<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________________________________
to________________________________
Commission File number 0-1298
LUNN INDUSTRIES, INC.
---------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-1581582
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES [ X ] NO [ ]
The aggregate number of shares of Common Stock outstanding as of April 10, 1996
was 11,309,499.
Transitional Small Business Disclosure Format (check one)
Yes |_| No |X|
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1996
================================================================================
ASSETS
================================================================================
March 31,
1996
(unaudited)
================================================================================
CURRENT ASSETS
Cash and cash equivalent $ 157,719
Accounts Receivable - trade, less allowance for doubtful
accounts of $147,089 2,798,226
Inventories 4,456,849
Prepaid expense and other current assets 426,493
-----------
TOTAL CURRENT ASSETS 7,839,287
-----------
PROPERTY AND EQUIPMENT - Net of Accumulated
Depreciation of $3,892,878 7,516,151
-----------
Other Assets:
Security deposits and other assets 114,783
Intangible assets - net 467,945
-----------
Total other assets 582,728
-----------
TOTAL ASSETS $15,938,166
===========
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1996
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================
MARCH 31,
1996
(unaudited)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade 1,116,199
Accrued liabilities 996,328
Accrued income taxes 37,193
Notes payable 845,250
Capital lease obligations 8,140
------------
TOTAL CURRENT LIABILITIES 3,003,110
------------
LONG-TERM LIABILITIES:
Notes Payable 2,903,346
Capital Lease Obligations 16,218
------------
TOTAL LONG TERM LIABILITIES 2,919,564
------------
TOTAL LIABILITIES 5,922,674
------------
STOCKHOLDERS' EQUITY:
Common stock: par value, $.01 per share, authorized
20,000,000 shares; outstanding 11,256,999 112,570
Additional paid-in capital 13,790,979
Accumulated deficit (3,887,720)
------------
10,015,829
Less treasury stock (150 shares) (337)
------------
TOTAL STOCKHOLDERS' EQUITY 10,015,492
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,938,166
============
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
----------- -----------
1996 1995
----------- -----------
=============================================
SALES $ 4,213,310 $ 3,337,772
=============================================
Cost of Sales 3,262,673 2,673,214
----------- -----------
Gross Income 950,637 664,558
Selling, General and Administrative Expenses 740,935 545,331
----------- -----------
Operating Income 209,702 119,227
----------- -----------
Other Income (Expense)
Interest Income (Expense) (126,345) (100,649)
Other Income (Expense) 10,106 8,146
----------- -----------
(116,239) (92,503)
----------- -----------
Income (loss) from Continuing Operations Before
Income Taxes 93,463 26,724
Provision for Income Tax 0 0
----------- -----------
=============================================
NET INCOME $ 93,463 $ 26,724
============================================= =========== ===========
Weighted Average Number of Common Shares
Outstanding 8,081,181 7,409,677
Income Per Share $ 0.01 Nil
=========== ===========
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
----------- -----------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 93,212 $ 26,826
Adjustments to Reconcile Net Income
Provided by Operating Activities:
Depreciation and Amortization 288,828 235,547
Allowance for Doubtful Accounts (22,089) 0
Expenses Paid Through Issuance of Stock 50,800 0
Debt Paid Through Issuance of Stock 46,666 0
Changes in Assets & Liabilities:
Accounts Receivable (Increase) (510,716) (183,424)
Inventory (Increase) (350,908) (236,795)
Prepaid Exp & Other Assets (Increase) (88,405) (382,159)
Accounts Payable - Increase (Decrease) (513,171) 362,555
Accrued Liabilities Increase (Decrease) 273,323 48,510
Customer Advances Increase (Decrease) 71,260 0
----------- -----------
Net Cash used by Operating Activities (661,200) (128,940)
CASH FLOW FROM INVESTING ACTIVITIES
Sale of Property, Plant & Equipment (Purchase) (123,634) (713,474)
Intangibles 0 (250,000)
Leasehold Improvements (35,094) 0
Construction in Progress (143,824) 0
----------- -----------
Net Cash used in Investing Activities (302,552) (963,474)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Overdraft 0 (27,745)
Repayment of Debt (716,747) (55,399)
New Borrowing 377,189 1,175,000
Sale of Capital Stock 1,243,976 83,634
Increase Capital Lease Obligations 10,978 (1,223)
----------- -----------
Net Cash Provided by Financing Activities 915,396 1,174,267
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Net Increase (Decrease) in Cash (48,356) 81,853
Cash Balance - Beginning 206,075 0
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Cash Balance - Ending $ 157,719 $ 81,853
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<PAGE>
LUNN INDUSTRIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
CONDENSED STATEMENTS
NOTE 1 - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The information contained in the condensed consolidated financial
statements for the period ended March 31, 1996 is unaudited, but includes all
adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's annual
statements and notes. Those financial statements should be read in conjunction
with the Company's annual financial statement as reported in its most recent
Annual Report on Form 10-KSB.
The unaudited results of operations for the period ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
NOTE 2 - STOCK OFFERING
On March 21, 1996, the Company sold 3.5 million shares of its common stock
for $.40 per share in a private placement. Total proceeds, net of underwriting
commissions and expenses were $1,244,000. The Company has used $581,000 of the
proceeds to reduce its bank debt obligations, pay down a portion of the
outstanding balance due to bridge lenders, and reduce its obligation to a
shareholder. The balance has been applied toward working capital. In addition,
during the first quarter of 1996, the Company issued 229,666 shares of its
common stock to pay expenses and reduce debt valued at $97,000.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company reported positive operating results for the first quarter of
1996. First quarter consolidated sales were $4.2 million, up 26% from $3.3
million in the first quarter of 1995. Net consolidated income was $93 thousand
compared with $27 thousand, during the first quarter of 1994, an increase of
250%.
Sales for the composite segment for the first quarter 1996 were $1.3
million, an increase of $556 thousand or 75%, compared to sales of $744 thousand
for the comparable quarter of 1995. Aluminum honeycomb sales for the first
quarter 1996 were $2.9 million, an increase of approximately $300 thousand or
12%, compared to $2.6 million for the comparable quarter of 1995.
The increase in composite sales resulted from increasing military orders,
as well as additional sales generated by the aluminum bonding business, up 32%
during this quarter compared to the first quarter 1995. Honeycomb sales reflect
a continuing recovery of aerospace and commercial aircraft market as well as
non-aerospace business in transportation, construction and industrial
applications.
Backlog of customer orders increased during the first quarter to $15.7
million, an increase of $4.9 million or 44% compared to backlog of $10.8 million
at the end of the first quarter 1995. Approximately $9 million or 56% of the
backlog is anticipated to be released for shipments during the remaining three
quarters of 1996.
Consolidated Operating Income for the first quarter 1996 was $210 thousand,
an increase of $91 thousand or 76%, compared to $119 thousand during the first
quarter of 1995. First quarter operating income for the composite segment for
1996 was $14 thousand, compared to $12 thousand during the first quarter 1995.
The aluminum honeycomb segment operating income was $196 thousand, an increase
of $89 thousand or 83%, compared to $107 thousand during the first quarter of
1995. Improved consolidated operating income resulted from increased gross
margin for 1996 of 23% compared to 20% for the comparable period in 1995.
Interest expense for the first quarter 1996 was $126 thousand, an increase
of $26 thousand over the comparable period in 1995. The increase resulted from
higher interest rates charged by Gibraltar Corporation for a new $3.5 million
credit facility which replaced the Company's previous line of credit with Fleet
Bank on December 28, 1995. Higher interest expense also resulted from the
Company's delay in repaying a bridge loan on December 7, 1995 which resulted in
an increase in the interest rate to 4% per month. The bridge loan was
subsequently repaid on March 21, 1996.
7
<PAGE>
Consolidated net income for the quarter ended March 31, 1996 was $93
thousand, an increase of $67 thousand or 250% compared to a profit of $27
thousand during the first quarter of 1995.
