and the Option Securities, if any, to the order of
the Company or the Selling Shareholders, as the case may be. In the event such
option is exercised, each of the Underwriters, acting severally and not jointly,
shall purchase that proportion of the total number of Option Securities then
being purchased which the number of Firm Securities set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the Representative in
their discretion shall make to eliminate any sales or purchases of fractional
shares. Certificates for the Firm Securities and the Option Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least three (3) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to Closing Date or the relevant
Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative the Representative's Warrants at a purchase price of $.0001 per
Representative's Warrant, which warrants shall entitle the holders thereof to
purchase the Representative's Shares. The Representative's Warrants for Common
Stock shall expire five (5) years after the effective date of the Registration
Statement and shall be exercisable for a period of four (4) years commencing one
(1) year from the effective date of the Registration Statement at an exercise
price equal to 165% of the initial public offering price of the Common Stock.
The Representative's Warrants for Warrants shall expire three (3) years after
the effective date of the Registration Statement and shall be exercisable for a
period of two (2) years commencing one (1) year from the effective
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<PAGE>
date of the Registration Statement at an exercise price equal to 165% of the
initial public offering price of the Warrants. The Representative's Warrant
Agreement and form of Warrant Certificate shall be substantially in the form
filed as Exhibit 4.2 to the Registration Statement. Payment for the
Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Firm Securities.
--------------------------------------
As soon after the Registration Statement becomes effective as the
Representative deem advisable, the Underwriters shall make a public offering of
the Firm Securities (other than to residents of or in any jurisdiction in which
qualification of the Firm Securities is required and has not become effective)
at the price and upon the other terms set forth in the Prospectus. The
Representative may from time to time increase or decrease the public offering
price after distribution of the Firm Securities has been completed to such
extent as the Representative, in its sole discretion, deems advisable. The
Underwriters may enter into one or more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants of the Company and the Selling Shareholders.
-----------------------------------------------------
The Company and each of the Selling Shareholders covenant and agree with
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Firm Securities by the
Underwriters of which the Representative shall not previously have been advised
and furnished with a copy, or to which the Representative shall have objected or
which is not in compliance with the Act, the Exchange Act or the Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representative and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any post-
effective amendment to the Registration Statement becomes effective, (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Registered Securities for offering
or sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments from the
Commission, and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will use its best efforts to obtain promptly the lifting of such
order.
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(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) in accordance with the requirements of the
Act.
(d) The Company shall give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any post-
effective amendment) or any amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Registered Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Regulations), and will furnish the
Representative with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement to which the Representative or
D'Ancona & Pflaum LLC ("Underwriters' Counsel") shall reasonably object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Registered Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may reasonably
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or become subject to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Registered Securities in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the Registered
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend or supplement the Prospectus to comply with
the Act, the Company will notify the Representative promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act, each such amendment or supplement to be satisfactory
to Underwriters' Counsel, and the Company will furnish to the Underwriters
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days after
the end of the 12-month period beginning on the day after the end of the fiscal
quarter of the Company during
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<PAGE>
which the effective date of the Registration Statement occurs (90 days in the
event that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company shall make generally available to its security holders, in
the manner specified in Rule 158(b) of the Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Regulations, which statement need not be audited unless
required by the Act, covering a period of at least 12 consecutive months after
the effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the Company
will furnish to its security holders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the Nasdaq
SmallCap Market and/or Chicago Stock Exchange or any other securities exchange
or quotation system;
(v) every press release and every material news item or article of
interest to the financial community in respect of each of the Company and the
Subsidiaries or their respective affairs which was released or prepared by or on
behalf of the Company or any of the Subsidiaries; and
(vi) any additional information of a public nature concerning the
Company or any of the Subsidiaries (and any future subsidiaries) or their
respective businesses which the Representative may reasonably request.
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) The Company will maintain a transfer agent (the "Transfer Agent") and,
if necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Common Stock,
Warrants and the Representative's Warrants.
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<PAGE>
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), each
Preliminary Prospectus, the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Representative may reasonably request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true copies of duly executed,
legally binding and enforceable Lock-up Agreements. On or before the Closing
Date, the Company shall deliver instructions to the Transfer Agent authorizing
it to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company shall use its best efforts to cause its officers,
directors, stockholders or affiliates (within the meaning of the Regulations)
not to take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the Common
Stock substantially in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus.
(n) The Company shall timely file all such reports, forms or other
documents as may be required from time to time under the Act, the Exchange Act,
and the Regulations, and all such reports, forms and documents filed will comply
as to form and substance with the applicable requirements under the Act, the
Exchange Act, and the Regulations.
(o) The Company shall cause the Common Stock and the Warrants to be quoted
on the Nasdaq SmallCap Market and Chicago Stock Exchange and for a period of two
(2) years from the date hereof shall use its best efforts to maintain the
quotation of the Common Stock to the extent outstanding.
(p) For a period of two (2) years from the Closing Date, the Company shall
furnish to the Representative, at the Company's sole expense, daily consolidated
transfer sheets relating to the Common Stock and the Warrants.
(q) For a period of five (5) years after the effective date of the
Registration Statement the Company shall, at the Company's sole expense, take
all necessary and appropriate actions to further qualify the Company's
securities in all jurisdictions of the United States in order to permit
secondary sales of such securities pursuant to the Blue Sky laws of those
jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of the Registration
Statement, has filed a Form 8-A with the Commission providing for the
registration of the Common Stock and the Warrants under the Exchange Act and
(ii) as soon as practicable, will use its best efforts to take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
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<PAGE>
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(s) The Company agrees that for a period of thirteen (13) months following
the effective date of the Registration Statement it will not, without the prior
written consent of National, offer, issue, sell, contract to sell, grant any
option for the sale of or otherwise dispose of any Units, Common Stock, Warrants
or any other securities convertible into Common Stock, except for the issuance
of the Option Securities, the Representative's Warrants, the Common Stock and
Warrants contained in the Units and the Common Stock issuable upon the exercise
of the Warrants and other currently outstanding warrants or options issued under
any stock option plan in effect on the Closing Date or options to purchase
shares of Common Stock granted pursuant to any stock option plan in effect on
the Closing Date.
(t) Until the completion of the distribution of the Registered Securities,
none of the Company nor any of the Subsidiaries shall, without the prior written
consent of National or Underwriters' Counsel, issue, directly or indirectly
issue any press release or other communication or hold any press conference with
respect to the Company, any of the Subsidiaries, their respective activities or
the offering contemplated hereby, other than trade releases issued in the
ordinary course of the Company's business consistent with past practices with
respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from the date
hereof, and (ii) the sale to the public of the Representative's Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form SB-2 (or other appropriate form) for the registration
under the Act of the Representative's Shares.
(v) The Company agrees that National shall have the right to designate two
persons to attend all meetings of the Board of Directors of the Company, and all
committees thereof, as observers. Such observers shall be entitled to receive
notices of all such meetings, and all correspondence and communications sent by
the Company to members of its Board of Directors and to attend all such
meetings. Such observers shall be entitled to the same compensation paid to
members of the Company's Board of Directors. In addition, at National's
discretion, which may be exercised at any time, in lieu of such right of
observation, National shall have the power to cause the Company to use its best
efforts, which shall include, but shall not be limited to, the solicitation of
proxies, to elect two (2) designees of National to the Company's Board of
Directors for a period of five (5) years following the date of such election,
provided that such designees are reasonably acceptable to the Company.
(w) The Company agrees that within forty-five (45) days after the Closing
it shall retain a public relations firm which is acceptable to National. The
Company shall keep such public relations firm, or any replacement, for a period
of three (3) years from the Closing. Any replacement public relations firm shall
be retained only with the consent of National.
(x) The Company agrees that any and all future transactions between the
Company or any of the Subsidiaries and their respective officers, directors,
principal stockholders and the affiliates of the foregoing persons will be on
terms no less favorable to the Company or any of the Subsidiaries than could
reasonably be obtained in arm's length transactions with independent third
parties, and that any such transactions also be approved by a majority of the
Company's or
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<PAGE>
any of the Subsidiaries', as the case may be, outside independent directors
disinterested in the transaction.
(y) The Company shall prepare and deliver, at the Company's sole expense,
to National within the one hundred and twenty (120) day period after the later
of the effective date of the Registration Statement or the latest Option Closing
Date, as the case may be, bound volumes containing all correspondence with
regulatory officials, agreements, documents and all other materials in
connection with the offering as requested by the Underwriters' Counsel.
(z) The Company shall not invest, or otherwise use the proceeds received
by the Company from its sale of the Common Stock in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the 1940 Act.
(aa) Each of the Selling Shareholders, except the Greenberg Family Trust,
shall use the proceeds of the sale of Option Securities including the sale of
the underlying Common Stock on exercise of the Warrants solely to promptly pay
down such Selling Shareholder's personal bank loans, as described under ________
in the Prospectus.
(bb) The Company shall pay the Representative a commission equal to five
percent (5%) of the exercise price of each Warrant exercised for the period
commencing _________, ____, until the expiration of the term of the Warrants,
payable on the date of such exercise on terms provided for in the Warrant
Agreement. The Company will not solicit the exercise of the Warrants other than
through the Representative. However, no compensation will be paid to the
Representative in connection with the exercise of the Warrants if (i) the
warrants are held in a discretionary account, or (ii) the Warrants are exercised
in an unsolicited transaction. Further, the Representative must be designated in
writing by the account holder as having solicited the transaction, otherwise the
Representative shall not be paid the fee. In addition, the Representative will
not receive any commission with respect to the exercise of the Warrants
underlying the Representative's Warrants, unless held by a person or entity
other than any of the Underwriters.
5. Payment of Expenses.
-------------------
(a) The Company hereby agrees to pay on each of the Closing Date and each
Option Closing Date (to the extent not previously paid) all expenses and fees
(other than fees of Underwriters' Counsel, except as provided in (iv) below)
incident to the performance of the obligations of the Company under this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, filing, delivery and mailing (including
the payment of postage with respect thereto) of the Registration Statement and
the Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Agreement Among Underwriters, the Selected Dealers
Agreement, the Powers of Attorney, and related documents, including the cost of
all copies thereof and of the Preliminary Prospectuses and the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters and
such dealers as the Underwriters may request, in quantities as hereinabove
stated, (iii) the printing, engraving, issuance and delivery of the certificates
representing the Registered Securities, (iv) the qualification of the Registered
Securities under state or foreign securities or Blue Sky laws
20
<PAGE>
and determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to the
costs and expenses incurred in connection with the "road show," information
meetings and presentations, bound volumes and prospectus memorabilia and
"tombstone" advertisement expenses, (vi) fees and expenses of the transfer agent
and registrar, (vii) issue and transfer taxes, if any, (viii) experts, (ix) the
fees payable to the Commission and the NASD and (xi) the fees and expenses
incurred in connection with the listing of the Common Stock, Warrants and the
Representative's Shares on the Nasdaq SmallCap Market and Chicago Stock Exchange
and any other market or exchange.
(b) If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 6, Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses on an accountable basis, including the fees and disbursements of
Underwriters' Counsel and all Blue Sky counsel fees and Blue Sky filing fees,
less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees, with respect to the Firm Securities, that,
in addition to the expenses payable by the Company pursuant to subsection (a) of
this Section 5, they will pay to the Representative on the Closing Date by
certified or bank cashier's check or, at the election of the Representative, by
deduction from the proceeds of the offering contemplated herein, a non-
accountable expense allowance equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Firm Securities, [$50,000] of which
has been paid to date. In the event the Representative elects to exercise the
over-allotment option described in Section 2(b) hereof, the Company agrees to
pay to the Representative on the Option Closing Date (by certified or bank
cashier's check or, at the Representative's election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Selling Shareholders and the
Company from the sale of the Option Securities.
