As filed with the Securities and Exchange Commission on March 25, 1997
SEC Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ASHA CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 3714 84-1016459
(State or Other Jurisdic- (Primary Standard (IRS Employer Iden-
tion of Incorporation) Industrial Classi- tification Number)
fication Code
Number)
600 C Ward Drive
Santa Barbara, California 93111
(805) 683-2331
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
John C. McCormack, President
600 C Ward Drive
Santa Barbara, California 93111
(805) 683-2331
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq. Kenneth S. Rose, Esq.
Krys Boyle Freedman Scott & Sawyer, P.C. Morse, Zelnick, Rose & Lander,LLP
600 17th Street, Suite 2700 South Tower 450 Park Avenue, Suite 902
Denver, Colorado 80202-5427 New York, New York 10022
(303) 893-2300 (212) 838-5030
(303) 893-2882 - FAX (212) 838-9190 - FAX
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Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO TO BE PRICE PER OFFERING REGISTRATION
BE REGISTERED REGISTERED UNIT<FN1> PRICE FEE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,415,385<FN2> $4.875<FN3> $6,900,000 $2,090.91
$.00001 Par Shares Per Share
Value
Common Stock, 83,040 $4.875<FN3> $ 404,820 $ 122.67
$.00001 Par Shares Per Share
Value<FN4>
Underwriter's -- -- $ 5 $ .01
Warrants<FN5>
Common Stock, 123,077 $5.85 $ 720,000 $ 218.18
$.00001 Par Shares Per Share
Value<FN6>
Total $8,024,825 $2,431.77
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<FN>
<FN1>
Estimated solely for the purpose of calculating the registration fee.
<FN2>
Includes 184,615 Shares that may be purchased by H.J. Meyers & Co., Inc. (the
"Underwriter"), in whole or in part, to cover overallotments, if any.
<FN3>
Estimated based on the average of the closing bid and ask quotations on the
OTC Bulletin Board on March 19, 1997.
<FN4>
To be offered by Selling Shareholders.
<FN5>
To be issued to the Underwriter.
<FN6>
Issuable upon exercise of the Underwriter's Warrants.
</FN>
</TABLE>
Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock, $.00001 par value, as may become issuable in accordance with
the anti-dilution provisions of the Underwriter's Warrants.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION; DATED MARCH 25, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUYER NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
ASHA CORPORATION
_______ Shares of Common Stock
The _______ shares of common stock (the "Common Stock") offered hereby
are being sold by ASHA Corporation (the "Company"). The Common Stock is
traded on The OTC Bulletin Board under the symbol "ASHA." The Company has
applied to list the Common Stock on The Nasdaq SmallCap Market under the
symbol "ASHA." On March __, 1997, the closing bid and ask prices for the
Common Stock were $____ and $____ per share, respectively. The number of
shares to be offered will be determined by dividing $6 million by the offering
price. The offering price of the Common Stock will be determined by
negotiations between the Company and H.J. Meyers & Co., Inc. (the
"Representative") based upon the then current market price for the Common
Stock, the Company's financial condition, estimates of its business potential,
liquidity for the Common Stock, and general market conditions immediately
preceding the date of this Prospectus. See "PRICE RANGE OF COMMON STOCK" and
"UNDERWRITING." Concurrently with this offering, the Company is registering
for resale, from time to time, an additional 83,040 shares of Common Stock
held by certain Selling Shareholders.
See "CONCURRENT OFFERING."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE ENTIRE LOSS OF THEIR INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE __.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT<FN1> COMPANY<FN2>
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<S> <C> <C> <C>
Per Share ................... $_____ $_____ $_________
Total<FN3> .................. $_________ $_______ $_________
- -------------------------------------------------------------------------
<FN>
<FN1>
Does not include additional compensation to be received by H.J. Meyers & Co.,
Inc. (the "Representative") in the form of (I) a nonaccountable expense
allowance of 3% of the gross proceeds of the offering (including proceeds from
the exercise of the Representative's over-allotment option discussed below in
footnote <FN3>; (ii) a warrant to purchase up to _______ Shares at $____ per
Share, exercisable over a period of four years commencing one year from the
date of this Prospectus (the "Representative's Warrant"); and (iii) a $60,000
fee pursuant to a financial consulting agreement. The Company has also agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "UNDERWRITING."
<FN2>
Before deducting estimated expenses payable by the Company of $400,000.
<FN3>
The Company has granted the Representative an over-allotment option,
exercisable within 30 business days of the date of this Prospectus, to
purchase up to ______ additional Shares on the same terms and conditions as
set forth above. If all such Shares are purchased by the Representative, the
total Price to Public will be $6,900,000, the total Underwriting Discount will
be $690,000, and the total Proceeds to Company will be $6,210,000. See
"UNDERWRITING."
</FN>
</TABLE>
The Shares of Common Stock are offered subject to receipt and acceptance
by the Underwriters, to prior sale and to the Underwriters' right to reject
orders in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of certificates for the securities will
be made at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue,
Rochester, New York 14620, on or about ______, 1997.