FINANCIAL CONDITION
Net cash used by operations during the first three months of 1996 was $661
thousand compared to $129 thousand in the corresponding period of 1995. Net cash
provided from operations in the first three months of 1996 was $93 thousand net
income plus $364 thousand in non-cash items, offset by approximately $1.1
million in changes in assets and liabilities related to increase accounts
receivable, inventory, other liabilities and a decrease in accounts payable. Net
cash provided from operations in the first three months of 1995 was $27 thousand
net income, offset by non-cash items of approximately $236 thousand and changes
in assets and liabilities of $391 thousand.
Net cash used in investing activities during 1996 was $303 thousand,
comprised of $124 thousand utilized for the purchase of machinery and equipment
and $179 thousand for leasehold improvements and construction in progress at the
Company's Glen Cove, New York and Maryland facilities.
Net cash provided by financing activities was approximately $900 thousand,
comprised of $1.6 million from the sale of common stock and new borrowing and
the use of $700 thousand to repay Fleet Bank, the bridge lenders and reduce its
obligation to a shareholder.
On March 21, 1996, the Company sold 3.5 million shares of its common stock
for $.40 per share in a private placement. Total proceeds, net of underwriting
commissions and expenses were $1,244,000. The Company has used $581,000 of the
proceeds to reduce its bank debt obligations, pay down a portion of the
outstanding balance due to bridge lenders, and reduce its obligation to a
shareholder. The balance has been applied toward working capital. In addition,
during the first quarter of 1996, the Company issued 229,666 shares of its
common stock to pay expenses and reduce debt valued at $97 thousand.
The Company believes that the improved cash flow from operations and funds
available under its credit facilities as amended, will be sufficient to meet its
working capital requirements for the foreseeable future.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports
(b) Reports on Form 8-K.
None
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned duly authorized.
LUNN INDUSTRIES, INC.
By: /s/ Lawrence Schwartz
-------------------------
Lawrence Schwartz
Vice President, Secretary and Treasurer
(Chief Accounting Officer)
Dated: May 10, 1996
10
<PAGE>
Index of Exhibits
Exhibit Description Page
- ------- ----------- ----
10.1 Engagement letter dated February 21, 1996 between the 12
Company and J.E. Sheehan & Co., Inc. for the placement of
3.5 million shares of the Company's common stock in a
private placement.
10.2 Warrant dated March 21, 1996 for right to purchase 175,000 16
shares of the Company's common stock at $.40 per share,
issued to J.E. Sheehan & Co., Inc. for fee related to the
private placement of the Company's common stock.
10.3 Form of Subscription Agreement dated March 21, 1996 for 25
private placement of 3.5 million shares of the Company's
common stock at $.40 per share.
11
Exhibit 10.1
February 21, 1996
Mr. Alan W. Baldwin
Chairman & Chief Executive Officer
Lunn Industries Inc.
1 Garvies Point Road
Glen Cove, NY 11542-2828
Dear Alan:
The purpose of this letter is to confirm our agreement (the "Agreement") that
Lunn Industries, Inc. (the "Company"), a Delaware corporation or any successor
corporation thereof, has engaged J.E. Sheehan & Co., Inc. (the "Agent") as its
exclusive agent in connection with the private placement of approximately
3,500,000 shares of its Common Stock (the "Transaction") at a price of
approximately forty cents ($0.40) per share subject to the terms and conditions
of this Agreement. The Company will attempt to register these shares as soon
after demand as it is possible to do so, and will grant investors "piggyback"
registration rights in connection with any other Common Stock registration.
The terms of this exclusive engagement are outlined below. The Agreement shall
become effective upon the execution hereof by the Company.
Section I. Services To Be Rendered.
Under this Agreement, the Agent will use its best efforts to secure financing
for the Company and, in that connection, will render such advisory and
investment banking services as outlined:
(a) the Agent will familiarize itself, to the extent it deems appropriate
and feasible, with the business, operations, properties, financial condition and
prospects of the Company, based upon information supplied by the Company as well
as other relevant information which may be publicly available, and advise the
Company on appropriate financing terms given current market conditions;
(b) the Agent will assist the Company in preparation of an Information
Memorandum which will be distributed to potential investors and will negotiate,
on the Company's behalf, with such financing sources; and
(c) the Agent will render such other financial advisory and investment
banking services to which the Company and the Agent may mutually agree.
Section II. Compensation.
If a Transaction is consummated during the term of this Agreement, as defined
below in Section V, or within eighteen (18) months after termination of the
Agreement with a party introduced to the Company or contacted by the Agent
during the term of its engagement, the Company agrees to compensate the Agent as
follows:
(a) the Agent will be entitled to receive a placement fee equal to 10% of
the total amount of money raised in the Transaction. Such fee will be paid from
the proceeds at closing. This is an exclusive agency agreement and, accordingly,
Agent will be entitled to such compensation regardless of whether the financing
is obtained directly by the Agent or as a result of an introduction of a source
of capital by the Company, a Director thereof or otherwise. In addition, the
Company agrees that, during the period of engagement, it will have no contact
with any financing source or permit any person to contact a financing source
except through the Agent nor will it use any written offering materials not
given to and approved by the Agent;
12
(b) the Agent will also be entitled to receive common stock purchase
warrants (the "Warrants") in an amount equal to 5% of the total number of shares
placed with investors. The Warrants will be exercisable for a period of five
years from the date of closing at an exercise price equal to the Common Stock
price offered to investors in the Transaction;
(c) the Agent will be retained for a minimum period of twelve months to
render such other financial advisory, investment banking, and promotional
services as the Company may require during this period. Pursuant to this
retainer agreement, the Company will remit to the Agent a monthly payment of
$3,000, payable at closing and on the first business day of each successive
month during which such retainer agreement is in effect;
(d) the Agent will have the right of first refusal, for a period of
twenty-four months from the date of closing, to act as advisor or agent on any
future financings undertaken by the Company; and
(e) the Agent will have the right for a period of five years from the
closing contemplated hereby to nominate one director to the Company's Board.
The provisions of this Section II shall survive the termination and expiration
of this Agreement.
Section III. Expenses.
In addition to any fees that may be payable to the Agent hereunder, the Company
shall reimburse the Agent for all reasonable out-of-pocket expenses incurred for
carrying out the terms of this Agreement, including travel and lodging expenses
associated with "due diligence" investigations which may be required. The
Company at its own expense will also bear all legal and other fees necessary in
connection with any required blue sky law qualifications or confirmation of
exemption as the Agent may reasonably request.
Section IV. Indemnity.
It is agreed that if, in connection with any services or matters that are the
subject of this Agreement, the Agent becomes involved in any investigation,
action or legal proceeding, the Company or any successor corporation thereof
will reimburse the Agent for reasonable legal fees, disbursements of counsel and
other expenses incurred by or imposed on the Agent. The Company also agrees to
indemnify and hold the Agent harmless against any losses, claims, damages or
liabilities, joint or several, to which the Agent may become subject in
connection therewith; provided, however, that the Company shall not be liable
under the foregoing indemnity agreement in respect of any loss, claim, damage or
liability to the extent that a court having jurisdiction shall have determined
by final judgment that such loss, claim, damage or liability resulted from the
Agent's willful misfeasance or gross negligence.
Section V. Terms of Engagement, Survival, etc.
The Agreement is exclusive and will be in effect for an initial period of three
(3) months from the date of execution hereof by the Company, and may be extended
by the mutual written consent of the Company and the Agent. Any extension of the
Agent's engagement hereunder may be terminated at any time, with or without
cause, by either the Agent or the Company upon written notice to the other
party; provided, however, that notwithstanding any termination of the Agent's
engagement hereunder, the Agent will be entitled to its full fees under Section
II hereof in the event that, at any time within eighteen (18) months from the
date of termination, a Transaction is consummated with sources of capital
introduced to the Company or contacted by the Agent. The provisions of Sections
III, IV and V hereof shall survive any termination of the Agent's engagement
hereunder.