6. Conditions of the Underwriters' Obligations.
-------------------------------------------
The obligations of the Underwriters hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Company and the
Selling Shareholders herein as of the date hereof and as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, if any; the accuracy on and as of the
Closing Date and each Option Closing Date, if any, of the statements of officers
of the Company, or the Selling Shareholders made pursuant to the provisions
hereof; and the performance by the Company and the Selling Shareholders on and
as of the Closing Date and each Option Closing Date, if any, of their respective
covenants and obligations hereunder:
(a) The Registration Statement shall have become effective not later than
5:00 p.m., New York City time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters'
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Counsel. If the Company has elected to rely upon Rule 430A of the Regulations,
the price of the Firm 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 Regulations within the prescribed time period, and prior to Closing Date
the Company shall have provided evidence satisfactory to the Representative of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's reasonable opinion, is material, or omits to
state a fact which, in the Representative's reasonable opinion, is material and
is required to be stated therein or is necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriters shall have received
from Underwriters' Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Registered Securities, the
Registration Statement, the Prospectus and other related matters as the
Representative may request and Underwriters' Counsel shall have received from
the Company such papers and information as they request to enable them to pass
upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Wolin & Rosen Ltd. ("Wolin & Rosen") counsel to the
Company, dated the Closing Date addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiaries (A) has been duly
organized and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) to the best of such counsel's
knowledge after due inquiry, has all requisite corporate power and authority and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters, the absence of which would have a
material adverse effect on the Company), to own or lease its properties and
conduct its business as described in the Prospectus;
(ii) the Company owns one hundred percent (100%) of the outstanding
capital stock of its Subsidiaries free and clear of any liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever;
(iii) except as described in the Prospectus, and to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of the
Subsidiaries owns an interest in
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any corporation, limited liability company, partnership, joint venture, trust or
other business entity;
(iv) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization" and "Description of Securities," and to the best
of such counsel's knowledge after due inquiry, neither the Company nor any of
the Subsidiaries is a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Warrant Agreement
and the Representative's Warrant Agreement, and as described in the Prospectus;
the Registered Securities, and all other securities issued or issuable by the
Company or any of the Subsidiaries conform in all material respects to the
statements with respect thereto contained in the Registration Statement and the
Prospectus; all issued and outstanding securities of the Company or any of the
Subsidiaries have been duly authorized and validly issued and are fully paid and
nonassessable; the holders thereof are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or any of the Subsidiaries, or to the best of such counsel's knowledge after due
inquiry, similar contractual rights granted by the Company or any of the
Subsidiaries or applicable securities laws; the Registered Securities to be sold
by the Company hereunder, under the Warrant Agreement and under the
Representative's Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any security holder of the Company or any
of the Subsidiaries; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Registered Securities has been duly and
validly taken; the certificates representing the Registered Securities and the
Representative's Warrants are in due and proper form; the Representative's
Warrants constitute valid and binding obligations of the Company to issue and
sell, upon exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby (except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the application of equitable principles in
any action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law); upon the issuance and delivery
pursuant to this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement of the Registered Securities to be sold by the Company
hereunder and thereunder, the Company will convey against payment therefore as
provided herein, to the Underwriters or the Representative, as the case may be,
good and marketable title thereto free and clear of all liens and other
encumbrances;
(v) the Registration Statement is effective under the Act; if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of the
Preliminary Prospectus, the Registration Statement or Prospectus or any part of
any thereof or suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or, to the best of such counsel's knowledge, threatened or contemplated
under the Act;
(vi) each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than the
financial statements and other financial and statistical data included therein
as to which no opinion need be rendered)
23
<PAGE>
comply as to form in all material respects with the requirements of the Act and
the Regulations. Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and the
Representative and representatives of the independent public accountants for the
Company, at which conferences the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and any amendments or supplements
thereto were discussed, and, although such counsel is not passing upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
Registration Statement and Prospectus, and any amendments or supplements
thereto, on the basis of the foregoing, no facts have come to the attention of
such counsel which lead them to believe that either the Registration Statement
or amendment became effective or the Preliminary Prospectus or Prospectus or
amendment or supplement thereto as of the date of such opinion contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
(it being understood that such counsel need express no opinion with respect to
the financial statements and schedules and other financial and statistical data
included in the Preliminary Prospectus, the Registration Statement or
Prospectus, and any amendments or supplements thereto);
(vii) to the best of such counsel's knowledge after due inquiry, (A)
there are no agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as exhibits
to the Registration Statement other than those described in the Registration
Statement and the Prospectus and filed as exhibits thereto; (B) the descriptions
in the Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company or any of the
Subsidiaries is a party or by which any of them is bound are accurate in all
material respects and fairly represent the information required to be shown by
Form SB-2; (C) there is not pending or threatened against the Company or any of
the Subsidiaries any action, arbitration, suit, proceeding, litigation,
governmental or other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
against the Company or any of the Subsidiaries which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), (y) questions the validity of the capital
stock of the Company or any of the Subsidiaries or this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement, or of any action taken or
to be taken by the Company or any of the Subsidiaries pursuant to or in
connection with any of the foregoing; and (D) there is no action, suit or
proceeding pending or threatened against the Company or any of the Subsidiaries
before any court or arbitrator or governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which may result in a
material adverse change in the financial condition, business, affairs,
stockholders' equity, operations, properties, business or results of operations
of the Company or any of the Subsidiaries, which could adversely affect the
present or prospective ability of the Company to perform its obligations under
this Agreement, the Warrant Agreement or the Representative's Warrant Agreement
or which in any manner draws into question the validity or enforceability of
this Agreement, the Warrant Agreement or the Representative's Warrant Agreement;
(viii) the Company has the corporate power and authority to enter into
each of this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement and to consummate the transactions provided for herein and therein;
and each of this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement has been duly authorized,
24
<PAGE>
executed and delivered by the Company; each of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto, constitutes a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution, delivery or
performance of this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto conflicts
with or results in any breach or violation of any of the terms or provisions of,
or constitutes a default under, or will result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company or any of the Subsidiaries pursuant to
the terms of (A) the certificate of incorporation or by laws of the Company or
any of the Subsidiaries, as amended, (B) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument known to such
counsel to which the Company or any of the Subsidiaries is a party or by which
any of them is bound, or (C) any federal, state or local statute, rule or
regulation applicable to the Company or any of the Subsidiaries or any judgment,
decree or order known to such counsel of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
the Subsidiaries or any of their 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 federal securities or Blue Sky laws, as to which no
opinion need be rendered) is required in connection with the issuance of the
Registered Securities as contemplated by the Prospectus and the Registration
Statement, the performance of the Agreement, the Warrant Agreement and the
Representative's Warrant Agreement and the transactions contemplated hereby and
thereby;
(x) to the best of such counsel's knowledge after due inquiry, the
properties and businesses of the Company and the Subsidiaries conform in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus;
(xi) to the best knowledge of such counsel, and except as disclosed in
the Registration Statement and the Prospectus, none the Company nor any of the
Subsidiaries is in breach of, or in default under, any term or provision of any
license, contract, indenture, mortgage, installment sale agreement, deed of
trust, lease, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound or to which the property or assets (tangible or
intangible) of the Company or any of the Subsidiaries is subject; and none the
Company nor any of the Subsidiaries is in violation of any term or provision of
its certificate of incorporation or bylaws, as amended, nor to the best of such
25
<PAGE>
counsel's knowledge after due inquiry, in violation of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, which would have a
material adverse effect on the Company;
(xii) the statements in the Prospectus under "Dividend Policy" and
"Description of Securities," have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
(xiii) the Common Stock and the Warrants have been approved for
listing on the Nasdaq SmallCap Market and Chicago Stock Exchange, subject only
to official notice of issuance;
(xiv) to the best of such counsel's knowledge and based upon a review
of the outstanding securities and the contracts furnished to such counsel by the
Company, no person, corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration statement
or, if filed, to include any security in such registration statement; and (xv)
the Company is not an "investment company" or "promoter" or "principal
underwriter" for or an "affiliated person" of, an "investment company" as such
terms are defined in the 1940 Act.
(xv) the Company is not an "investment company" or "promoter" or
"principal underwriter" for an "affiliated person" of, an "investment company"
as such terms are defined in the 1940 Act.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations of
the United States and the laws, rules and regulations of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws provided, however, that
if the laws, rules and regulations of jurisdictions other than the United States
and Delaware on which such other counsel opines differ materially from the laws,
rules and regulations of the United States and Delaware, the opinion of such
other counsel shall be modified to contain all provisions customarily included
in such opinions in such jurisdiction; (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible officers
of the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel if
requested. The opinion of such counsel shall state that knowledge shall not
include the knowledge of a director or officer of the Company who is affiliated
with such firm in his or her capacity as an officer or director of the Company.
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.
(e) At each Option Closing Date, if any, the Underwriters shall have
received (i) the favorable opinion of Wolin & Rosen, dated the Option Closing
Date, addressed to the Underwriters and in form and substance satisfactory to
Underwriters' counsel confirming as of such Option Closing Date, the statements
made by Wolin & Rosen in their opinion delivered on the Closing Date and (ii)
the favorable opinion of _____________, counsel to the Selling Shareholders,
dated the Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel to the effect that:
26
<PAGE>
(i) each Selling Shareholder has full power and authority to execute,
deliver, and perform this Agreement and the Escrow Agreement. This Agreement and
the Escrow Agreement have been duly executed and delivered by the Selling
Shareholder and are the legal, valid, and binding obligations of the Selling
Shareholder, and (subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally) are enforceable as
to it in accordance with their respective terms. No consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by the Selling Shareholder for the
execution, delivery, or performance of this Agreement (except filings under the
Act, all of which have been made, and such consents consisting only of consents
under "blue sky" or securities laws) or the Escrow Agreement by the Selling
Shareholder. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding known to such counsel to which the
Selling Shareholder is a party, or to which the Selling Shareholder's properties
or assets are subject, is required for the execution, delivery, or performance
of this Agreement or the Escrow Agreement; and the execution, delivery, and
performance of this Agreement and the Escrow Agreement will not violate, result
in a breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a breach of, or conflict with any law,
rule, regulation, order, judgment, or decree binding on the Selling Shareholder
or to which the Selling Shareholder's operations, business, properties, or
assets are subject; and
(ii) Upon the issuance and delivery pursuant to this Agreement of
the Registered Securities to be sold by each Selling Shareholder, the Selling
Shareholder will convey, against payment therefor as provided herein, to the
Underwriters and the Representative, respectively, good and marketable title to
the Registered Securities free and clear of all liens and other encumbrances.
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws other than the laws, rules and regulations of the United
States and the laws, rules and regulations of the State of Delaware, to the
extent such counsel deems proper and to the extent specified in such option, if
at all, upon an opinion or opinions (in form and substance satisfactory to
Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel,
familiar with the applicable laws provided, however, that if the laws, rules and
regulations of jurisdictions other than the United States and Delaware on which
such other counsel opines differ materially from the laws, rules and regulations
of the United States and Delaware, the opinion of such other counsel shall be
modified to contain all provisions customarily included in such opinions in such
jurisdiction; (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 department of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel shall state that knowledge shall not include the
knowledge of a director or officer of the Company who is affiliated with such
firm in his or her capacity as an officer or director of the Company. 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.
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<PAGE>
(f) On or prior to each of the Closing Date and the Option Closing Date, if
any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6 or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date, if any,
(i) there shall have been no material adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities any of the Company and the
Subsidiaries, 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 any of the Company or the Subsidiaries, from
the latest date as of which the financial condition of the Company and the
Subsidiaries is set forth in the Registration Statement and Prospectus which is
adverse to the Company and the Subsidiaries taken as a whole; (iii) none of the
Company or the Subsidiaries shall be in default under any provision of any
instrument relating to any outstanding indebtedness which default has not been
waived; (iv) none of the Company or the Subsidiaries shall have issued any
securities (other than Registered Securities) or declared or paid any dividend
or made any distribution in respect of its capital stock of any class, nor has
there been any change in the capital stock, or any material increase in the debt
(long or short term) or liabilities or obligations of any of the Company or the
Subsidiaries (contingent or otherwise); (v) no material amount of the assets of
any of the Company or the Subsidiaries shall have been pledged or mortgaged,
except as set forth in the Registration Statement and Prospectus; (vi) no
action, suit or proceeding, at law or in equity, shall have been pending or
threatened (or circumstances developed giving rise to same) against any of the
Company or the Subsidiaries, or affecting any of their respective properties or
businesses before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may materially adversely affect the business, operations, prospects or
financial condition or any income of the Company or any of the Subsidiaries,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act and no proceedings therefor
shall have been initiated, threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed on behalf
of the Company by the principal executive officer of the Company, dated the
Closing Date or Option Closing Date, as the case may be, to the effect that such
executive has carefully examined the Registration Statement, the Prospectus,
this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement, the Warrant Agreement, the Warrant Agreement and the Representative's
Warrant Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in this
Agreement, the Warrant Agreement and the Representative's Warrant Agreement on
its part to be performed or satisfied at or prior to such Closing Date or Option
Closing Date, as the case may be;
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<PAGE>
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of such
person's knowledge after due inquiry, are contemplated or threatened under the
Act;
(iii) The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and information
required by the Act to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement, as of their respective
dates, thereto included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) none of the Company
or the Subsidiaries has incurred up to and including the Closing Date or the
Option Closing Date, as the case may be, other than in the ordinary course of
its business, any material liabilities or obligations, direct or contingent; (b)
none of the Company or the Subsidiaries has paid or declared any dividends or
other distributions on its capital stock; (c) none of the Company or the
Subsidiaries has entered into any transactions not in the ordinary course of
business; (d) there has not been any change in the capital stock or material
increase in long-term debt or any increase in the short-term borrowings (other
than any increase in the short-term borrowings in the ordinary course of
business) of any of the Company or the Subsidiaries, (e) none of the Company or
the Subsidiaries has sustained any loss or damage to its property or assets,
whether or not insured, (f) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the Company, or any of
the Subsidiaries or any affiliated party of any of the foregoing which is
required to be set forth in an amended or supplemented Prospectus which has not
been set forth, and (g) there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (h) are to such documents as amended and supplemented at the date of
such certificate.
(i) At each Option Closing Date, if any, the Underwriters shall have
received a certificate from the Selling Shareholders, dated the Option Closing
Date, to the effect that the Selling Shareholders have carefully examined the
Registration Statement, the Prospectus and this Agreement, and that the
representations and warranties of the Selling Shareholders in this Agreement are
true and correct, as if made on and as of the Option Closing Date, and the
Selling Shareholders have 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 Option Closing Date.
(j) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters.
(k) 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
29
<PAGE>
respects (including the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) to the Underwriters and Underwriters'
Counsel, from Moore Stephens:
(i) confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the Exchange Act
and the applicable Regulations;
(ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company and the Subsidiaries included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations thereunder and
that the Representative may rely upon the opinion of Moore Stephens 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 financial statements of the
Company and the Subsidiaries (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors of the Company and the Subsidiaries,
consultations with officers and other employees of each of the Company and the
Subsidiaries responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention which
would lead them to believe that (A) the unaudited financial statements and
supporting schedules of the Company and the Subsidiaries, if any, 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 Regulations or
are not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements of the Company and the Subsidiaries included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there has been any
change in the capital stock or material increase in long-term debt any of the
Company or the Subsidiaries, or any material decrease in the stockholders'
equity or net current assets or net assets of the Company as compared with
amounts shown in the ____________, 19__, balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease;
(iv) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other financial
information pertaining to each of the Company and the Subsidiaries 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 each of the Company and the
Subsidiaries 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
(v) statements as to such other material matters incident to the
transaction contemplated hereby as the Representative may reasonably request.