13
Section VI. Governing Laws.
This Agreement shall be governed by and construed to be in accordance with the
laws of the State of New York applicable to contracts made and to be performed
solely in such State by citizens thereof. Any dispute arising out of this
Agreement shall be adjudicated in the courts of the State of New York or in the
federal courts sitting in the City of New York; and the Company hereby agrees
that service of process upon it by registered or certified mail at the address
shown in this Agreement shall be deemed adequate and lawful. The parties hereto
shall deliver notices to each other by personal delivery or registered or
certified mail (return receipt requested) at addresses set forth below.
Section VII. Offering Materials and Documentation.
The Company will provide to the Agent all financial and other information
reasonably requested by the Agent for the purpose of rendering its services
pursuant to this engagement. The Company recognizes and confirms that the Agent
will use and rely upon information available from generally recognized public
sources in performing the services contemplated by this engagement without
having independently verified the same and that the Agent does not assume
responsibility for the accuracy or completeness of such information. The Company
represents that the information provided to the Agent will not contain any
untrue statement of a material fact or omit to state any material fact that
would make the statements made misleading. The Company agrees to alert the Agent
immediately of the occurrence of any event or any change which would require any
supplement to, or amendment of, the information provided in order to maintain
the accuracy of the representation set forth in the preceding sentence.
Section VIII. Entire Agreement.
This Agreement sets forth the entire understanding of the parties relating to
the subject matter hereof and supersedes and cancels any prior communications,
understanding and agreements between the parties with respect to such subject
matter. This Agreement cannot be modified or changed, nor can any of its
provisions be waived, except by written agreement signed by all parties hereto.
Section IX. Other Outstanding Warrants and Options.
The Company acknowledges that it has previously engaged the Agent in connection
with the private placements of the Company's securities and that in connection
therewith, certain warrants and options have been delivered by the Company to
the investors and the Agent in connection therewith. To the extent that any such
warrants and/or options are still outstanding and do not otherwise provide
therein for an anti-dilution adjustment of price and/or quantity, the Company
agrees to amend such warrants and/or options so that the exercise price thereof
shall be no greater than the price per share at which the private placement
contemplated hereby shall be consummated.
Section X. Acceptance.
Please confirm that the foregoing is in accordance with your understanding by
signing on behalf of the Company and returning an executed copy of this
Agreement, whereupon it shall become a binding agreement between the Company and
the Agent. By such signing, you will be representing to the Agent that all
corporate action on the part of the Company necessary to authorize this
Agreement shall have been completed.
Section XI. Additional Conditions.
It is understood that the Agent's undertaking is subject to all documentation
related thereto being satisfactory to the Agent and its counsel and is subject
further to the Agent's determination that the market conditions are and remain
suitable for the Transaction. If for any reason the Agent concludes in its sole
14
judgment that the Transaction cannot be successful, the Agent may terminate this
Agreement immediately upon written notice thereof to the Company and in such
event, the Agent shall have no liability whatsoever to the Company and the
Company shall have no liability to the Agent except to reimburse the Agent in
full for its out-of-pocket expenses including without limitation, its legal fees
and disbursements.
Very truly yours,
J. E. Sheehan & Co., Inc. ACCEPTED AND AGREED TO:
Lunn Industries, Inc.
By: By: _____________________________
Dominique Bodevin Alan W. Baldwin , Chairman & CEO
Date:
15
Exhibit 10.2
THIS WARRANT AND THE SECURITIES PURCHASABLE UPON THE EXERCISE OF THIS WARRANT
MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933, as
amended (THE "1933 ACT") OR PURSUANT TO AN EXEMPTION FROM THE 1933 ACT
THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. NEW YORK TIME
ON THE EXPIRATION DATE OF THIS WARRANT
175,000 SHARES
March 21, 1996
WARRANT FOR THE PURCHASE OF
COMMON STOCK, PAR VALUE $.01 SHARES
LUNN INDUSTRIES, INC.
(Incorporated Under the Laws of the State of Delaware)
This is to certify that, for value received, J.E. SHEEHAN & COMPANY, INC.
and/or its designees is entitled to purchase, subject to the terms and
conditions hereinafter set forth during the period specified in Paragraph 1
below, an aggregate of 175,000 shares of Common Stock, par value $.01 per share
(the "Common Stock"), of LUNN INDUSTRIES, INC. (hereinafter called the
"Corporation" or the "Company") at the purchase price of $0.40 per share (the
"Purchase Price"), and to receive a certificate or certificates for the shares
of Common Stock so purchased, upon presentation and surrender to the Corporation
of this Warrant with the form of Subscription duly executed and accompanied by
payment by certified or cashier's check of the Purchase Price for the shares of
Common Stock. The purchase rights represented by this Warrant are exercisable at
the option of the registered owner hereof, at any time or from time to time in
whole or in part, subject to the terms and conditions set forth herein.
1. Exercise Period. The rights hereunder to purchase shares of Common Stock
shall be exercisable by the registered owner hereof at any time after ninety
(90) days from the issuance hereof and until March 31, 2001 (the "Expiration
Date").
2. Stock To Be Fully Paid. The Corporation covenants and agrees that all
shares of Common Stock which may be delivered upon the exercise of this Warrant
will, upon delivery, be fully paid and non-assessable and free from all taxes,
liens and charges with respect to the purchase thereof hereunder.
3. Adjustment of Price and Number of Shares Purchasable.
(a) The number of shares of Common Stock purchasable upon the exercise of
this Warrant and the Purchase Price per share of Common Stock shall be subject
to adjustment from time to time as set forth herein. No fractional shares of
Common Stock or script representing fractional shares of Common Stock shall be
issued upon the exercise of this Warrant, but the Corporation shall pay to the
owner upon the exercise of this Warrant, or any
16
portion thereof, an amount in cash equal to the fair market value of that
proportion of a share of Common Stock otherwise issuable hereunder.
(b) In the event the Corporation shall, at any time during the Warrant
Exercise Period, issue or sell any Common Stock or rights to purchase Common
Stock or Convertible Securities where the issue, exercise or conversion price
per share is less than the Purchase Price (the "Event") then the Purchase Price
and the number of shares purchasable pursuant to this Warrant shall be adjusted
as follows:
(i) The Purchase Price in effect immediately prior to the Event shall
be multiplied by a fraction, the numerator of which shall be the
purchase, exercise or conversion price of the additional securities
issued or to be issued and the denominator of which shall be the
Purchase Price in effect immediately prior to such issue or sale of
additional securities.
(ii) The number of shares purchasable upon exercise of this Warrant
immediately prior to the Event shall be adjusted by multiplying such
number of shares purchasable by a fraction, the numerator of which
shall be the total number of shares of the Corporation issued and
outstanding prior to the Event plus the number of shares which are
issued or will be issuable on account of the Event divided by the
number of shares issued and outstanding immediately prior to the
Event.
Provided, however, not included as an "Event" as described above shall be the
issuance by the Corporation of stock options to key employees of the Corporation
pursuant to employee stock option or similar plans; provided, further, that the
aggregate number of shares of Common Stock issuable pursuant to all employee
plans adopted of the Corporation shall not exceed ten (10%) percent of the
issued and outstanding Common Stock of the Corporation as of the date hereof.
4. Reservation of Shares. The Corporation agrees at all times to reserve or
hold available a sufficient number of shares of Common Stock to cover the number
of shares of Common Stock issuable upon the exercise of this and all other
options, warrants or other rights to purchase shares of Common Stock
outstanding.
5. Voting Rights and Dividends. This Warrant shall not entitle the owner
hereof to any voting rights or other rights as a shareholder of the Corporation,
or to any other rights whatsoever except the rights herein expressed and as are
set forth, and no dividends shall be payable or accrue in respect of this
Warrant or the interest represented hereby or the shares of Common Stock
purchasable hereunder until or unless, and except to the extent that, this
Warrant shall be exercised.
6. Change in Number of Shares as a Whole. If at any time or from time to
time the Corporation shall by subdivision, dividend, split, reverse split,
combination, consolidation, reorganization, recapitalization or reclassification
of shares, or otherwise, change as a whole the outstanding shares of Common
Stock into a different number or class of shares, the number and class of shares
so changed shall, for the purposes of this Warrant and the terms and conditions
hereof, replace the shares outstanding immediately prior to such change, and the
purchase price for shares of Common Stock set forth in
17
this Warrant and the number of shares of Common Stock purchasable under this
Warrant immediately prior to the date upon which such change shall become
effective shall be proportionately adjusted.
7. Merger or Consolidation with Another Company. If at any time while this
Warrant is outstanding the Corporation shall consolidate with or merge into
another corporation, the owner hereof shall thereafter be entitled, upon
exercise of this Warrant, to purchase, with respect to each share of Common
stock purchasable hereunder immediately prior to the date upon which such
consolidation or merger shall become effective, the securities or property to
which a holder of one share of Common Stock would have been entitled upon such
consolidation or merger, without any change in or payment in addition to the
Purchase Price per share of Common Stock set forth in this Warrant in effect
immediately prior to such merger or consolidation, and the Corporation shall
take such steps in connection with such consolidation or merger as may be
necessary to assure that all of the provisions of this Warrant shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of this Warrant. The
Corporation shall not effect any such consolidation or merger unless prior to
the consummation thereof the successor corporation (if other than the
Corporation) resulting therefrom shall assume by written instrument executed and
mailed to the registered owner hereof at the address of such owner shown on the
books of the Corporation the obligation to deliver to such owner such securities
or property as in accordance with the foregoing provisions such owner shall be
entitled to purchase. A sale of all or substantially all of the assets of the
Corporation for a consideration (apart from the assumption of obligations)
consisting primarily of securities shall be deemed a consolidation or merger for
the foregoing purposes.
8. Registration Rights.
The holder(s) of this Warrant shall be entitled to join with holders of the
Company's Common Stock purchased pursuant to the Company's private placement
(the "Offering") dated March 1, 1996 (the "Shares") in requesting registration
of all or any part of the securities underlying this Warrant.
(a) Registration Rights; Requests For Registration.
(1) The holders of a majority of the aggregate of (i) the number of
Shares actually sold in the Offering and (ii) the securities underlying these
Warrants (together the "Registerable Shares") and the Warrants shall be entitled
at any time from the ninety-first day following the Closing of the Offering up
to and including March 31, 2002, to make a one-time request that the Company
register for resale under the 1933 Act all or any number of the Registerable
Shares, provided that the Company shall have filed by the date of such request
the Company's Annual Report (Form 10-KSB) and the Company's Quarterly Report
(Form 10-QSB) with the Securities and Exchange Commission for the Company's
fiscal year ended December 31, 1995 and the Company's fiscal quarter ended March
31, 1996, respectively, containing all financial information regarding the
Company and its subsidiaries as is required by the applicable rules of the
Securities and Exchange Commission so as to permit any Registration Statement
filed by the Company in accordance with its registration obligation herein to
become effective as provided by applicable rules and regulations promulgated by
the Commission. Such Annual Report shall be filed as promptly as practicable
after the close of the Company's fiscal
18
year ended December 31, 1995.
Within ten days after receipt of any such request, the Company will give
written notice of such request to all other holders of Registerable Shares and
will include in such registration all Registerable Shares with respect to which
the Company has received written requests for inclusion therein within 15 days
after the Company's notice is mailed. The registration requested pursuant to
this paragraph (8)(a)(l) is referred to herein as the "Demand Registration".
For purposes of this one-time right to demand registration, a registration
will not count as the Demand Registration until (i) it has become effective and
(ii) the holders of the Registerable Shares are able to sell all the
Registerable Shares requested to be included in such registration. The Demand
Registration may be made on a short registration form (on Form S-3 or any
similar short registration form) provided the Company is permitted under
applicable rules promulgated by the Securities and Exchange Commission to use
such short form.
(2) Whenever, during the period ending March 31, 2002, the Company proposes
to register (either on its own behalf or on behalf of holders of its equity
securities other than the holders of Registerable Shares in their capacity as
holders of the Registerable Shares) any of its equity securities under the 1933
Act (other than pursuant to the Demand Registration), and the registration form
to be used may be used for a registration of the Registerable Shares, the
Company will give prompt written notice to all holders of the Registerable
Shares of its intention to effect such a registration and will include in such
registration all Registerable Shares with respect to which the Company has
received written request by the holders thereof for inclusion therein within 15
days after the mailing of the Company's notice. Any registrations requested
pursuant to this paragraph (8)(a)(2) are referred to herein as "Piggyback
Registrations."
(b) The Demand Registration.
(1) Priority of Demand Registration.
The Company will not include in the Demand Registration any other of its
equity securities without the written consent of the holders of a majority of
the Registerable Shares requesting such registration. If a Demand Registration
is an underwritten offering, and the managing underwriters of such offering
advise the Company in writing that, in their opinion, the number of Registerable
Shares and other equity securities to be included exceeds the number of
Registerable Shares and other equity securities which can be sold in such
offering, the Company will include in such registration prior to the inclusion
of any other of the Company's equity securities, the number of Registerable
Shares requested to be included which in the opinion of such underwriters can be
sold, pro rata among the respective holders based on a fraction, with respect to
each holder, the numerator of which is the number of Registerable Shares
requested to be sold by such holder, and the denominator of which is the number
of Registerable Shares requested to be included in such Demand Registration by
all holders of the Registerable Shares.
(2) Restrictions on Demand Registration.
The Company will not be obligated to effect more than one Demand
19
Registration and shall be so obligated only if the holders of the majority of
the Registerable Shares so request such registration. Further, the Company will
not be obligated to effect the Demand Registration within three months after the
effective date of a registration in which the holders of the Registerable Shares
exercised their "piggyback registration" rights pursuant to paragraph (8)(a)(2)
hereof.
(3) Selection of Underwriters.
Subject to a right of first refusal on the part of J.E. Sheehan & Company,
Inc., the Company shall have the exclusive right to select the underwriter(s),
including the exclusive right to designate the managing underwriter(s), with
respect to the Demand Registration offering. Nothing herein shall prevent the
holders of the Registerable Shares who have requested the Demand Registration
from submitting a recommendation(s) with respect to any underwriters and/or
managing underwriters.
(4) Expenses of the Demand Registration.
The Company shall pay all expenses incident to the Demand Registration,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the Company
in connection with the Demand Registration. The holders of the Registerable
Shares requesting the Demand Registration will be required to pay their pro rata
share of any underwriter and/or brokerage commissions attributable to the
inclusion of the Registerable Shares in the Demand Registration and fees of
their counsel and advisers, if any.
(c) Piggyback Registrations.
(1) Priority on Primary Registrations.
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that, in their opinion, the number of equity securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the equity
securities the Company proposes to sell, (ii) second, the Registerable Shares
requested to be included in such Piggyback Registration, pro rata among the
holders of such Registerable Shares based upon a fraction, with respect to each
holder, the numerator of which is the number of Registerable Shares requested to
be sold by such holder, and the denominator of which is the number of
Registerable Shares requested to be included in such Piggyback Registration by
all holders of the Registerable Shares and (iii) third, any other equity
securities requested to be included in such registration.
(2) Priority on Secondary Registrations.