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<PAGE>
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriters have received from Moore Stephens a letter, dated as of the Closing
Date or the Option Closing Date, as the case may be, to the effect that they
reaffirm that statements made in the letter furnished pursuant to Subsection (i)
of this Section 6, except that the specified date referred to shall be a date
not more than five (5) days prior to Closing Date or the Option Closing Date, as
the case may be, and, if the Company has elected to rely on Rule 430A of the
Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (iv) of Subsection (k) of this Section 6 with
respect to certain amounts, percentages and financial information as specified
by the Representative and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (iv).
(m) On the Closing Date and each Option Closing Date, if any, there shall
have been duly tendered to the Representative for the several Underwriters'
accounts the appropriate number of Registered Securities.
(n) No order suspending the sale of the Registered Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on the Closing Date or each Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement,
substantially in the form filed as Exhibit 4.2 to the Registration Statement, in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(p) On or before Closing Date, the Common Stock and Warrants shall have
been duly approved for quotation on the Nasdaq SmallCap Market and Chicago Stock
Exchange.
(q) On or before Closing Date, there shall have been delivered to the
Representative all of the Lock-up Agreements in final form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Representative may terminate this Agreement or,
if the Representative so elects, it may waive any such conditions which have not
been fulfilled or extend the time for their fulfillment.
7. Indemnification.
---------------
(a) The Company and the Selling Shareholders, as of the date hereof and as
of the Option Closing Date, if any, agree to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7, "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
31
<PAGE>
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
the Selling Shareholders or based upon written information furnished by or on
behalf of the Company or the Selling Shareholders in any jurisdiction in order
to qualify the Registered Securities under the securities laws thereof or filed
with the Commission, any state securities commission or agency, the
___________________ or any other securities exchange or quotation system; or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (in the case
of the Prospectus, in the light of the circumstances under which they were
made), unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be; or (ii) any breach of any representation, warranty, covenant or agreement of
the Company or the Selling Shareholders contained in this Agreement. The
indemnity agreement in this subsection (a) shall be in addition to any liability
which the Company or the Selling Shareholders may have at common law or
otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company, within the meaning of the Act, and the Selling
Shareholders, to the same extent as the foregoing indemnity from the Company and
the Selling Shareholders to the Underwriters but only with respect to statements
or omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter or the Representative expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company and each of the Selling Shareholders acknowledge that the statements
with respect to the public offering of the Securities set forth under the
heading "Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters or the
Representative for inclusion in the Prospectus. The indemnity agreement in this
subsection (b) shall be in addition to any liability which the Underwriters may
have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, 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
32
<PAGE>
thereof (but the failure to so notify an indemnifying party shall not relieve it
from any liability which it may have otherwise or which it may have under this
Section 7, except to the extent that it has been prejudiced in any material
respect by such failure). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded, based
on the advice of counsel, that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(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 Registered
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
and/or the Selling Shareholders on the one hand, is a contributing party and the
Underwriters on the other hand, are the indemnified party, the relative benefits
received by the Company and the Selling Shareholders on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the
33
<PAGE>
Registered Securities (before deducting expenses other than underwriting
discounts and commissions) bear to the total underwriting discounts received by
the Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company and/or the Selling Shareholders on the one
hand, or by the Underwriters on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to above in this subdivision (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subdivision (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Registered Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation (within
the meaning of Section 12(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 7, 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 or the Selling
Shareholders submitted pursuant hereto, shall be deemed to be representations,
warranties and agreements of the Company and the Selling Shareholders at the
Closing Date and as of each Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 7 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter, the Company, the Selling Shareholders or any
controlling person of any of the Underwriters or the Company, and shall survive
termination of this Agreement or the issuance and delivery of the Registered
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date.
--------------
This Agreement shall become effective at 4:00 p.m., New York City time, on
the date hereof. For purposes of this Section 9, the Registered Securities to be
purchased hereunder shall be deemed to have been so released upon the earlier of
dispatch by the Representative of
34
<PAGE>
telegrams to securities dealers releasing such Registered Securities for
offering or the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the
Registered Securities.
10. Termination.
-----------
(a) Subject to subsection (b) of this Section 10, the Representative shall
have the right to terminate this Agreement, (i) if any domestic or international
event or act or occurrence has materially disrupted, or in the Representative's
reasonable opinion, will in the immediate future materially disrupt the
financial markets; or (ii) any material adverse change in the financial markets
shall have occurred; or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange, the Chicago 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 (iv) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared in the United States; or (v) if a
banking moratorium has been declared by a state or federal authority; or (vi) if
the Company shall have sustained a loss material or substantial to the Company
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act which, whether or not such loss shall have been
insured, will make it inadvisable to proceed with the delivery of the Registered
Securities; or (vii) if there shall have been such a material adverse change in
the prospects or conditions of the Company or any of the Subsidiaries, or such
material adverse change in the general market, political or economic conditions,
in the United States or elsewhere as in the Representative's judgment would make
it inadvisable to proceed with the offering, sale and/or delivery of the
Registered Securities.
(b) If this Agreement is terminated by the Representative in accordance
with any of the provisions of Section 6, Section 10(a) or Section 12, the
Company and/or the Selling Shareholders shall promptly reimburse and indemnify
the Underwriters pursuant to Section 5(b) hereof. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11
and 12 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters or the Selling Shareholders.
------------------------------------------------------------
If one or more of the Underwriters shall fail (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 6, Section 10 or Section 12 hereof) to purchase the Securities which it
or they are obligated to purchase on such date under this Agreement (the
"Defaulted Securities"), the Representative shall have the right, within 24
hours thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth. If, however, the Representative shall not have completed
such arrangements within such 24-hour period, then:
35
<PAGE>
(a) if the number of Defaulted Securities does not exceed 10% of the total
number of Securities to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total number
of Securities to be purchased on such date, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company or the Selling Shareholders.
--------------------------------------------------
If the Company or the Selling Shareholders shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Registered Securities which it or they are obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Shares to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Selling Shareholders terminate the Underwriters'
obligation to purchase Option Shares from the Selling Shareholders on such date)
without any liability on the part of any non-defaulting party other than
pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant
to this Section shall relieve the Company or any Selling Shareholder from
liability, if any, in respect of such default.
13. Notices.
-------
All notices and communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given if mailed or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed to the Representative, c/o
National Securities Corporation, 875 North Michigan Avenue, Suite 1560, Chicago,
Illinois 60611, Attention: Steven Rothstein, with a copy, which shall not
constitute notice, D'Ancona & Pflaum LLC, 111 East Wacker Drive, Suite 2800,
Chicago, Illinois 60601, Attention: Arthur Don. Notices to the Company shall be
directed to the Company at 822 West Washington Boulevard, Chicago, Illinois
60607, Attention: Steven A. Greenberg, with a copy, which shall not constitute
notice, to Wolin & Rosen Ltd., 2 North LaSalle Street, Suite 1776, Chicago,
Illinois 60602, Attention Gerald L. Fishman.
14. Parties.
-------
This Agreement shall inure solely to the benefit of and shall be binding
upon the Underwriters, the Company and the Selling Shareholders, and the
controlling persons, directors and officers referred to in Section 7 hereof and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right,
36
<PAGE>
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Registered Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
15. Construction.
------------
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware without giving effect to the
choice of law or conflict of laws principles.
16. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, and all of which taken together shall be
deemed to be one and the same instrument.
37
<PAGE>
17. Entire Agreement; Amendments.
----------------------------
This Agreement, the Warrant Agreement and the Representative's Warrant
Agreement constitute the entire agreement of the parties hereto and supersede
all prior written or oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may not be amended except
in a writing, signed by the Representative, the Company and the Selling
Shareholders.
If the foregoing correctly sets forth the understanding among the
Underwriters, the Company and the Selling Shareholders, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among us.
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Shareholder represents by doing that he has been duly appointed as
Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
ALARON.COM HOLDING CORPORATION
By:
----------------------------------
Name:
Title:
SELLING SHAREHOLDERS LISTED ON SCHEDULE B
By:
----------------------------------
Attorney-in-fact
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:
---------------------------------------------
Name: Steven A. Rothstein
Title: Chairman
For itself and as Representative of the Underwriters named in Schedule A hereto.
38
<PAGE>
SCHEDULE A
SECURITIES
----------
<TABLE>
<CAPTION>
Number of Shares Total Number of
Name of to be Purchased Warrants to
Underwriters from the Company be Purchased
------------ ---------------- ---------------
<S> <C> <C>
National Securities Corporation 1,500,000 1,500,000
</TABLE>
TOTAL
39
<PAGE>
SCHEDULE B
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Common Stock Underlying
Selling Shareholder Subject to Option Common Stock
- ------------------------ ----------------- ------------
<S> <C> <C>
Michael Greenberg
Steven A. Greenberg
Carrie A. Greenberg
Greenberg Family Trust
</TABLE>
40
<PAGE>
Exhibit 1.2
1,500,000 Shares of Common Stock and
1,500,000 Redeemable Common Stock Purchase Warrants
ALARON.COM HOLDING CORPORATION
SELECTED DEALER AGREEMENT
Date: _________, 1999
_____________________________
_____________________________
_____________________________
Dear Sirs:
1. We and the other underwriters named in the Prospectus dated _________,
1999 acting through us as Representative, have severally agreed to purchase,
subject to the terms and conditions set forth in the Underwriting Agreement
referred to in the Prospectus, 1,500,000 shares of Common Stock (the "Common
Stock") of Alaron.com Holding Corporation (herein called the "Company") and
1,500,000 Redeemable Stock Purchase Warrants of the Company, each Warrant to
purchase one (1) share of Common Stock, plus up to an additional 225,000 shares
of Common Stock and/or 225,00 Warrants pursuant to an option for the purpose of
covering over-allotments (the "Warrants" and collectively with the Common Stock
(the "Securities")). The Securities may be purchased in the offering only on the
basis of one share of Common Stock together with one Warrant. Immediately
following the offering, the Common Stock and Warrants will be separately
transferable. The Securities and the terms upon which they are to be offered for
sale by the several Underwriters are more particularly described in the
Prospectus.
2. The Common Stock shall be offered to the public at a price of $_____
per share (herein called the "Common Stock Public Offering Price"), and the
Warrants shall be offered to the public at a price of $_____ per Warrant (herein
called the "Warrant Public Offering Price"), and in accordance with the terms of
offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally offering,
subject to the terms and conditions hereof, a portion of the Securities for sale
to certain dealers which are members of the National Association of Securities
Dealers, Inc. (the "NASD") and agree to comply with the provisions of Rule 2740
of the Conduct Rules of the NASD (the "Rules"), and to foreign dealers or
institutions ineligible for membership in said Association that agree (A) not to
resell any of the Securities (i) to purchasers in, or to persons who are
nationals of, the United States of America or (ii) when there is a public demand
for the Securities, to persons specified as those to whom
1
<PAGE>
members of said Association participating in a distribution may not sell, and
(B) to comply, as though such foreign dealer or institution were a member of the
NASD, with Rules 2730, 2740, 2420 (to the extent applicable to foreign nonmember
brokers or dealers) and 2750 (such dealers and institutions agreeing to purchase
Securities hereunder being hereinafter referred to as "Selected Dealers"). The
Securities shall be offered to the Selected Dealers at the Public Offering Price
less a selling concession of $_____ per share of Common Stock and/or $_____ per
Warrant, such concession to be payable as hereinafter provided in Section 9, out
of which concession an amount not exceeding $_____ per share of Common Stock
and/or $_____ per Warrant may be reallowed by Selected Dealers to members of the
NASD or to foreign dealers or institutions ineligible for membership therein
which agree as aforesaid. Some of or all of the Underwriters may be included
among the Selected Dealers.
4. On behalf of the Underwriters we shall act as Representative under
this Agreement and shall have full authority to take such action as we may deem
advisable in respect to all matters pertaining to the public offering of the
Securities.
5. If you desire to purchase any of the Securities your application
should reach us promptly by telephone or telegraph at the office of National
Securities Corporation, 875 North Michigan Avenue, Suite 1560, Chicago, Illinois
60611, and we will use our best efforts to fill the same. We reserve the right
to reject all subscriptions in whole or in part, to make allotments and to close
the subscription books at any time without notice. The Securities allotted to
you will be confirmed, subject to the terms and conditions of this Agreement.
6. The privilege of purchasing the Securities is extended to you only on
behalf of the Underwriters, if any, as may lawfully sell the Securities to
dealers in your state.
7. Any of the Securities purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of the offering thereof set forth herein and in the Prospectus, subject to
the securities laws of the various states. Neither you nor any other person is
or has been authorized to give any information or to make any representations in
connection with the sale of Securities other than as contained in the
Prospectus.
8. Any Securities sold by you (otherwise than through us) which, prior to
the termination of this Agreement or such earlier date as we may determine,
shall be contracted for or purchased in the open market by us shall be
repurchased by you on demand at a price equal to the cost of such purchase plus
commissions and taxes on redelivery. In lieu of delivery of such Securities to
you, we may (i) sell such Securities in any manner for your account and charge
you with the amount of any loss or expense or credit you with the amount of any
profit, less any expense, resulting from such sale or (ii) charge your account
with an amount not in excess of the concession to Selected Dealers for such
Securities.
9. This Agreement will terminate when we shall have determined that the
public offering of the Securities has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this Agreement
will terminate at the close of business on the twentieth (20th) full business
day after the date hereof; provided, however, that
2
<PAGE>
we shall have the right to extend this Agreement for an additional period or
periods not exceeding twenty (20) full business days in the aggregate upon
telegraphic notice to you. Promptly after the termination of this Agreement
there shall become payable to you the selling concession on all Securities which
you shall have purchased hereunder and which shall not have been purchased or
contracted for (including Securities issued upon transfer) by us, in the open
market or otherwise (except pursuant to Section 10 hereof), during the term of
this Agreement for account of one or more of the several Underwriters.
10. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales thereof, in the open market or
otherwise, and, in arranging for sale of the Securities, to over-allot.
11. You agree to advise us from time-to-time upon request, prior to the
termination of this Agreement, of the number of Securities purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Securities shall be needed to make delivery of the Securities
sold or over-allotted for the account of one or more of the Underwriters, you
will, forthwith upon our request, grant to us for the account or accounts of
such Underwriter or Underwriters the right, exercisable promptly after receipt
of notice from you that such right has been granted, to purchase, at the Public
Offering Price less the selling concession or such part thereof as we shall
determine, such number of Securities owned by you as shall have been specified
in our request.
12. On becoming a Selected Dealer and in offering and selling the
Securities, you agree to comply with all applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934.
13. Upon application, you will be informed as to the jurisdictions in
which we have been advised that the Securities have been qualified for sale
under the respective securities or blue sky laws of such jurisdictions, but
neither we nor any of the Underwriters assume any obligation or responsibility
as to the right of any Selected Dealer to sell the Securities in any
jurisdiction or as to any sale therein.
14. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
15. It is expected that public advertisement of the Securities will be
made on the first day after the effective date of the Registration Statement.
Twenty-four (24) hours after such advertisement shall have appeared but not
before, you will be free to advertise at your own expense, over your own name,
subject to any restrictions of local laws, but your advertisement must conform
in all respects to the requirements of the Securities Act of 1933, and neither
we nor the Underwriters will be under any obligation or liability in respect of
your advertisement.
16. No Selected Dealer is authorized to act as our agent or as agent for
the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Securities to the public or otherwise.
3
<PAGE>
17. We and the several Underwriters shall not be under any liability for
or in respect of the value, validity or form of the Securities, or delivery of
the certificates for the Securities, or the performance by anyone of any
agreement on his part, or the qualification of the Securities for sale under the
laws of any jurisdiction, or for or in respect of any matter connected with this
Agreement, except for lack of good faith and for obligations expressly assumed
by us or by the Underwriters in this Agreement. The foregoing provision shall
not be deemed a waiver of any liability imposed under the Securities Act of
1933.
18. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price, on or about _______ __, 1999, or such later date as we
may advise, by certified or official bank check payable to the order of National
Securities Corporation, in current New York Clearing House funds at such place
as we shall specify on one (1) day's notice to you against delivery of
certificates for the Securities.
19. Notice to us should be addressed to us at the office of National
Securities Corporation. Notices to you shall be deemed to have been duly given
if telegraphed, telecopied or mailed to you at the address to which this letter
is addressed.
20. If you desire to purchase any of the Securities, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith even though you have previously advised us
thereof by telephone, teletype or telegraph.
NATIONAL SECURITIES CORPORATION
By:_________________________________
Name:
Title:
CONFIRMED:
NAME OF DEALER:
______________________________________
By:___________________________________
Name:
Title:
Dated:_________________________________
4
<PAGE>
EXHIBIT 3.1
COMPILED CERTIFICATE OF INCORPORATION
-------------------------------------
OF ALARON.COM HOLDING CORPORATION
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AS FILED DECEMBER 3, 1998, AS AMENDED
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MARCH 17, 1999 AND MAY 5, 1999
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The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is ALARON.COM HOLDING CORPORATION.
SECOND: The address, including street, number, city, and county, of
the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, Dover, Delaware 19901,
County of Kent; and the name of the registered agent of the
Corporation in the State of Delaware at such address is
National Registered Agents, Inc.
THIRD: The nature of the business and the purposes to be conducted
and promoted by the Corporation, shall be to conduct any
lawful business, to promote any lawful purpose, and to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue are 30,000,000 shares of $.01 par value
common stock and 10,000,000 shares of $.01 par value
preferred stock (the "Preferred Stock").
Shares of Preferred Stock may be divided into and issues in series
or classes from time to time determined by the Board of Directors of
the Corporation, the shares of each series or class to have such
voting rights, designations, preferences, and relative,
participating, optional
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or special rights, and qualifications, limitations or
restrictions thereof as determined by the Board of Directors
of the Corporation as hereinafter provided.
Each series or class shall be so designated as to distinguish
the shares thereof from shares of all other series and
classes.
Authority is hereby expressly granted to the Board of
Directors of the Corporation, subject to the provisions of
this Article FOURTH and to the limitations prescribed by the
General Corporation Law of Delaware, to authorize the
issuance of one or more series or classes of Preferred Stock
and with respect to each such series or class to fix for such
series or class the voting powers, designations, preferences
and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions
thereof. The authority of the Board of Directors of the
Corporation with respect to each series or class shall
include, but not be limited to, the determination or fixing
of the following:
(i) the designation of such series or class;
(ii) the dividend rate of such series or class, the
conditions and dates upon which such dividends
shall be payable, the relation which such
dividends shall bear to the dividends payable on
any other class or classes of stock or any other
series of any class of stock of the Corporation,
and whether such dividends shall be cumulative or
non-cumulative;
(iii) whether the shares of such series or class shall
be subject to redemption by the Corporation and,
if made subject to such redemption, the times,
prices and other terms and conditions of such
redemption;
(iv) the terms and amount of any sinking fund provided
for the purchase or redemption of the shares of
such series or class;
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(v) whether or not shares of such series or class
shall be convertible into or exchangeable for
shares of any other class or classes of any stock
or any other series of any class of stock of the
Corporation, and, if provision is made for
conversion or exchange, the times, prices, rates
adjustments, and other terms and conditions of
such conversion or exchange;
(vi) the extent, if any, to which the holders of
shares of such series or class shall be entitled
to vote with respect to the election of directors
or otherwise;
(vii) the restrictions, if any, on the issue or reissue
of any additional Preferred Stock; and
(viii) the rights of the holders of the shares of such
series or class upon the Liquidation,
dissolution, or distribution of assets of the
Corporation.
FIFTH: The name and the mailing address of the incorporator are
as follows: Jeffrey A. Hechtman, Esq., 333 West Wacker
Drive, Suite 2800, Chicago, Illinois 60606.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them
and/or between the Corporation and its stockholders or
any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in
a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any
receiver or
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receivers appointed for the Corporation under Section
291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any
receiver or receivers appointed for the Corporation
under Section 279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in
number representing three fourths in value of the
creditors or class of creditors, and/or of the
stockholders or class of stockholders, of the
Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of the
Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on
all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the
Corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the Corporation, and in further
definition, limitation, and regulation of the powers of
the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be,
it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board
of Directors. The number of directors which shall
constitute the whole Board of Directors shall be fixed
by, or in the manner provided in, the Bylaws. The phrase
"whole Board" and the phrase "total number
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of directors" shall be deemed to have the same meaning,
to wit, the total number of directors which the
Corporation would have if there were no vacancies. No
election of directors need be by written ballot.
2. After the original or other Bylaws of the Corporation
have been adopted, amended, or repealed, as the case may
be, in accordance with the provisions of Section 109 of
the General Corporation Law of the State of Delaware,
and, after the Corporation has received any payment for
any of its stock, the power to adopt, amend, or repeal
the Bylaws of the Corporation may be exercised by the
Board of Directors of the Corporation; provided,
however, that any provision for the classification of
directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of Section
141 of the General Corporation Law of the State of
Delaware shall be set forth in an initial Bylaw or in a
Bylaw adopted by the stockholders entitled to vote of
the Corporation unless provisions for such
classification shall be set forth in this certificate of
incorporation.
3. Whenever the Corporation shall be authorized to issue
more than one class of stock, the priorities of each
class of stock shall be set at the discretion of the
Board of Directors. Whenever the Corporation shall be
authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied
voting power by the Board of Directors shall entitle the
holder
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thereof the right to vote at any meeting of stockholders
except as the provisions of paragraph (2) of subsection
(b) of Section 242 of the General Corporation Law of the
Sate of Delaware shall otherwise require; provided, that
no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of
authorized shares of said class.
NINTH: The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent
permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation
Law of the State of Delaware, as the same may be amended
and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted
by the provisions of Section 145 of the General
Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said
section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered
by said section, and the indemnification provided for
herein shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any
Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such
person's 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 person.
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ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered, or
repealed, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added
or inserted in the manner and at the time prescribed by
said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this certificate of
incorporation are granted subject to the provisions of
this Article ELEVENTH.
TWELFTH: The Corporation expressly elects not to be governed by
Section 203 of the General Corporation Law of the State
of Delaware.
The effective time of the certificate of incorporation of the
Corporation, and the time when the existence of the Corporation
shall commence, shall be the date of filing.
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Exhibit 4.2
DRAFT 10/07/99
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ALARON.COM HOLDING CORPORATION
AND
NATIONAL SECURITIES CORPORATION
FORM OF
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF _____________, 1999
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REPRESENTATIVE'S WARRANT AGREEMENT dated as of ________,1999, between
ALARON.COM HOLDING CORPORATION, a Delaware corporation (the "Company"), and
NATIONAL SECURITIES CORPORATION and its assignees or designees (each hereinafter
referred to variously as a "Holder" or "Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") between the Representative and the
Company, to act as the representative of the several underwriters listed therein
(the "Underwriters") in connection with the Company's proposed public offering
of 1,500,000 shares of the Company's Common Stock (as hereinafter defined) and
1,500,000 redeemable Common Stock purchase warrants (the "Warrants") under a
warrant agreement, dated _________, 1999, among the Company, American Stock
Transfer & Trust Company and the Representative (the "Warrant Agreement"), each
warrant entitling the holder thereof to purchase one share of Common Stock
(collectively, the "Securities"). The Securities may be purchased in the
offering only on the basis of one share of Common Stock together with one
Warrant. Immediately following the offering, the Common Stock and Warrants will
be separately transferable.
WHEREAS, pursuant to the Underwriting Agreement, upon the Representative's
request, certain stockholders of the Company proposes to sell up to an
additional 225,000 shares of Common Stock and/or 225,000 Warrants for the
purpose of over-allotments, if any;
WHEREAS, pursuant to the Underwriting Agreement, the Company proposes to
issue to the Representative warrants to purchase up to an aggregate of 150,000
shares of Common Stock and warrants to purchase up to an aggregate 150,000
Warrants (collectively, the "Representative's Warrants"); and
WHEREAS, the Representative's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Representative in consideration
for, and as part of the Underwriters' compensation in connection with, the
Representative acting as the representative pursuant to the Underwriting
Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate of fifteen dollars ($15.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT. The Representative is hereby granted the right to purchase, at
any time from ________________________, 2000 until 5:00 p.m., New York time, on
______________________, 2004 (five (5) years from the Closing Date), at which
time the Representative's Warrants for Common Stock expire, up to an aggregate
150,000 shares of Common Stock, subject to adjustment as provided in Section 11
hereof. The Representative is hereby granted the right to purchase, at any time
from _____________________, 2000 until 5:00 p.m., New York time, on
________________, 2002 (three (3) years from the Closing Date), at
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which time the Representative's Warrants for Warrants expire, up to an aggregate
150,000 Warrants, subject to adjustment as provided in Section 11 hereof. Each
Representative's Warrant for Common Stock shall entitle the holder thereof to
purchase one (1) share of Common Stock at an initial exercise price of $_____
per share (165% of the initial public offering price per share of Common Stock)
(the "Common Stock Exercise Price"). Each Representative's Warrant for Warrants
shall entitle the holder thereof to purchase one (1) Warrant at an initial
exercise price of $_____ per share (165% of the initial public offering price
per Warrant) (the "Warrant Exercise Price").
2. REPRESENTATIVE'S WARRANT CERTIFICATES. The Representative's warrant
certificates (the "Warrant Certificates") delivered and to be delivered pursuant
to this Agreement shall be in the form set forth in Exhibit A, attached hereto
and made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
3. REGISTRATION OF WARRANT. The Representative's Warrants shall be
numbered and shall be registered on the books of the Company when issued.
4. EXERCISE OF REPRESENTATIVE'S WARRANT.
4.1 METHOD OF EXERCISE. The Representative's Warrants initially are
exercisable at the Common Stock Exercise Price and/or Warrant Exercise Price
(subject to adjustment as provided in Section 11 hereof) per Representative's
Warrant set forth in Section 8 hereof payable by certified or official bank
check in New York Clearing House funds. Upon surrender of a Representative's
Warrant Certificate with a Form of Election to Purchase, Exhibit II to the
Warrant Certificate, duly executed, together with payment of the Common Stock
Exercise Price and/or the Warrant Exercise Price for shares of Common Stock
and/or Warrants purchased at the Company's principal offices presently located
at 822 West Washington Boulevard, Chicago, IL 60607, the registered holder of a
Representative's Warrant Certificate ("Holder" or "Holders") shall be entitled
to receive a certificate or certificates for the shares of Common Stock and
Warrants so purchased. The purchase rights represented by each Representative's
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares underlying the
Representative's Warrants). In the case of the purchase of less than all of the
shares purchasable under any Representative's Warrant Certificate, the Company
shall cancel said Representative's Warrant Certificate upon the surrender
thereof and shall execute and deliver a new Representative's Warrant Certificate
of like tenor for the balance of the shares purchasable thereunder.
4.2 RIGHT TO CONVERT WARRANT. (a) In addition to the right to exercise the
Representative's Warrant for cash pursuant to Section 4.1, the Holder shall have
the right to convert the Representative's Warrant (in whole but not in part) for
Common Stock by the surrender of the Representative's Warrant (with the Notice
of Conversion form attached hereto as Exhibit B) at the office of the Company at
any time during the term of the Representative's Warrant, into shares of Common
Stock as provided for in this Section 4.2. Upon exercise of this conversion
right, the Holder shall be entitled to receive that number of shares of Common
Stock equal to the quotient obtained by dividing [(A - B) (X)] by (A), where:
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(A) = the Market Price (as defined in Section 9.3(e)) of one share of
Common Stock on the date of conversion of the Representative's Warrant.