If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company's equity securities (other than holders of the
Registerable Shares in their capacity as holders of the Registerable Shares},
and the managing underwriters advise the Company in writing that, in their
opinion, the number of equity securities requested to be included in
20
such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the equity securities to be
sold in the secondary offering by the holders of the Company's equity
securities, (ii) second, the Registerable Shares requested to be included in
such Piggyback Registration, pro rata among the holders of such Registerable
Shares based upon a fraction, with respect to each holder, the numerator of
which is the number of Registerable Shares requested to be sold by such holder,
and the denominator of which is the number of Registerable Shares requested to
be included in such Piggyback Registration by all holders of Registerable
Shares, and (iii) third, any other equity securities requested to be included in
such registration.
(3) Expenses of Piggyback Registrations.
The Company shall pay all expenses incident to Piggyback Registrations,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent, certified public accountants, underwriters
(excluding discounts and commissions) and any other persons retained by the
Company in connection with such Piggyback Registrations. The holders of the
Registerable Shares requesting the Piggyback Registration(s) will be required to
pay their pro rata share of any underwriter and/or brokerage commissions
attributable to the inclusion of the Registerable Shares in the Piggyback
Registration(s) and fees of this counsel and advisers, if any.
(d) Other Registrations.
If the Company has previously filed a registration statement with respect
to the Registerable Shares pursuant to a Demand Registration or pursuant to a
Piggyback Registration and if such previous registration has been prosecuted
diligently by the Company and has not been withdrawn or abandoned, the Company
will not be obligated to file or cause to be effective any other registration
statement with respect to any of the Registerable Shares under the 1933 Act,
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of three months has elapsed from the effective date
of such previous Demand or Piggyback Registration.
(e) Holdback Agreement.
(1} Each holder of Registerable Shares agrees not to effect any public sale
or distribution of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the ninety day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten Registration), unless the underwriters
managing the registered Demand or Piggyback public offering otherwise agree.
This restriction shall not apply in the case of Registerable Shares which have
been registered previously in either the Demand or a Piggyback Registration or
in the case of Registerable Shares included in a shelf registration.
(2) The Company agrees not to effect any public sale or distribution
21
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the ninety
day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration), unless the underwriters managing the registered
Demand or Piggyback public offering otherwise agree.
(f) Scope of Registration Rights; Registration Procedures.
The Company's registration obligations under this Subscription Agreement
include the obligation, if so requested by the holders of a majority of the
Registerable Shares, to effectuate a shelf registration of the Registerable
Shares under Rule 415. Whenever the holders of Registerable Shares have
requested that any Registerable Shares be registered (either Demand or
Piggyback), the Company will use its best efforts to effect the registration and
the sale of such Registerable Shares with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible.
(1) Prepare and promptly (i.e., within ninety (90) days of demand) file
with the Securities and Exchange Commission a registration statement which may
be, to the extent the Company is permitted to do so under applicable rules
promulgated by the Securities and Exchange Commission, a short-form registration
statement with respect to such Registerable Shares and use its best efforts to
cause such registration statement to become effective as expeditiously as
possible;
(2) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and comply with the provisions of the 1933 Act with respect
to the disposition of all securities covered by such registration statement in
accordance with the intended method of distribution by the sellers thereof set
forth in such registration statement;
(3) Furnish to each seller of the Registerable Shares such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus, if any) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registerable Shares owned
by such seller;
(4) Use its best efforts to promptly register or qualify such Registerable
Shares under such jurisdictions as any seller reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registerable Shares owned by such seller provided that the Company will not be
required to
(i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph;
(ii) subject itself to taxation in any jurisdiction where it would not
otherwise be subject to taxation but for this subparagraph;
(iii) consent to general service of process in any jurisdiction where
it would not otherwise be subject to process but for this
22
subparagraph;
(5) notify each seller of such Registerable Shares, at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, and, at the request of
any such seller, the Company will promptly prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registerable Shares, such prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading;
(6) enter into any such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
the Registerable Shares being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such registered
Registerable Shares; and
(7) make available for inspection by any seller of the Registerable Shares,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(g) Indemnification.
(1) The Company agrees to indemnify, to the extent permitted by law, each
holder of the Registerable Shares, its officers and directors and each person
who controls such holder (within the meaning of the 1933 Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue statement
of material fact contained in any registration statement, prospectus or
preliminary prospectus or any amendment thereto or supplement thereto or any
omission of a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading except insofar as the same are caused by or contained
in any information furnished in writing to the Company by such holder expressly
for use therein or by such holders' failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same;
(2) In connection with any registration statement in which a holder of
Registerable Shares is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any
23
statement thereof or supplement thereto or any omission of a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading,
but only to the extent that such untrue statement or omission is contained in
any information or affidavit so furnished in writing by such holder; provided
that the obligation to indemnify as set forth herein will be several, not joint
and several, among such holders of Registerable Shares and the liability of each
such holder of Registerable Shares will be in proportion to and limited to the
net amount received by such holder from the sale of the Registerable Shares
pursuant to such registration statement;
(3) Any person entitled to indemnification hereunder will
(i) give prompt written notice to the indemnifying party of any claim
with respect to which such person seeks indemnification, and
(ii) unless in such indemnified party's reasonable judgment, a
conflict of interest between such indemnified and indemnifying parties
may exist with respect to such claim, permit the indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory
to the indemnified party. If such defense is assumed, the indemnifying
party will not be subject to any liability for any settlement made by
the indemnified party without its consent, but such consent will not
be unreasonably withheld. An indemnifying party who is not entitled to
or elects not to assume the defense of the claim, will not be
obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to
such claim unless in the reasonable judgment of any indemnified party,
a conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such claim.
9. Notice of Change. Upon the happening of any event requiring an
adjustment of the purchase price per share of Common Stock set forth in this
Warrant, the Corporation shall forthwith give written notice thereof to the
registered owner of this Warrant stating such adjusted purchase price and the
adjusted number of shares of Common Stock purchasable upon the exercise of this
Warrant resulting from such event, and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Board of Directors of the Corporation shall determine the computation made
hereunder.
10. Dissolution Provisions and Notice. In case any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation shall at any time be
proposed, the Corporation shall give at least twenty (20) days prior written
notice thereof to the registered owner hereof stating the date on which such
event is to take place and the date (which shall be at least twenty (20) days
after the giving of such notice) as of which the holders of shares of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such dissolution, liquidation or
winding up (on which date, in the event such dissolution, liquidation or winding
up shall actually take place, this Warrant and all rights with respect hereto
shall terminate). Notices pursuant to this paragraph shall be given by first
class mail, postage prepaid, addressed to the registered owner of this Warrant
at the address of such owner appearing in the records of the Corporation.
24
11. Title. This Warrant is issued subject to the condition, and every owner
of this Warrant by accepting the same agrees with every subsequent owner of this
Warrant and with the Corporation, that title to this Warrant and all rights
hereunder shall be transferable by delivery of this Warrant duly endorsed,
subject to Paragraph 12 below, and the Corporation and all persons dealing with
this Warrant may treat the registered owner of this Warrant, or when this
Warrant is presented duly endorsed in blank or endorsed to a specified person,
the Corporation and all persons dealing with this Warrant may treat that holder
or person, as the absolute owner hereof for all purposes, any notice to the
contrary notwithstanding.
12. Covenants. The above provisions are subject to the following: This
Warrant and the shares of Common stock purchasable upon exercise of this Warrant
have not been registered under the Securities Act of 1993, as amended (the "1933
Act"). This Warrant has been issued for investment purposes only and is not
intended to be distributed or resold, and the owner of this Warrant may not
pledge, hypothecate, grant a security interest in or otherwise transfer this
Warrant or any shares of Common Stock purchased upon the exercise of this
Warrant without an effective registration statement for such Warrant or such
shares of Common Stock or an opinion of counsel for the Corporation that
registration of this Warrant or such shares of Common stock is not required
under the 1933 Act. Any shares of Common stock issued upon the exercise of this
Warrant shall bear the following legend:
The shares of Common Stock of Lunn Industries, Inc. (the "Company")
represented by this Certificate may not be sold, transferred, pledged,
hypothecated or otherwise disposed of unless they have first been
registered under the Securities Act of 1933, as amended, or unless, in
the opinion of counsel reasonably satisfactory to the Company, such
registration is not required.
13. Absolute Ownership. The Corporation may deem and treat the registered
owner of this Warrant at any time as the absolute owner hereof for all purposes
and shall not be affected by any notice to the contrary.
14. Investment Letter. Upon exercise of this Warrant, as a condition
precedent to the Corporation's obligation to issue shares pursuant hereto
(unless the shares underlying this warrant have theretofore been registered
under the 1933 Act), the registered owner of this Warrant shall execute an
investment letter reasonably satisfactory to counsel for the Corporation and
deliver such investment letter to the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
and attested by its duly authorized officers and has caused its corporate seal
to be hereunder affixed.
LUNN INDUSTRIES, INC.
By: ________________________________
Alan Baldwin
Chief Executive Officer
Chairman of the Board
25
ATTEST:
___________________________________
Secretary
26
Exhibit 10.3
Board of Directors
Lunn Industries, Inc.
1 Garvies Point Road
Glen Cove, New York 11542-2828
Re: Subscription to Purchase Shares of Lunn Industries, Inc.
Common Stock ("Shares")
--------------------------------------------------------
Gentlemen:
(1) Subscription:
The undersigned hereby subscribes to purchase ______ shares of the $.01 par
value common stock of Lunn Industries, Inc. (the "Company") at $.40 per Share
and hereby tenders payment for the subscribed for number of Shares by certified
check, bank draft or wire transfer made payable to McCarthy, Fingar, Donovan,
Drazen & Smith, L.L.P. for deposit into its Master Escrow Attorney Trust Account
in the amount of $______. In connection with this subscription, the undersigned
hereby executes this Subscription Agreement and hereby acknowledges that the
undersigned has received, read, understands and is familiar with:
(i) the Company's Annual Report (Form 10-KSB) filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1994;
(ii) the Company's notice of annual meeting of shareholders and definitive
proxy statement distributed to shareholders in connection with the annual
meeting of shareholders dated August 28, 1995;
(iii) Quarterly Reports (Form 10-QSB) filed with the Securities and
Exchange Commission for the quarters ended March 31, 1995, June 30, 1995
and September 30, 1995;
(iv) Press Release dated December 29, 1996; and
(v) Private Placement Memorandum dated March 1, 1995.
The undersigned further acknowledges that, except as set forth in such
reports, proxy materials, other public information statements and Memorandum
made available to the undersigned by the Company, no representations or
warranties have been made to the undersigned, or to the undersigned's advisors
by the Company, or by any person acting on behalf of the Company, with respect
to the offer or sale of the Shares and/or the economic, tax, or any other
aspects or consequences of a purchase of the Shares and/or the investment made
thereby. Further, the undersigned has not relied upon any information concerning
the Company, written or oral, other than that contained in the aforementioned
reports, proxy materials, other public information statements and Memorandum.
The undersigned hereby acknowledges that the undersigned has had an
opportunity to ask questions of, and receive answers from persons acting on
behalf of the Company to verify the accuracy and completeness of the information
set forth in such reports, proxy materials, other public information statements
and Memorandum prior to sale and the undersigned hereby acknowledges that the
undersigned has not requested the Company to provide any additional information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy and completeness of the
information made available.
27
(2) Subscriber's Representations and Warranties.
The undersigned subscriber represents and warrants to the Company:
(a) The Shares are being issued to the undersigned by the Company for
investment only, for the undersigned's own account, and are not being purchased
by the undersigned with a view to distribution of such Shares, or for the offer
and/or sale in connection with any distribution thereof. The undersigned is not
participating, directly or indirectly, in an underwriting of the Shares or in
any similar undertaking. The undersigned has no present plans to enter into any
contract, undertaking, agreement or arrangement which would entail an
underwriting of such Shares or any similar distribution thereof;
(b) The undersigned is an "accredited investor" as that term is defined in
Rule 501 of Regulation D promulgated by the Securities and Exchange Commission,
in that
(i) the undersigned is a natural person whose net worth or joint net worth,
taking the undersigned's spouse into consideration, at the time of the
undersigned's purchase of these Shares herein, exceeds One Million Dollars
($1,000,000), or
(ii) the undersigned is a natural person whose income in each of the last
two years exceeded Two Hundred Thousand Dollars ($200,000) (Three Hundred
Thousand Dollars ($300,000) joint income taking the undersigned's spouse
into consideration) and the undersigned has a reasonable expectation of
reaching the same income level in this current year; or
(iii) as otherwise defined in Rule 501 of Regulation D.
(c) The undersigned understands that there is no guarantee of profits or
against loss as a result of purchasing the Shares and the undersigned hereby
states that the undersigned can afford a complete loss of the investment in such
Shares. The undersigned further warrants that the undersigned's present
financial condition is such that the undersigned has no present or perceived
future need to dispose of any portion of the Shares to satisfy any existing or
contemplated undertaking, obligation, need or indebtedness. Consequently, the
undersigned represents that the undersigned has sufficient liquid assets to pay
the full purchase price for the Shares, has adequate means for providing for the
undersigned's current needs and possible contingencies and has no current need
to liquidate any of the undersigned's investment in the Company.
(d) The undersigned has been represented by such legal counsel and other
advisors, each of whom has been personally selected by the undersigned, as the
undersigned has found necessary to consult, concerning the purchase of the
Shares, and such representation has included an examination of applicable
documents and an analysis of all relevant tax, financial, recording and
securities law aspects of an investment in the Shares. The undersigned, the
undersigned's counsel, advisors, and such other persons with whom the
undersigned has found it necessary or advisable to consult, have represented to
the undersigned that they have knowledge or experience in business and financial
matters to evaluate the information set forth in the aforementioned reports,
and/or other public information statements issued by the Company, the risks
associated with this investment, and to make an informed investment decision
with respect hereto. To the extent that the undersigned has found it necessary
to consult with any such counsel and/or advisors concerning the purchase of the
Shares, the undersigned has relied upon their advice and counsel in making such
investment decision.
(e) the undersigned is a resident of the jurisdiction set forth below the
undersigned's name on the signature page of this Subscription Agreement.
(f) THE UNDERSIGNED UNDERSTANDS THAT THE PURCHASE OF SHARES IS A
SPECULATIVE INVESTMENT INVOLVING A HIGH DEGREE OF RISK.
28
(3) Company's Representations and Warranties.
The Company represents and warrants to the undersigned subscriber:
(a) the information contained in the reports, proxy materials, other public
information statements and Memorandum distributed by the Company as described in
paragraph (1) of this Subscription Agreement contain no untrue statements of
material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading;
(b) as of the date of the Private Placement Memorandum, there have been no
material, adverse changes in the Company's operations or financial condition
since the applicable dates of the aforementioned reports, proxy materials, other
public information and Memorandum distributed by the Company.
(4) Securities Law Restrictions on Transfers.
The undersigned understands that the offer and/or sale of the Shares to the
undersigned is not required to be registered under the Securities Act of 1933
(the "1933 Act") by reason of a specific exemption for the offer and sale of the
Shares under the provisions of Regulation D promulgated by the Securities and
Exchange Commission. The undersigned further understands that, except as
provided in paragraph (5) below, the Company has not agreed to register the
Shares for distribution and/or resale in accordance with the provisions of the
1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), or to register
the Shares for distribution and/or resale under any applicable state securities
laws. Hence, it is the undersigned's understanding that by virtue of the
provisions of certain rules respecting "restricted securities" promulgated under
such federal and/or state laws, unless such secondary distribution and/or resale
is registered as provided in paragraph (5) below, the Shares which the
undersigned is purchasing by virtue of this Subscription Agreement must be held
indefinitely and may not be sold, transferred, pledged, hypothecated or
otherwise encumbered for value, unless and until such secondary distribution
and/or resale is subsequently registered under such federal and/or state
securities laws or unless an exemption from registration is available, in which
case the undersigned still may be limited as to the amount of the Shares that
may be sold, transferred, pledged and/or encumbered for value.