(B) = the Common Stock Exercise Price for one share of Common Stock under
the Representative's Warrant.
(X) = the number of shares of Common Stock issuable upon exercise of the
Representative's Warrant for Common Stock.
If the above calculation results in a negative number, then no shares of
Common Stock shall be issued or issuable upon conversion of the Representative's
Warrant.
Upon conversion of the Representative's Warrant for Common Stock, the
Holder shall be entitled to receive a certificate for the number of shares of
Common Stock determined under this Section 4.2.
(b) In addition to the right to exercise the Representative's Warrant for
cash pursuant to Section 4.1, the Holder shall have the right to convert the
Representative's Warrant (in whole but not in part) for Warrants by the
surrender of the Representative's Warrant (with the Notice of Conversion form
attached hereto as Exhibit B) at the office of the Company at any time during
the term of the Representative's Warrant, into Warrants as provided for in this
Section 4.2. Upon exercise of this conversion right, the Holder shall be
entitled to receive that number of Warrants equal to the quotient obtained by
dividing [(A - B) (X)] by (A), where:
(A) = the Market Price (as defined in Section 9.3(e)) of one Warrant on the
date of conversion of the Representative's Warrant.
(B) = the Warrant Exercise Price for one Warrant under the Representative's
Warrant.
(X) = the number of Warrants issuable upon exercise of the Representative's
Warrant for Warrants.
If the above calculation results in a negative number, then no Warrants
shall be issued or issuable upon conversion of the Representative's Warrant for
Warrants.
Upon conversion of the Representative's Warrant for Warrants, the Holder
shall be entitled to receive a warrant certificate for the number of Warrants
determined under this Section 4.2.
5. ISSUANCE OF CERTIFICATES. Upon the exercise of the Representative's
Warrant, the issuance of certificates for securities, properties or rights
underlying such Representative's Warrant shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 7 and 9 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such
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certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Representative's Warrant Certificates and the certificates representing
the securities, property or rights issued upon exercise of the Representative's
Warrant shall be executed on behalf of the Company by the manual or facsimile
signature of the then present President or any Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the then present Secretary or any Assistant Secretary of
the Company. Representative's Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
6. TRANSFER OF REPRESENTATIVE'S WARRANT. The Representative's Warrant
shall be transferable only on the books of the Company maintained at its
principal office, where its principal office may then be located, upon delivery
thereof duly endorsed by the Holder or by its duly authorized attorney or
representative accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver the new Representative's Warrant to the person entitled
thereto.
7. RESTRICTION ON TRANSFER OF REPRESENTATIVE'S WARRANT. The Holder of a
Representative's Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Representative's Warrant is being acquired as an investment and
not with a view to the distribution thereof, and that the Representative's
Warrant may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for the term of the Representative's Warrant,
except to directors, officers or employees of the Representative, Underwriters,
or members of the selling group or any of their affiliates ("Permitted
Transferees") or by operation of law, and only after twelve months from the date
of closing.
8. EXERCISE PRICE AND NUMBER OF SECURITIES. Except as otherwise provided
in Section 11 hereof, each Representative's Warrant is exercisable to purchase
one share of Common Stock and/or one Warrant at an initial exercise price equal
to the Common Stock Exercise Price and/or the Warrant Exercise Price. The Stock
Exercise Price and/or the Warrant Exercise Price, and the number of shares of
Common Stock and Warrants for which the Representative's Warrant may be
exercised shall be the price and the number of shares of Common Stock and/or
Warrants which shall result from time to time from any and all adjustments in
accordance with the provisions of Section 11 hereof.
9. REGISTRATION RIGHTS.
9.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. Each Representative's
Warrant Certificate and each certificate representing securities issuable upon
exercise of the Representative's Warrant or upon exercise of Warrants underlying
the Representative's Warrants (collectively, the "Warrant Shares") shall bear
the following legend unless (i) such Representative's Warrant or Warrant Shares
are distributed to the public or sold to the underwriters for distribution to
the public pursuant to this Section 9 or otherwise pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Act"), or
(ii)
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the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to counsel for the Company, that such legend is
unnecessary for any such certificate:
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE
OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), (II) TO THE EXTENT APPLICABLE,
RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT REPRESENTED
BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
REPRESENTATIVE'S WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 PIGGYBACK REGISTRATION. If, at any time commencing after the
effective date of the Registration Statement and expiring five (5) years
thereafter, the Company proposes to register any of its securities under the Act
(other than in connection with a merger or pursuant to Form S-4 or Form S-8), it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of each such registration statement, to the Holders of the
Representative's Warrants and/or the Warrant Shares of its intention to do so.
If any of the Holders of the Representative's Warrants and/or Warrant Shares
notify the Company within twenty (20) days after mailing of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford such Holders of the Representative's
Warrants and/or Warrant Shares the opportunity to have any such Representative's
Warrants and/or Warrant Shares registered under such registration statement. In
the event that the managing underwriter for said offering advises the Company in
writing that in its opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) FIRST, the
securities the Company proposes to sell, (b) SECOND, the securities held by the
entities that made the demand for registration, (c) THIRD, the Representative's
Warrants and/or Warrant Shares requested to be included in such registration
which in the opinion of such underwriter can be sold, PRO RATA among the Holders
of Representative's Warrants and/or Warrant Shares on the basis of the number of
Representative's Warrants and/or Warrant Shares requested to be registered by
such Holders, and (d) FOURTH, other securities requested to be included in such
registration.
Notwithstanding the provisions of this Section 9.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 9.2 (irrespective of
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whether a written request for inclusion of any such securities shall have been
made) to elect not to file any such proposed registration statement or to
withdraw the same after the filing but prior to the effective date thereof.
9.3 DEMAND REGISTRATION.
(a) At any time commencing one (1) year after the effective date of the
Registration Statement and expiring five (5) years from the effective date of
Closing, the Holders of the Representative's Warrants and/or Warrant Shares
representing a "Majority" (as hereinafter defined in Section 9.4(k) hereof) of
the Representative's Warrants and/or Warrant Shares shall have the right (which
right is in addition to the registration rights under Section 9.2 hereof),
exercisable by written notice to the Company, to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale by such Holders and any other Holders
of the Representative's Warrant and/or Warrant Shares who notify the Company
within fifteen (15) days after the Company mails notice of such request pursuant
to Section 9.3(b) hereof (collectively, the "Requesting Holders") of their
respective Warrant Shares for the earlier of (i) six (6) consecutive months or
(ii) until the sale of all of the Warrant Shares requested to be registered by
the Requesting Holders.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 9.3 by any Holder or Holders
representing a Majority of the Representative's Warrants and/or Warrant Shares
to all other registered Holders of the Representative's Warrants and the Warrant
Shares within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section 9.2 and
subsection (a) of this Section 9.3, at any time commencing one (1) year after
the effective date of the Registration Statement and expiring five (5) years
from the effective date of the Registration Statement, the Holders of a Majority
of the Representative's Warrants and/or Warrant Shares shall have the right on
one occasion, exercisable by written request to the Company, to have the Company
prepare and file with the Commission a registration statement so as to permit a
public offering and sale by such Holders of their respective Warrant Shares for
the earlier of (i) six (6) consecutive months or (ii) until the sale of all of
the Warrant Shares requested to be registered by such Holders; provided,
however, that the provisions of Section 9.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request. If the Holders
have exercised their rights under Section 9.3(a) then the Holders may not
exercise their rights under Section 9.3(c) for a period of six (6) months
following the effective date of any registration statement filed pursuant to
Section 9.3(a).
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Shares
within the time period specified in Section 9.4(a) hereof pursuant to the
written notice specified in Section 9.3(a) of the Holders of a Majority of the
Representative's Warrants and/or Warrant Shares, the Company, at its option,
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may repurchase (i) any and all Warrant Shares at the higher of the Market Price
(as defined in Section 9.3(e)) per share of Common Stock on (x) the date of the
notice sent pursuant to Section 9.3(a) or (y) the expiration of the period
specified in Section 9.4(a) and (ii) any and all Representative's Warrant at
such Market Price less the exercise price of such Representative's Warrant. Such
repurchase shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period specified in
Section 9.4(a) or (ii) the delivery of the written notice of election specified
in this Section 9.3(d).
(e) DEFINITION OF MARKET PRICE. As used herein, the phrase "Market Price"
at any date shall be deemed to be the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last reported
sale prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock and/or
Warrants are listed or admitted to trading, or, if the Common Stock and/or
Warrants are not listed or admitted to trading on any national securities
exchange, the average closing sale price as furnished by the NASD through The
NASDAQ Stock Market, Inc. ("NASDAQ") or similar organization if NASDAQ is no
longer-reporting such information, or if the Common Stock and/or Warrants are
not quoted on NASDAQ, the OTC Electronic Bulletin Board, or as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
9.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In connection
with any registration under Sections 9.2 or 9.3 hereof, the Company covenants
and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, and to have
any registration statements declared effective at the earliest possible time,
and shall furnish each Holder desiring to sell Warrant Shares such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses (including those of the Company)
in connection with the registration statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Shares included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Shares to be
sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all
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expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify each of the Underwriters contained in Section 7
of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Representative's Warrant prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Shares to be included in any registration statement filed
pursuant to Section 9.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 9.3 hereof, without the prior written consent of National
Securities Corporation or as otherwise required by the terms of any existing
registration rights granted prior to the date of this Agreement by the Company
to the holders of any of the Company's securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
generally available to its security holders (within the meaning of Rule 158
under the Act) an earnings statement (which
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need not be audited) complying with Section 11(a) of the Act and covering a
period of at least 12 consecutive months beginning after the effective date of
the registration statement.
(j) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Shares requested to be included in such underwriting,
which may be the Representative. Such agreement shall be satisfactory in form
and substance to the Company, each Holder and such managing underwriters, and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Shares and may, at
their option, require that any or all the representations, warranties and
covenants of the Company to or for the benefit of such underwriters shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in reference to
the Representative's Warrants or Warrant Shares, shall mean in excess of fifty
percent (50%) of the then outstanding Representative's Warrants or Warrant
Shares that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family, persons acting as nominees or in conjunction therewith or (ii)
have not been resold to the public pursuant to a registration statement filed
with the Commission under the Act.
10. OBLIGATIONS OF HOLDERS. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to SECTION 9 hereof that
each of the selling Holders shall:
(a) Furnish to the Company such information regarding themselves, the
Warrant Shares held by them, the intended method of sale or other disposition of
such securities, the identity of and compensation to be paid to any underwriters
proposed to be employed in connection with such sale or other disposition, and
such other information as may reasonably be required to effect the registration
of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus relating to the
Warrant Shares covered by a registration statement is required to be delivered
under the Act, of the happening of any event with respect to such selling Holder
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
11. ADJUSTMENTS TO COMMON STOCK EXERCISE PRICE AND NUMBER OF SECURITIES.
The Common Stock Exercise Price in effect at any time and the number and kind of
securities purchased upon the exercise of the Representative's Warrant shall be
subject to adjustment from time to time only upon the happening of the following
events:
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11.1 STOCK DIVIDEND, SUBDIVISION AND COMBINATION. In case the Company shall
(i) declare a dividend or make a distribution on its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Common Stock Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Common Stock Exercise Price by a
fraction, the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
11.2 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the Common
Stock Exercise Price pursuant to the provisions of this Section 11, the number
of Warrant Shares issuable upon the exercise at the adjusted Common Stock
Exercise Price of each Representative's Warrant shall be adjusted to the nearest
number of whole shares of Common Stock by multiplying a number equal to the
Common Stock Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares issuable upon exercise of the Representative's
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Common Stock Exercise Price.
11.3 DEFINITION OF COMMON STOCK. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
11.4 MERGER OR CONSOLIDATION. In case of any consolidation of the Company
with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to the Holder a supplemental warrant
agreement providing that the Holder of each Representative's Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Representative's Warrant) to receive, upon exercise of such
Representative's Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger by a holder
of the number of shares of Common Stock for which such Representative's Warrant
might have been exercised immediately prior to such consolidation or merger.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 11. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
11.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment of the
Common Stock Exercise Price shall be made:
(a) Upon the issuance or sale of the Representative's Warrant or the
Warrant Shares;
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(b) Upon the issuance or sale of Common Stock (or any other security
convertible, exercisable, or exchangeable into shares of Common Stock) upon the
direct or indirect conversion, exercise, or exchange of any options, rights,
warrants, or other securities or indebtedness of the Company outstanding as of
the date of this Agreement or granted pursuant to any stock option plan of the
Company in existence as of the date of this Agreement, pursuant to the terms
thereof; or
(c) If the amount of said adjustment shall be less than two cents ($.02)
per share, provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least two cents
($.02) per Representative's Warrant.
12. ADJUSTMENT OF WARRANT EXERCISE PRICE. With respect to any of the
Warrants whether or not the Warrants have been exercised (or are exercisable)
and whether or not the Warrants are issued and outstanding, the Warrant Exercise
Price and the number of shares of Common Stock underlying such Warrants shall be
automatically adjusted in accordance with Section 8 of the Warrant Agreement,
upon the occurrence of any of the events described therein. Thereafter, the
underlying Warrants shall be exercisable at such adjusted Warrant Exercise Price
for such adjusted number of underlying shares of Common Stock or other
securities, properties or rights.