The undersigned, therefore, agrees that any certificates evidencing the
Shares received by the undersigned by virtue of this Subscription Agreement
shall be stamped or otherwise imprinted with a conspicuous legend to give notice
of the securities law transfer restrictions set forth herein and the undersigned
acknowledges that the Company may cause stop transfer orders to be placed on the
undersigned's account. The legend shall be in substantially the following form:
NO SALE, OFFER TO SELL, OR TRANSFER OF THE COMMON SHARES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND IS IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS.
(5) Registration Rights.
(a) Registration Rights; Requests For Registration.
(1) The holders of a majority of the aggregate of (i) the number of Shares
actually sold in the Offering and (ii) the securities underlying the Agent's
Warrants (together the "Registerable Shares") and the Agent's Warrants shall be
entitled at any time from the later of (a) the Company's Annual Report (Form
10-KSB) for the Company's fiscal year ended December 31, 1995 and the Company's
Quarterly Report (Form 10-QSB) for the Company's fiscal quarter ended
29
March 31, 1996 being filed with the Securities and Exchange Commission and (b)
the Closing of the Offering up to and including March 31, 2002, to make a
one-time demand that the Company register for resale under the 1933 Act all or
any number of the Registerable Shares. The Company shall timely file the
Company's Annual Report (Form 10-KSB) and the Company's Quarterly Report (Form
10-QSB) with the Securities and Exchange Commission for the Company's fiscal
year ended December 31, 1995 and the Company's fiscal quarter ended March 31,
1996, respectfully, containing all financial information regarding the Company
and its subsidiaries as is required by the applicable rules of the Securities
and Exchange Commission so as to permit any Registration Statement filed by the
Company in accordance with its registration obligation herein to become
effective as provided by applicable rules and regulations promulgated by the
Commission. Such Annual Report and Quarterly Report shall be filed as promptly
as practicable after the close of the Company's fiscal year ended December 31,
1995 and the Company's fiscal quarter ended March 31, 1996, respectively.
Within ten days after receipt of any such request, the Company will give
written notice of such request to all other holders of Registerable Shares and
will include in such registration all Registerable Shares with respect to which
the Company has received written requests for inclusion therein within 15 days
after the Company's notice is mailed. The registration requested pursuant to
this paragraph (5)(a)(l) is referred to herein as the "Demand Registration".
For purposes of this one-time right to demand registration, a registration
will not count as the Demand Registration until (i) it has become effective and
(ii) the holders of the Registerable Shares are able to sell all the
Registerable Shares requested to be included in such registration. The Demand
Registration may be made on a short registration form (on Form S-3 or any
similar short registration form) provided the Company is permitted under
applicable rules promulgated by the Securities and Exchange Commission to use
such short form.
(2) Whenever, during the period ending March 31, 2002, the Company proposes
to register (either on its own behalf or on behalf of holders of its equity
securities other than the holders of Registerable Shares in their capacity as
holders of the Registerable Shares) any of its equity securities under the 1933
Act (other than pursuant to the Demand Registration), and the registration form
to be used may be used for a registration of the Registerable Shares, the
Company will give prompt written notice to all holders of the Registerable
Shares of its intention to effect such a registration and will include in such
registration all Registerable Shares with respect to which the Company has
received written request by the holders thereof for inclusion therein within 15
days after the mailing of the Company's notice. Any registrations requested
pursuant to this paragraph (5)(a)(2) are referred to herein as "Piggyback
Registrations."
(b) The Demand Registration.
(1) Priority of Demand Registration.
The Company will not include in the Demand Registration any other of its
equity securities without the written consent of the holders of a majority of
the Registerable Shares requesting such registration. If a Demand Registration
is an underwritten offering, and the managing underwriters of such offering
advise the Company in writing that, in their opinion, the number of Registerable
Shares and other equity securities to be included exceeds the number of
Registerable Shares and other equity securities which can be sold in such
offering, the Company will include in such registration prior to the inclusion
of any other of the Company's equity securities, the number of Registerable
Shares requested to be included which in the opinion of such underwriters can be
sold, pro rata among the respective holders based on a fraction, with respect to
each holder, the numerator of which is the number of Registerable Shares
requested to be sold by such holder, and the denominator of which is the number
of Registerable Shares requested to be included in such Demand Registration by
all holders of the Registerable Shares.
(2) Restrictions on Demand Registration.
The Company will not be obligated to effect more than one Demand
Registration of the Registrable Shares
30
and shall be so obligated only if the holders of the majority of the
Registerable Shares so request such registration. Further, the Company will not
be obligated to effect the Demand Registration within three months after the
effective date of a registration in which the holders of a majority of the
Registerable Shares exercised their "piggyback registration" rights pursuant to
paragraph (5)(a)(2) hereof.
(3) Selection of Underwriters.
Subject to a right of first refusal on the part of J.E. Sheehan & Company,
Inc., the Company shall have the exclusive right to select the underwriter(s),
including the exclusive right to designate the managing underwriter(s), with
respect to the Demand Registration offering. Nothing herein shall prevent the
holders of the Registerable Shares who have requested the Demand Registration
from submitting a recommendation(s) with respect to any underwriters and/or
managing underwriters.
(4) Expenses of the Demand Registration.
The Company shall pay all expenses incident to the Demand Registration,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the Company
in connection with the Demand Registration. The holders of the Registerable
Shares requesting the Demand Registration will be required to pay their pro rata
share of any underwriter and/or brokerage commissions attributable to the
inclusion of the Registerable Shares in the Demand Registration.
(c) Piggyback Registrations.
(1) Priority on Primary Registrations.
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that, in their opinion, the number of equity securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the equity
securities the Company proposes to sell, (ii) second, the Registerable Shares
requested to be included in such Piggyback Registration, pro rata among the
holders of such Registerable Shares based upon a fraction, with respect to each
holder, the numerator of which is the number of Registerable Shares requested to
be sold by such holder, and the denominator of which is the number of
Registerable Shares requested to be included in such Piggyback Registration by
all holders of the Registerable Shares and (iii) third, any other equity
securities requested to be included in such registration.
(2) Priority on Secondary Registrations.
If a Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Company's equity securities (other than holders of the
Registerable Shares in their capacity as holders of the Registerable Shares},
and the managing underwriters advise the Company in writing that, in their
opinion, the number of equity securities requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will include in such registration (i) first, the equity securities to be sold in
the secondary offering by the holders of the Company's equity securities, (ii)
second, the Registerable Shares requested to be included in such Piggyback
Registration, pro rata among the holders of such Registerable Shares based upon
a fraction, with respect to each holder, the numerator of which is the number of
Registerable Shares requested to be sold by such holder, and the denominator of
which is the number of Registerable Shares requested to be included in such
Piggyback Registration by all holders of Registerable Shares, and (iii) third,
any other equity securities requested to be included in such registration.
31
(3) Expenses of Piggyback Registrations.
The Company shall pay all expenses incident to Piggyback Registrations,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent, certified public accountants, underwriters
(excluding discounts and commissions) and any other persons retained by the
Company in connection with such Piggyback Registrations. The holders of the
Registerable Shares requesting the Piggyback Registration(s) will be required to
pay their pro rata share of any underwriter and/or brokerage commissions
attributable to the inclusion of the Registerable Shares in the Piggyback
Registration(s).
(d) Other Registrations.