13. EXERCISE OF UNDERLYING WARRANT. (a) In addition to the right to
exercise the Warrants underlying the Representative's Warrant for cash pursuant
to the Warrant Agreement, the Holder and/or any Permitted Transferee shall have
the right to convert the underlying Warrants (in whole but not in part) to
Common Stock by the surrender of the underlying Warrants (with the Notice of
Conversion form attached hereto as Exhibit B) at the office of the Company at
any time during the term of the Warrants, into Common Stock as provided for in
this Section 13. Upon exercise of this conversion right, the Holder shall be
entitled to receive that number of shares of Common Stock equal to the quotient
obtained by dividing [(A - B) (X)] by (A), where:
(A) = the Market Price (as defined in Section 9.3(e)) of one share of
Common Stock on the date of conversion of the underlying Warrants.
(B) = the Exercise Price for one Warrant under the Warrant.
(X) = the number of shares of Common Stock issuable upon exercise of the
Warrants.
If the above calculation results in a negative number, then no Common Stock
shall be issued or issuable upon conversion of the Warrants.
Upon conversion of the Warrants, the Holder and/or any Permitted Transferee
shall be entitled to receive a certificate for the number of shares of Common
Stock determined under this Section 13.
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(b) The rights under this Section 13 to convert the Warrants held by the
Holder and/or a Permitted Transferee are exclusive to the Holder and/or
Permitted Transferees and will terminate if the Representative's Warrant or the
underlying Warrants are transferred to anyone other than a Permitted Transferee.
14. EXCHANGE AND REPLACEMENT OF REPRESENTATIVE'S WARRANT CERTIFICATES.
Each Representative's Warrant Certificate is exchangeable, without expense, upon
the surrender thereof by the registered Holder at the principal executive office
of the Company for a new Representative's Warrant Certificate of like tenor and
date representing in the aggregate the right to purchase the same number of
Warrant Shares in such denominations as shall be designated by the Holder
thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Representative's Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Representative's Warrant, if mutilated, the Company will make and deliver a
new Warrant Certificate of like tenor, in lieu thereof.
15. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Representative's Warrant, nor shall it be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of the
parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
16. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Representative's Warrant,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. Every transfer agent ("Transfer
Agent") for the Common Stock and other securities of the Company issuable upon
the exercise of the Representative's Warrant will be irrevocably authorized and
directed at all times to reserve such number of authorized shares of Common
Stock and other securities as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with every Transfer Agent for the
Common Stock and other securities of the Company issuable upon the exercise of
the Representative's Warrant. The Company will supply every such Transfer Agent
with duly executed stock and other certificates, as appropriate, for such
purpose. The Company covenants and agrees that, upon exercise of the
Representative's Warrant and payment of the Common Stock Exercise Price and/or
Warrant Exercise Price therefor, all shares of Common Stock, Warrants and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
stockholder. As long as the Representative's Warrant shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Representative's Warrant to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq or the OTC Electronic Bulletin Board.
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17. NOTICES TO REPRESENTATIVE'S WARRANT HOLDERS. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however,
at any time prior to the expiration of the Representative's Warrants and their
exercise, any of the following event shall occur:
(a) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its property, assets and business as an entirety shall be proposed;
then in any one or more of said events, the Company shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
18. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) if to the registered Holder of the Representative's Warrant, to the
address of such Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in SECTION 4 hereof or to
such other address as the Company may designate by notice to the Holders.
19. WARRANTS. The form of the certificate representing Warrants (and the
form of election to purchase shares of Common Stock upon the exercise of
warrants and the form of assignment period on the reverse thereof) shall be
substantially as set forth in Exhibit I to the Warrant Agreement. Each Warrant
issuable upon exercise of the Representative's Warrants shall evidence the right
to initially purchase one fully paid and non-assessable share of Common Stock at
an initial purchase price of $______ per share commencing on the Initial
Exercise Date
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and ending at 5:00 p.m. New York time on the Warrant Expiration Date at which
time the Warrant shall expire. The exercise price of the Warrants and the
number of shares of Common Stock issuable upon the exercise of the Warrants are
subject to adjustment, whether or not the Representative's Warrants have been
exercised and the Warrants have been issued, in the manner and upon the
occurrence of the events set forth in Section 8 of the Warrant Agreement, which
is hereby incorporated herein by reference and made a part hereof as if set
forth in its entirety herein. Subject to the provisions of this Agreement and
upon issuance of the Warrants underlying the Representative's Warrants, each
registered holder of such Warrants shall have the right to purchase from the
Company (and the Company shall issue to such registered holders) up to the
number of fully paid and non-assessable shares of Common Stock (subject to
adjustment as provided herein and in the Warrant Agreement), free and clear of
all preemptive rights of stockholders, provided that such registered holder
complies with the terms governing exercise of the Warrants set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Warrants, the Company shall forthwith issue to the registered holder of any such
Warrant in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
herein, the Warrants underlying the Representative's Warrants shall be governed
in all respects by the terms of the Warrant Agreement. The Warrants shall be
transferable in the manner provided in the Warrant Agreement, and upon any such
transfer, a new Warrant Certificate shall be issued promptly to the transferee.
The Company covenants to, and agrees with, the Holder(s) that without the prior
written consent of the Holder(s), the Warrant Agreement will not be modified,
amended, canceled, altered or superseded, and that the Company will send to each
Holder, irrespective of whether or not the Warrants have been exercised, any and
all notices required by the Warrant Agreement to be sent to holders of Warrants.
20. SUPPLEMENTS; AMENDMENTS; ENTIRE AGREEMENT. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
holders of Representative's Warrant Certificates (other than the Representative)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Representative may deem necessary or desirable and
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Representative's Warrant Certificates.
21. SUCCESSORS. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or
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on behalf of the parties to this Agreement, all representations, warranties and
agreements made by the parties to this Agreement or pursuant hereto shall
survive.
23. GOVERNING LAW. This Agreement and each Representative's Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
24. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
25. CAPTIONS. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
26. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Representative's
Warrant Certificates or Warrant Shares any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Underwriters and any other Holder(s) of
the Representative's Warrant Certificates or Warrant Shares.
27. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ATTEST: ALARON.COM HOLDING CORPORATION
By:___________________________ By:_______________________________
Name: Name:
Title: Title:
NATIONAL SECURITIES CORPORATION
By:_______________________________
Name: Steven A. Rothstein
Title: CEO
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EXHIBIT A TO WARRANT AGREEMENT
[FORM OF REPRESENTATIVE'S WARRANT CERTIFICATE]
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 (THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE REPRESENTATIVE'S WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _______________, 2004
Representative's Warrant No.
Issuable for
___________ Shares of Common Stock and/or
___________ Redeemable Common Stock Purchase Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ___________ , or registered
assigns, is the registered holder of Warrants to purchase initially up to _____
shares of Common Stock, par value $.01 per share, of the Company (the "Common
Stock") at an exercise price of $_______ per share (165% of the offering price
per share) (the "Common Stock Exercise Price") and/or to purchase initially up
to ______________ Warrants at an exercise price of $_________ per Warrant (the
"Warrant Exercise Price,"), upon surrender of this Representative's Warrant
Certificate and payment of the Common Stock Exercise Price and/or the Warrant
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement dated
as of ________, 1999 between the Company and National Securities Corporation
(the "Warrant Agreement"). The Warrants may be exercised for Common Stock at
any time from ___________, 2000 until 5:00 p.m., New York time on,
_______________, 2004 ("Common Stock Expiration Date") and/or for Warrants at
any time from _________________, 2000 until 5:00 p.m., New York time on
______________, 2002. Payment of the Common Stock Exercise Price and/or the
Warrant Exercise Price shall be made by certified or official bank check in New
York Clearing House funds or by surrender of the Representative's Warrants as
provided in the Warrant Agreement.
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No Warrant for Common Stock may be exercised after 5:00 p.m., New York
time, on the Common Stock Expiration Date, at which time all Representative's
Warrants for Common Stock evidenced hereby, unless exercised prior thereto,
shall thereafter be void. No Warrant for Warrants may be exercised after 5:00
p.m., New York time, on the Warrant Expiration Date, at which time all
Representative's Warrants for Warrants evidenced hereby, unless exercised prior
thereto, shall thereafter be void.
The Representative's Warrant evidenced by this Warrant Certificate is part
of a duly authorized issue of Representative's Warrants issued pursuant to the
Warrant Agreement, which Warrant Agreement is hereby incorporated by reference
in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the
Representative's Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Common Stock Exercise Price and/or
the Warrant Exercise Price and the number and/or type of securities issuable
upon the exercise of the Representative's Warrant; provided, however, that the
failure of the Company to issue such new Warrant Certificates shall not in any
way change, alter or otherwise impair, the rights of the holder as set forth in
the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Representative's Warrant shall be issued to the transferees in exchange for
this Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Representative's Warrant
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such unexercised Representative's
Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
This Warrant Certificate does not entitle any holder thereof to any of the
rights of a shareholder of the Company.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of _____________, 1999.
ATTEST: ALARON.COM HOLDING CORPORATION
By:___________________________ By:_______________________________
Name: Name:
Title: Title:
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EXHIBIT I TO WARRANT CERTIFICATE
[FORM OF ASSIGNMENT]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO
TRANSFER THE WARRANT CERTIFICATE.)
FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers unto
[NAME OF TRANSFEREE) this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
________________, attorney, to transfer the within Warrant Certificate on the
book of the within-named Company, with full power of substitution.
Dated:_____________________
Signature:_____________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
Address: ___________________________________
___________________________________
_______________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
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<PAGE>
EXHIBIT II TO WARRANT CERTIFICATE
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Common Stock and/or
Warrants, each a Warrant to purchase one (1) share of Common Stock, and herewith
tenders in payment for such securities a certified or official bank check
payable in New York Clearing House Funds to the order of Alaron.com Holding
Corporation (the "Company") in the amount of $_________ all in accordance with
the terms of Section 4.1 of the Representative's Warrant Agreement dated as of
__________, 1999 among the Company and National Securities Corporation. The
undersigned requests that a certificate for such securities be registered in the
name of ____________________, whose address is __________________ and that such
certificate to be delivered to____________________ whose address is
_______________________, and if said number of shares shall not be all the
shares purchasable hereunder, that a new Warrant Certificate for the balance of
the shares purchasable under the within Warrant Certificate be registered in the
name of the undersigned warrant holder or his assignee as below indicated and
delivered to the address stated below.
Dated:_____________________________
Signature:____________________________
(Signature must conform in all
respects to name of holder as specified
on the face of the Warrant Certificate.)
Address: ______________________________
______________________________
______________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:________________________________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
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<PAGE>
EXHIBIT B TO WARRANT AGREEMENT
NOTICE OF CONVERSION
To: ALARON.COM HOLDING CORPORATION
(1) The undersigned hereby elects to convert the attached (check one)
_____ Warrant or ____ Representative's Warrant into such number of _____________
shares of Common Stock and/or _________________ Warrants of Alaron.com Holding
Corporation (the "Securities") as is determined pursuant to Section 4.2 or
Section 13 of such Representative's Warrant Agreement, which conversion shall be
effected pursuant to the terms of the attached Representative's Warrant
Agreement.
(2) Please issue a certificate or certificates representing said
Securities in the name of the undersigned or in such other name as is specified
below:
_________________________
Name
_________________________
_________________________
_________________________
Address
(3) The undersigned represents that the aforesaid shares of Common Stock
and/or Warrants are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
____________________ ____________________
Date Signature
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<PAGE>
Exhibit 4.4
ALARON.COM HOLDING CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
AND
NATIONAL SECURITIES CORPORATION
FORM OF
WARRANT AGREEMENT
DATED AS OF _________________, 1999
<PAGE>
AGREEMENT, dated this _____ day of _____________, 1999, among ALARON.COM
HOLDING CORPORATION, a Delaware corporation (the "Company"), AMERICAN STOCK
TRANSFER AND TRUST COMPANY, a New York banking corporation, as Warrant Agent
(the "Warrant Agent"), and NATIONAL SECURITIES CORPORATION, its successors and
assigns ("National" or the "Representative").
W I T N E S S E T H:
WHEREAS, in connection with (i) the Company's offering to the public of
1,500,000 shares of the Company's Common Stock (as defined in Section 1) and
1,500,000 redeemable common stock purchase warrants (as defined in Section 1),
each warrant entitling the holder thereof to purchase one share of Common Stock;
(ii) the over-allotment option to purchase up to an additional 225,000 shares of
Common Stock and/or 225,000 Warrants; and (iii) the sale to National of warrants
(as defined in Section 1) to purchase up to 150,000 shares of Common Stock
and/or 150,000 Warrants, the Company will issue up to 1,875,000 Warrants
(subject to increase as provided in the Representative's Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the Warrants
and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, National, the
holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Common Stock" shall mean the authorized stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the voting and in the distribution of earnings and assets of the Company
without limit as to amount or percentage which at the date hereof consists of
30,000,000 shares of Common Stock, par value $.01 per share.
(c) "Commission" shall mean the Securities and Exchange Commission.
(d) "Corporate Office" shall mean the Office of the Warrant Agent (or its
successor) at which at any particular time its business in New York, New York,
shall be administered,
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<PAGE>
which office is located on the date hereof c/o American Stock Transfer & Trust
Company, _____________________, New York, New York ______________.
(e) "Date of the Prospectus" shall mean the date when public trading in
the Common Stock commences.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Date" shall mean, subject to the provisions of Section 5(b)
hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder hereof or his
attorney duly authorized in writing, and (ii) payment in cash or by official
bank or certified check made payable to the Warrant Agent for the account of the
Company, of the amount in lawful money of the United States of America equal to
the applicable Exercise Price (as hereinafter defined) in good funds.