If the Company has previously filed a registration statement with respect
to the Registerable Shares pursuant to a Demand Registration or pursuant to a
Piggyback Registration and if such previous registration has been prosecuted
diligently by the Company and has not been withdrawn or abandoned, the Company
will not be obligated to file or cause to be effective any other registration
statement with respect to any of the Registerable Shares under the 1933 Act,
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of three months has elapsed from the effective date
of such previous Demand or Piggyback Registration.
(e) Holdback Agreement.
(1) Each holder of Registerable Shares agrees not to effect any public sale
or distribution of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the ninety day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten Registration), unless the underwriters
managing the registered Demand or Piggyback public offering otherwise agree.
This restriction shall not apply in the case of Registerable Shares which have
been registered previously in either the Demand or a Piggyback Registration or
in the case of Registerable Shares included in a shelf registration.
(2) The Company agrees not to effect any public sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the ninety
day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration), unless the underwriters managing the registered
Demand or Piggyback public offering otherwise agree.
(f) Scope of Registration Rights; Registration Procedures.
The Company's registration obligations under this Subscription Agreement
include the obligation, if so requested by the holders of a majority of the
Registerable Shares, to effectuate a shelf registration of the Registerable
Shares under Rule 415. Whenever the holders of Registerable Shares have
requested that any Registerable Shares be registered (either Demand or
Piggyback), the Company will use its best efforts to effect the registration and
the sale of such Registerable Shares with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible.
(1) Prepare and promptly (i.e., within forty-five (45) days of demand) file
with the Securities and Exchange Commission a registration statement which may
be, to the extent the Company is permitted to do so under applicable rules
promulgated by the Securities and Exchange Commission, a short-form registration
statement with respect to such Registerable Shares and use its best efforts to
cause such registration statement to become effective as expeditiously as
possible;
32
(2) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and comply with the provisions of the 1933 Act with respect
to the disposition of all securities covered by such registration statement in
accordance with the intended method of distribution by the sellers thereof set
forth in such registration statement;
(3) Furnish to each seller of the Registerable Shares such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus, if any) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registerable Shares owned
by such seller;
(4) Use its best efforts to promptly register or qualify such Registerable
Shares under such jurisdictions as any seller reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registerable Shares owned by such seller provided that the Company will not be
required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph;
(ii) subject itself to taxation in any jurisdiction where it would not
otherwise be subject to taxation but for this subparagraph;
(iii) consent to general service of process in any jurisdiction where it
would not otherwise be subject to process but for this subparagraph;
(5) notify each seller of such Registerable Shares, at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, and, at the request of
any such seller, the Company will promptly prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registerable Shares, such prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading;
(6) enter into any such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
the Registerable Shares being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such registered
Registerable Shares; and
(7) make available for inspection by any seller of the Registerable Shares,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(g) Indemnification.
(1) The Company agrees to indemnify, to the extent permitted by law, each
holder of the Registerable Shares, its officers and directors and each person
who controls such holder (within the meaning of the 1933 Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue statement
of material fact contained in any registration statement, prospectus or
preliminary prospectus or any amendment thereto or supplement thereto or any
33
omission of a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading except insofar as the same are caused by or contained
in any information furnished in writing to the Company by such holder expressly
for use therein or by such holders' failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same;
(2) In connection with any registration statement in which a holder of
Registerable Shares is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any statement
thereof or supplement thereto or any omission of a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading, but only to the
extent that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder; provided that the obligation
to indemnify as set forth herein will be several, not joint and several, among
such holders of Registerable Shares and the liability of each such holder of
Registerable Shares will be in proportion to and limited to the net amount
received by such holder from the sale of the Registerable Shares pursuant to
such registration statement;
(3) Any person entitled to indemnification hereunder will:
(i) give prompt written notice to the indemnifying party of any claim with
respect to which such person seeks indemnification, and
(ii) unless in such indemnified party's reasonable judgment, a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit the indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be
subject to any liability for any settlement made by the indemnified party
without its consent, but such consent will not be unreasonably withheld. An
indemnifying party who is not entitled to or elects not to assume the
defense of the claim, will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying
party with respect to such claim unless in the reasonable judgment of any
indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.
(6) Notices.
Any notices or other communication required or permitted herein shall be
sufficiently given if sent within the United States by registered or certified
mail, postage prepaid, return receipt requested, and if sent outside the United
States by international courier, such as Federal Express and Airborne, and if to
the Company, to the address set forth above, and if to the undersigned, to the
address set forth below the undersigned's signature hereto, or to such other
addresses as the Company or the undersigned shall designate to the other by
notice in writing.
(7) Successors and Assigns.
This subscription for Shares and Subscription Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to the successors
and assigns of the Company and to the personal and legal representatives of the
undersigned, and to the extent applicable, his spouse or children.
(8) Applicable Law.
34
Except when an interpretation of federal and/or state securities laws is
necessary or such law governs, this Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(9) Certification with Respect to Federal Dividend and Interest Payments;
Back-up Withholding
Under penalties of perjury, the undersigned, if he is a national or
resident of the United States, hereby certifies to the Company as follows:
(a) The number shown below is the undersigned's Social Security or other
taxpayer identification number and such number is the undersigned's correct
taxpayer identification number; and
(b) the undersigned is not subject to back-up withholding either because
the undersigned has not been notified by the Internal Revenue Service that the
undersigned is subject to back-up withholding as a result of failure to report
all interest or dividends, or the Internal Revenue Service has notified the
undersigned that the undersigned is no longer subject to back-up withholding.
35
INVESTOR NOTICES
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND
SUCH LAWS. THE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH
LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SHARES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF ANY INFORMATION PROVIDED TO THE UNDERSIGNED IN
CONNECTION WITH AN INVESTMENT IN THE SHARES. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
FOR PENNSYLVANIA RESIDENTS ONLY:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES BEING OFFERED
HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE MONTHS AFTER
THE DATE OF PURCHASE. UNDER PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972
(THE "1972 ACT"). EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW
HIS ACCEPTANCE WITHOUT INCURRING ANY LIABILITY TO THE SELLER, UNDERWRITER (IF
ANY) OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY
THE ISSUER OF HIS WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A
TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN
TWO BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING
OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER OR
TELEGRAM TO THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE
MEMORANDUM, INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM
SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND
BUSINESS DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME
WHEN IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE, TO
THE SELLING AGENT AT THE NUMBER LISTED IN THE TEXT OF THE MEMORANDUM), A WRITTEN
CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
36
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Subscription Agreement this ___ day of March, 1996.
Subscription: _______________________ (______) Shares of the $.01 par value
Common Stock of Lunn Industries, Inc. at $.40 per Share.
_______________________ _________________________________
Signature of Subscriber Residence and/or Business Address
_______________________ _________________________________
Typed or Printed Name City State Zip Code
________________________________
Social Security or Tax
Identification No. of Subscriber
ACCEPTED:
LUNN INDUSTRIES, INC.
By: _______________________________
_______________________
Dated: March , 1996
37
LUNN INDUSTRIES, INC.
SUBSCRIPTION
To Be Signed Only Upon Exercise of Warrant
TO:
LUNN INDUSTRIES, INC.
1 Garvies Point Road
Glen Cove, NY. 11542
The undersigned, the owner of the within Warrant, hereby irrevocably elects
to exercise the rights represented by this Warrant for the purchase of, and to
purchase thereunder, _________ shares of Common Stock of LUNN INDUSTRIES, INC.,
and herewith makes payment of $_________ therefore, and requests that the
certificates for such shares of Common Stock be issued in the name of and be
delivered to ___________________________________________________, whose address
is ________________________________ and if such shares of Common Stock shall be
less than all of the shares of Common Stock purchasable hereunder, that a new
Warrant of like tenor for the balance of the shares of Common Stock purchasable
hereunder be delivered to the undersigned.
Dated: _______________________________
_______________________________
38