(h) "Exercise Price" shall mean, subject to modification and adjustment as
provided in Section 8, $______ per share (140% of the initial public offering
price per share of Common Stock) and further subject to the Company's right, in
its sole discretion, to decrease the Exercise Price for a period of not less
than 30 days on not less than 30 days' prior written notice to the Registered
Holders and National.
(i) "Initial Warrant Exercise Date" shall mean __________________, 1999
(the Date of the Prospectus).
(j) "Initial Warrant Redemption Date" shall mean ___________, 2000 (the
first day of the twelfth calendar month after the Initial Warrant Exercise
Date).
(k) "Market Price" shall mean the last reported sale price, or, in case no
such reported sale takes place on such day, the average closing bid price as
furnished by the OTC Electronic Bulletin Board, or the principal securities
exchange on which the Common Stock is listed or admitted to trading, or by the
Nasdaq Stock Market or, if the Common Stock is not listed or admitted to trading
on any securities exchange or quoted by Nasdaq or the OTC Electronic Bulletin
Board, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
(l) "NASD" shall mean the National Association of Securities Dealers, Inc.
(m) "Nasdaq" shall mean the Nasdaq Stock Market.
(n) "Over-Allotment Option" shall mean the Representative's option to
purchase an additional 225,000 shares of Common Stock and/or 225,000 Warrants to
cover over-allotments, if any.
(o) "Redemption Date" shall mean the date (which may not occur before the
Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
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<PAGE>
(p) "Redemption Price" shall mean the price at which the Company may, at
its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.10 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof.
(q) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(r) "Representative's Warrants" shall mean warrants issued pursuant to the
Representative's Warrant Agreement for the purchase of an additional 150,000
shares of Common Stock and/or 150,000 Warrants. Each Representative's Warrant
shall entitle the holder thereof to purchase one share of Common Stock at an
initial exercise price of $________ per share (165% of the initial public
offering price of one share of Common Stock) and/or one Warrant to purchase one
share of Common Stock, at an initial exercise price of $_____ per Warrant (165%
of the initial public offering price of a Warrant).
(s) "Representative's Warrant Agreement" shall mean the agreement dated as
of _______________, 1999 between the Company and National relating to and
governing the terms and provisions of the Representative's Warrants.
(t) "Transfer Agent" shall mean American Stock Transfer & Trust Company,
or its authorized successor.
(u) "Underwriting Agreement" shall mean the underwriting agreement
dated ________________, 1999 between the Company and the several underwriters
listed therein relating to the purchase for resale to the public of the
1,500,000 shares of Common Stock and 1,500,000 Warrants, as well as securities
issued under the Over-Allotment Option.
(v) "Warrants" shall mean redeemable common stock purchase warrants
offered to the public in connection with this offering and subject to the
Representative's Warrants, each Warrant entitling the holder thereof to purchase
one share of Common Stock, exercisable at the Exercise Price at any time over a
thirty-six (36) month period commencing on the Initial Warrant Exercise Date.
(w) "Warrant Certificate" shall mean a certificate representing each of
the Warrants substantially in the form annexed hereto as Exhibit A.
(x) "Warrant Expiration Date" shall mean, 5:00 p.m. (New York time), on
__________, 2002 (three years after the Date of the Prospectus), or the
Redemption Date as defined herein, whichever date is earlier; PROVIDED that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (New York time) on the next following
day which, in the State of New York, is not a holiday, or a day on which banks
are authorized to close. Upon five business days' prior written notice to the
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
3
<PAGE>
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Exercise Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof in accordance with the
terms hereof, subject to modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold pursuant to the Underwriting Agreement (subject to
modification and adjustment as provided in Section 8), including over-allotment
options, shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as provided therein,
Warrant Certificates representing all or a portion of 150,000 Warrants (subject
to modification and adjustment as provided in Section 8 hereof and in the
Representative's Warrant Agreement), to purchase up to an aggregate of 150,000
shares of Common Stock shall be countersigned, issued and delivered by the
Warrant Agent upon written order of the Company signed by its Chairman or Vice-
Chairman of the Board, Chief Executive Officer, President, Chief Financial
Officer or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary.
(d) From time to time, up to the Warrant Expiration Date or the Redemption
Date, whichever date is earlier, the Warrant Agent shall countersign and deliver
Warrant Certificates in required denominations of one or whole number multiples
thereof to the person entitled thereto in connection with any transfer or
exchange permitted under this Agreement. Except as provided herein, no Warrant
Certificates shall be issued except (i) Warrant Certificates initially issued
hereunder and those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants held by the exercising Registered
Holder, (ii) Warrant Certificates issued upon any transfer or exchange of
Warrants, (iii) Warrant Certificates issued in replacement of lost, stolen,
destroyed or mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant
Certificates issued pursuant to the Representative's Warrant Agreement, and (v)
at the option of the Company, Warrant Certificates in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in the
Exercise Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 8
hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial
4
<PAGE>
issuance, transfer, exchange or in lieu of mutilated, lost, stolen or destroyed
Warrant Certificates) and issued in registered form. Warrants shall be numbered
serially with the letter "W" on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman or Vice-Chairman of the Board, Chief Executive Officer, President or
any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
any case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to
the Registered Holder promptly and without further action by the Company, except
as otherwise provided by Section 4(a) hereof.
SECTION 4. EXERCISE.
(a) Warrants in denominations of one or whole number multiples thereof may
be exercised by the Registered Holder thereof commencing at any time on or after
the Initial Warrant Exercise Date, but not after the Warrant Expiration Date,
upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder, upon exercise thereof, as of the close
of business on the Exercise Date. If Warrants in denominations other than whole
number multiples thereof shall be exercised at one time by the same Registered
Holder, the number of full shares of Common Stock which shall be issuable upon
exercise thereof shall be computed on the basis of the aggregate number of full
shares of Common Stock issuable upon such exercise. As soon as practicable on or
after the Exercise Date and in any event within five business days after such
date, if one or more Warrants have been exercised, the Warrant Agent on behalf
of the Company shall cause to be issued to the person or persons entitled to
receive the same a Common Stock certificate or certificates for the shares of
Common Stock deliverable upon such exercise, and the Warrant Agent shall deliver
the same to the person or persons entitled thereto. Upon the exercise of any one
or more Warrants, the Warrant Agent shall promptly notify the Company in writing
of such fact and of the number of securities delivered upon such exercise and,
subject to subsection (b) below, shall cause all payments of an amount in cash
or by check made payable to the order of the Company, equal to the Exercise
Price, to be deposited promptly in the Company's bank account.
(b) The Company shall engage National as a Warrant solicitation agent,
and, at any time upon the exercise of any Warrants after one year from the date
hereof, the Company shall instruct the Warrant Agent to, and the Warrant Agent
shall, on a daily basis, within two business days after such exercise, notify
National of the exercise of any such Warrants and shall, on a
5
<PAGE>
weekly basis (subject to collection of funds constituting the tendered Exercise
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), remit to National an amount
equal to five percent (5%) of the Exercise Price of such Warrants then being
exercised unless National shall have notified the Warrant Agent that the payment
of such amount with respect to such Warrant is violative of the General Rules
and Regulations promulgated under the Exchange Act, or the rules and regulations
of the OTC Bulletin Board or applicable state securities or "blue sky" laws, or
the Warrants are those underlying the Representative's Warrants in which event,
the Warrant Agent shall have to pay such amount to the Company; provided, that,
the Warrant Agent shall not be obligated to pay any amounts pursuant to this
Section 4(b) during any week that such amounts payable are less than $1,000 and
the Warrant Agent's obligation to make such payments shall be suspended until
the amount payable aggregates $1,000, and provided further, that, in any event,
any such payment (regardless of amount) shall be made not less frequently than
monthly. Notwithstanding the foregoing, National shall be entitled to receive
the commission contemplated by this Section 4(b) as Warrant solicitation agent
only if: (i) National has provided actual services in connection with the
solicitation of the exercise of a Warrant by a Registered Holder and (ii) the
Registered Holder exercising a Warrant affirmatively designates in writing on
the exercise form on the reverse side of the Warrant Certificate that the
exercise of such Registered Holder's Warrant was solicited by National.
(c) The Company shall not be required to issue fractional shares on the
exercise of Warrants. Warrants may only be exercised in such multiples as are
required to permit the issuance by the Company of one or more whole shares. If
one or more Warrants shall be presented for exercise in full at the same time by
the same Registered Holder, the number of whole shares which shall be issuable
upon such exercise thereof shall be computed on the basis of the aggregate
number of shares purchasable on exercise of the Warrants presented. If any
fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted trading
privileges on a national securities exchange, or is traded on Nasdaq, the
current market value of a share of Common Stock shall be the closing sale price
of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants on whichever of such
exchanges or Nasdaq had the highest average daily trading volume for the Common
Stock on such day; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, but is quoted on the OTC Bulletin Board, the current
market value of a share of Common Stock shall be the average of the last
reported bid and asked prices of the Common Stock reported by the OTC Bulletin
Board on the last business day prior to the date of exercise of the Warrants; or
(3) If the Common Stock is not listed, admitted to unlisted trading
privileges on any national securities exchange, or listed, quoted or reported
for trading on Nasdaq, and bid and asked prices of the Common Stock are not
reported by the National Quotation Bureau, Inc., the
6
<PAGE>
current market value of a share of Common Stock shall be an amount, not less
than the book value thereof as of the end of the most recently completed fiscal
quarter of the Company ending prior to the date of exercise, determined by the
members of the Board of Directors of the Company exercising good faith and using
customary valuation methods.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery thereof, be duly and validly issued and
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each securities exchange, if any, on
which the other shares of outstanding Common Stock of the Company are then
listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment, use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding and deliver a prospectus which complies with Section
10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except, if
in the opinion of counsel to the Company, such registration is not required
under the federal securities law or if the Company receives a letter from the
staff of the Commission stating that it would not take any enforcement action if
such registration is not effected). The Company will use its best efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws with respect to any such securities. However, Warrants may not be exercised
by, or shares of Common Stock issued to, any Registered Holder in any state in
which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
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<PAGE>
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and, upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office, books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with customary practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants of the same
class.
(c) With respect to all Warrant Certificates presented for registration of
transfer, or for exchange or exercise, the subscription or exercise form, as the
case may be, on the reverse thereof shall be duly endorsed or be accompanied by
a written instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder thereof or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any exchange
or registration of transfer of Warrant Certificates. In addition, the Company
may require payment by such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the Warrant
Agent and thereafter retained by the Warrant Agent until termination of this
Agreement.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. LOSS OR MUTILATION.
Upon receipt by the Company and the Warrant Agent of evidence satisfactory
to them of the ownership of and the loss, theft, destruction or mutilation of
any Warrant Certificate and (in the case of loss, theft or destruction) of
indemnity satisfactory to them, and (in case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and the Warrant Agent shall (in
the absence of notice to the Company and/or the Warrant Agent that a new Warrant
Certificate has been acquired by a bona fide purchaser) countersign and deliver
to the Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal
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<PAGE>
aggregate number of Warrants. Applicants for a substitute Warrant Certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON
STOCK DELIVERABLE.
(a) Except as hereinafter provided, in the event the Company shall, at any
time or from time to time after the date hereof and during the term of the
Warrants, issue or sell any shares of Common Stock for a consideration per share
less than the Exercise Price or issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any such
issuance, subdivision or combination being herein called a "Change of Shares"),
then, and thereafter upon each further Change of Shares, the Exercise Price for
the Warrants (whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (i) the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by the
Exercise Price in effect immediately prior to such Change of Shares and (b) the
consideration, if any, received by the Company upon such sale, issuance,
subdivision or combination, by (ii) the total number of shares of Common Stock
outstanding immediately after such Change of Shares; PROVIDED, HOWEVER, that in
no event shall the Exercise Price be adjusted pursuant to this computation to an
amount in excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a), the following provisions shall be applicable;
(A) In case of the issuance or sale of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be cash, the amount of the
cash portion of the consideration therefor deemed to have been received by the
Company shall be (i) the subscription price, if shares of Common Stock are
offered by the Company for subscription, or (ii) the public offering price
(before deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith),
if such securities are sold to underwriters or dealers for public offering
without a subscription offering, or (iii) the gross amount of cash actually
received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company, and otherwise than on the exercise of
options, rights or warrants or the conversion or exchange of convertible or
exchangeable securities) of shares of Common Stock (or of other securities
deemed hereunder to involve the issuance or sale of shares of Common Stock) for
a consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash deemed to have been received by the
Company shall be the value of such consideration as determined in good faith by
the Board of Directors of the
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Company, using customary valuation methods and on the basis of prevailing market
values for similar property or services.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(D) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time outstanding shall
be deemed to include the aggregate maximum number of shares issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights or warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(b) Upon each adjustment of the Exercise Price pursuant to this Section 8,
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share (determined as provided in Sections 8(a) and 8(b) and
as provided below) less than the Exercise Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of any
such securities by way or dividend or other distribution), the Exercise Price
for the Warrants (whether or not the same shall be issued and outstanding) in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Sections 8(a) and 8(b) hereof, PROVIDED that:
(A) The aggregate maximum number of shares of Common Stock, as the case
may be, issuable or that may become issuable under such options, rights or
warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, form a consideration
equal to the minimum purchase price per share provided for in such options,
rights or warrants at the time of issuance, plus the consideration, if any,
received by the Company for such options, rights or warrants; PROVIDED, HOWEVER,
that upon the expiration or other termination of such options, rights or
warrants, if any thereof shall not have been exercised, the
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<PAGE>
number of shares of Common Stock deemed to be issued and outstanding pursuant to
this subsection (A) (and for the purposes of subsection (E) of Section 8(a)
hereof) shall be reduced by the number of shares as to which options, warrants
and/or rights shall have expired, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued plus the shares remaining issuable upon the exercise of those options,
rights or warrants as to which the exercise rights shall not have expired or
terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock issuable or
that may become issuable upon conversion or exchange of any convertible or
exchangeable securities (assuming conversion or exchange in full even if not
then currently convertible or exchangeable in full) shall be deemed to be issued
and outstanding at the time of issuance of such securities, for a consideration
equal to the consideration received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; PROVIDED, HOWEVER, that upon the termination of the right to
convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares of Common Stock deemed
to be issued and outstanding pursuant to this subsection (8) (and for the
purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued plus the shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided for in any
of the options, rights or warrants referred to in subsection (A) of this Section
8(c), or in the price per share or ratio at which the securities referred to in
subsection (8) of this Section 8(c) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, to the extent not theretofore exercised, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities.
(d) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a Subsidiary in which merger the Company is the continuing corporation) and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants (other than a change in par value, or from par value to no par value,
or from no par value to par value or as a result of subdivision or combination)
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a condition
of
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such reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each Warrant
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant Agent
a statement signed by its Principal Executive Officer, President, Chief
Financial Officer or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Sections
8(a), (b) and (c). The above provisions of this Section 8(d) shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Exercise Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(e) hereof, continue to express the Exercise Price per share and the
number of shares purchasable thereunder as the Exercise Price per share and the
number of shares purchasable thereunder were expressed in the Warrant
Certificates when the same were originally issued.
(f) After each adjustment of the Exercise Price pursuant to this Section
8, the Company will promptly prepare a certificate signed by the Chairman, or
Vice-Chairman of the Board, Chief Executive Officer, Chief Financial Officer or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to each Registered Holder at his last address as it shall
appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated herein.
(g) No adjustment of the Exercise Price shall be made as a result of or in
connection with (A) the issuance or sale of shares of Common Stock pursuant to
options, warrants, stock purchase agreements and convertible or exchangeable
securities outstanding or in effect on the date hereof and on the terms
described in the final prospectus relating to the public offering contemplated
by the Underwriting Agreement; (B) the issuance or sale of shares of Common
Stock if the amount of said adjustment shall be less than $______, PROVIDED,
HOWEVER, that in such case, any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that shall amount, together with
any adjustment so carried forward, to at least $____ ;
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(C) the issuance or sale of shares of Common Stock upon the exercise of any
incentive stock options (as such term is defined in the Internal Revenue Code of
1986, as amended) or non-qualified stock options under the Company's existing
stock option plans described in the final prospectus relating to the public
offering contemplated by the Underwriting Agreement provided the exercise price
of such options was not less than ten percent (10%) of the Market Price on the
date of grant; (D) the issuance or sale of shares of Common Stock in an
underwritten public offering on behalf of the Company at a discount to the
Market Price of not more than seven percent (7%) per share; or (E) the issuance
or sale of shares of Common Stock for a bona fide business purpose of the
Company in an arm's length transaction with an unaffiliated party involving a
strategic alliance, joint venture or licensing arrangement provided (i) the
number of shares so issued or sold do not exceed, individually or in the
aggregate at any time during the term of Warrants, more than twenty percent
(20%) of the then outstanding shares of Common Stock; and (ii) such shares are
issued or sold in exchange for consideration valued by the Company's Board of
Directors at not less than ten percent (10%) of the Market Price on the date of
issuance and/or sale. In addition, Registered Holders shall not be entitled to
cash dividends paid by the Company prior to the exercise of any Warrant or
Warrants held by them.
SECTION 9. REDEMPTION.
(a) Commencing on the Initial Warrant Redemption Date, the Company may, on
30 days' prior written notice, redeem all the Warrants at ten cents ($0.10) per
Warrant, PROVIDED, HOWEVER, that before any such call for redemption of Warrants
can take place, the average closing bid price for the Common Stock as quoted on
the OTC Bulletin Board or Nasdaq SmallCap Market, if the Common Stock is then
traded on the Nasdaq SmallCap Market (or the average closing sale price, if the
Common Stock is then traded on the Nasdaq National Market or a national
securities exchange) shall have averaged an amount equal to or in excess of $
per share (200% of the initial public offering price per share of Common Stock)
for any twenty (20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the date on which the
notice contemplated by (b) and (c) below is given (subject to adjustment in the
event of any stock splits or other similar events as provided in Section 8
hereof) and if National gives its prior written consent to the giving of the
notice of redemption and the proposed redemption.
(b) In case the Company shall exercise its right to redeem all of the
Warrants, it shall give or cause to be given notice to the Registered Holders of
the warrants, by mailing to such Registered Holders a notice of redemption,
first class, postage prepaid, at their last address as shall appear on the
records of the Warrant Agent. Any notice mailed in the manner provide herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to National a
similar notice telephonically and confirmed in writing, and if National is
engaged as a Warrant solicitation agent, the Company shall also, deliver to
cause to be delivered to National a list of the Registered Holders (including
their respective addresses and number of Warrants beneficially owned) to whom
such notice of redemption has been or will be given.
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(c) The notice of redemption shall specify (i) the redemption price, (ii)
the Redemption Date, which shall in no event be less than thirty (30) days after
the date of mailing of such notice, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, [(iv)
that National shall receive the commission contemplated by Section 4(b) hereof,]
and (v) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New
York time) on the business day immediately preceding the date fixed for
redemption. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) If National acts as the Warrant solicitation agent for the Company,
the Company shall indemnify National and each person, if any, who controls
National within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which any of them may become subject under the
Act, the Exchange Act or otherwise, arising from the registration statement or
prospectus referred to in Section 5(b) hereof to the some extent and with the
same effect (including the provisions regarding contribution) as the provisions
pursuant to which the Company has agreed to indemnify National contained in
Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall
furnish to National, as Warrant solicitation agent, (i) an opinion of counsel to
the Company, dated such date and addressed to National, and (ii) a "cold
comfort" letter dated such date addressed to National, signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
SECTION 10. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company and National, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
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(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Exercise Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustments,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of fact contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence, bad faith or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company or for National) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman or Vice Chairman of the Board of Directors, Chief Executive Officer,
Chief Financial Officer, President or any Vice President (unless other evidence
in respect thereof is herein specifically prescribed). The Warrant Agent shall
not be liable for any action taken, suffered or omitted by it in accordance with
such notice, statement, instruction, request, direction, order or demand
reasonably believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save it
harmless from and against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder EXCEPT losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence,
bad faith or willful conduct.
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities resulting as a
result of the Warrant Agent's own gross negligence or Willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock
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transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged, any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent or
any new warrant agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date
of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. MODIFICATION OF AGREEMENT.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (i) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained; or (ii) that they may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Warrant Certificates; PROVIDED, HOWEVER, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Registered Holders representing not less than 66-2/3%
of the Warrants then outstanding; PROVIDED, FURTHER, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or to increase the Exercise Price therefor or to accelerate of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Warrant, other than such
changes as are presenting specifically prescribed by this Agreement as
originally executed. In addition, this Agreement may not be modified, amended or
supplemented without the prior written consent of National, other than to cure
any ambiguity or to correct any provision which is inconsistent with any other
provision of this Agreement or to make any such change that is necessary or
desirable and which shall not adversely affect the interests of National and
except as may be required by law.
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SECTION 12. NOTICES.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made when delivered or mailed first-
class registered or certified mail, postage prepaid, as follows: if to the
Registered Holder of a Warrant Certificate, at the address of such holder as
shown on the registry books maintained by the Warrant Agent; if to the Company
at 822 West Washington Boulevard, Chicago, Illinois 60607, Attention: Steven A.
Greenberg, or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; and if to the Warrant Agent, at ___________,
New York, New York ______. Copies of any notice delivered pursuant to this
Agreement shall also be delivered to National Securities Corporation, 875 North
Michigan Avenue, Suite 1560, Chicago, Illinois 60611, Attention: Steven A.
Rothstein or at such other address as may have been furnished to the Company and
the Warrant Agent in writing.
SECTION 13. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, National, the Warrant Agent and their respective successors and assigns
and the holders from time to time of Warrant Certificates or any of them.
Nothing in this Agreement is intended or shall be construed to confer upon
any other person any right, remedy or claim, in equity or at law, or to impose
upon any other person any duty, liability or obligation.
SECTION 15. TERMINATION.
This Agreement shall terminate at the close of business on the Expiration
Date of all of the Warrants or such earlier date upon which all Warrants have
been exercised or redeemed, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 10 hereof shall
survive such termination.
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SECTION 16. COUNTERPARTS.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the first date first above written.
ATTEST: ALARON.COM HOLDING CORPORATION
By:__________________________________ By:_________________________________
Name:________________________________ Name:_______________________________
Title:_______________________________ Title:______________________________
ATTEST: AMERICAN STOCK TRANSFER
& TRUST COMPANY, as Warrant Agent
By:__________________________________ By:_________________________________
Name: _______________________________ Name:_______________________________
Title: ______________________________ Title:______________________________
ATTEST: NATIONAL SECURITIES CORPORATION
By:__________________________________ By:_________________________________
Name:________________________________ Name:_______________________________
Title:_______________________________ Title:______________________________
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EXHIBIT A
No. W_______ VOID AFTER _________, 2002
__________ WARRANTS
FORM OF
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
ALARON.COM HOLDING CORPORATION
CUSIP # ___________
THIS CERTIFIES THAT, FOR VALUE RECEIVED ________________________________, or
its registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share, of Alaron.com Holding Corporation, a Delaware corporation (the
"Company"), at any time between __________________, 1999 (the "Initial Warrant
Exercise Date"), and the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $__________ per share, subject to adjustment
(140% of the initial public offering price per share of Common Stock) (the
"Exercise Price"), in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated _____________,
1999, by and between the Company, National Securities Corporation ("National")
and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on the date
which is three (3) years after the Date of the Prospectus. If each such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall
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mean 5:00 p.m. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $0.10 per
Warrant, at any time commencing after _________________, 2000, provided that the
average closing bid price for the Common Stock as reported by the OTC Electronic
Bulletin Board or Nasdaq Small Cap Market, if the Common Stock is then traded on
the Nasdaq Small Cap Market (or the average closing sale price, if the Common
Stock is then traded on the Nasdaq National Market or a national securities
exchange), shall have equaled or exceeded $____________ per share (200% of the
initial public offering price per share of Common Stock) for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the Notice of Redemption, as defined below
(subject to adjustment in the event of any stock splits or other similar events)
and National has given its prior written consent to such redemption. Notice of
redemption (the "Notice of Redemption") shall be given not later than the
thirtieth (30th) day before the date fixed for redemption, or as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$0.10 per Warrant upon surrender of this Warrant Certificate.
Upon certain circumstances, National may be entitled to receive an
aggregate of five percent (5%) of the Exercise Price of the Warrants represented
hereby, if it is engaged as a Warrant solicitation agent by the Company.
20
<PAGE>
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _____________, 1999
[SEAL] ALARON.COM HOLDING
CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
COUNTERSIGNED:
AMERICAN STOCK TRANSFER TRUST COMPANY,
as Warrant Agent
By:
-------------------------
Authorized Officer
21
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and be delivered to
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
22
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING
1. The exercise of this Warrant was solicited by:
___________________________________.
2. The exercise of this Warrant was not solicited.
Dated:
-----------------------------------
-----------------------------------
- ----------------------------------
- ----------------------------------
Address
- --------------------------------------------
Social Security or Taxpayer Identification Number
- --------------------------------------------
Signature Guaranteed
23
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
____________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints _______________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:
-------------------------
- -------------------------------
Signatured Guaranteed
- -------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
24
<PAGE>
EXHIBIT 10.4b
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This Amendment to Employment Agreement (the "Amendment") is entered into
this 1st day of March, 1999, by and between ALARON.COM HOLDING CORPORATION
(f/k/a ALARON.COM CORPORATION), a Delaware corporation ("Alaron"), and CARRIE
GREENBERG, an individual resident of the State of Illinois ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Alaron and Employee have entered into that certain employment
agreement dated March 1, 1999 (the "Agreement"); and
WHEREAS, Alaron and Employee desire to amend the Agreement pursuant to the
terms of this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Effective as of March 1, 1999, Employee's Base Salary (as defined in
the Agreement) shall be $135,000.00.
2. The terms and conditions of the Agreement, except to the extent
amended herein, are hereby ratified and approved and remain in full force and
effect.
3. This Amendment may be signed in counterparts, each of which shall
constitute an original, and all of which when taken together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
EMPLOYEE: ALARON.COM HOLDING CORPORATION
/s/ Carrie Greenberg By: /s/ Steven Greenberg
- ---------------------------------- ----------------------------------
Carrie Greenberg Steven Greenberg, President
2
<PAGE>
EXHIBIT 10.5b
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This Amendment to Employment Agreement (the "Amendment") is entered into
this 1st day of March, 1999, by and between ALARON.COM HOLDING CORPORATION
(f/k/a ALARON.COM CORPORATION), a Delaware corporation ("Alaron"), and BARRY
ISAACSON, an individual resident of the State of Illinois ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Alaron and Employee have entered into that certain employment
agreement dated March 1, 1999 (the "Agreement"); and
WHEREAS, Alaron and Employee desire to amend the Agreement pursuant to the
terms of this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Effective as of March 1, 1999, Employee's Base Salary (as defined in
the Agreement) shall be $121,000.00.
2. The terms and conditions of the Agreement, except to the extent
amended herein, are hereby ratified and approved and remain in full force and
effect.
3. This Amendment may be signed in counterparts, each of which shall
constitute an original, and all of which when taken together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
EMPLOYEE: ALARON.COM HOLDING CORPORATION
/s/ Barry Isaacson By: /s/ Steven Greenberg
- -------------------------------- ---------------------------------
Barry Isaacson Steven Greenberg, President
2