H. J. MEYERS & CO., INC.
The date of this Prospectus is __________, 1997.
ii
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET AND ANY OTHER
EXCHANGES UPON WHICH THE COMPANY MAY LIST THE COMMON STOCK. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ SMALLCAP MARKET
IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to such Registration
Statement and exhibits. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal offices in Washington, D.C., and copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission.
The Company is subject to the reporting requirements of Section 13(a)
and to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Electronic filings made through
the Electronic Data Gathering, Analysis and Retrieval system are publicly
available through the Commission's web site (http.//www.sec.gov).
DESCRIPTION OF PICTURES
Inside Front Cover:
Artist's renderings of three different views of the taxi being
developed by ASHA/Taisun PTE. LTD, a joint venture between the
Company and Taisun Automotive PTE. LTD.
Inside Back Cover:
Exploded view of an engineering drawing of the GERODISC traction
system.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
ASHA Corporation (the "Company" or "ASHA") is an innovative engineering
research and development company serving the global automotive and vehicular
industries. The Company is currently exploiting two proprietary technologies
which it has developed and patented, its GERODISC traction control system, and
a commercially feasible manufacturing process for modularly-based vehicles for
production and use in third world countries.
GERODISC is an automatic hydro-mechanical traction control device which
limits a vehicle's wheel spin and improves its traction and handling.
GERODISC is the only technology known to the Company that is compatible with
all cars, vans, sports utility vehicles and trucks and can be used on all four
types of vehicle platforms: front-wheel drive, rear-wheel drive, four-wheel
drive and all-wheel drive. Management believes that, based on the testing it
has conducted, GERODISC is superior to any other competing technology
currently marketed, including electronic traction control. GERODISC has been
and is being tested by the three major US automobile manufacturers and most
major European automobile manufacturers for use in future model designs. To
date, GERODISC has been specified for inclusion in two 1998 models of a major
US automobile manufacturer, one of which is a leading four-wheel drive
vehicle.
The Company has developed an innovative technology for building and
assembling vehicles which requires significantly reduced levels of tooling,
assembly and manufacturing costs, greatly reducing initial capital
expenditures. This technology, known as the "ASHA Body Concept" ("ABC"), has
been targeted for use in third world countries to facilitate the production of
limited quantities of vehicles while achieving the cost savings normally
associated with the economies of scale of mass production. Two key components
of this manufacturing process involve the use of thin wall stainless steel
tubing for the frame and the use of a space-age composite fiber material for
the body. In July 1994, the Company established a joint venture relationship
with a Singapore-based manufacturing company to exploit the ABC technology in
the China and Southeast Asian markets. In furtherance of this joint venture,
the Company recently completed its first pre-production prototype of an ABC
vehicle which has successfully undergone extensive road testing, chassis
rigidity testing, handling evaluation, suspension evaluation and heat testing.
Based upon these results, pre-production tooling has commenced at the joint
venture's manufacturing and production facility in Jiaxing City, China. The
Company expects that 100 pre-production ABC vehicles will be produced in China
by the end of 1997.
The Company's strategy is to maximize GERODISC's penetration of the
worldwide automobile and vehicle markets through licensing arrangements which
provide royalty revenue. In addition, the Company intends to exploit the
world-wide market for the ABC production system through joint venture and
license arrangements primarily in third-world countries. Further, the Company
intends to continue to develop products for the world-wide automobile and
vehicle markets through its continuing research and development activities.
The Company was formed under the laws of the State of Delaware on
January 28, 1986. The Company's principal executive offices are located at
600 C Ward Drive, Santa Barbara, California 93111, and its telephone number is
(805) 683-2331.
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered ________ Shares of Common Stock
Common Stock Outstanding 7,144,877 Shares
Prior to this Offering
Common Stock to be Outstanding ________ Shares<FN1>
After this Offering
Use of Proceeds To repay bridge financing notes,
marketing of GERODISC, additional
investments in the ASHA-TAISUN
Joint Venture, and working
capital. See "USE OF PROCEEDS"
and "MANAGEMENT'S DISCUSSION
AND ANALYSIS."
Risk Factors Investment in the Common Stock in-
volves a high degree of risk and
immediate substantial dilution. See
"RISK FACTORS" and "DILUTION."
Proposed Nasdaq Small-Cap
Market Symbol ASHA
__________________
<FN>
<FN1>
Excludes 675,556 shares issuable under outstanding stock options and warrants,
and _____ shares issuable upon the exercise of the Representative's Warrant.
See "MANAGEMENT -- Stock Option Plan," "DESCRIPTION OF SECURITIES" and
"UNDERWRITING."
</FN>
</TABLE>
SUMMARY FINANCIAL DATA
The following table sets forth certain selected financial data with
respect to the Company, which has been extracted from financial statements and
is qualified in its entirety by reference to the financial statements and
notes thereto included in this Prospectus.
At
December 31,
At September 30, 1996
Balance Sheet Data: 1995 1996 (Unaudited)
- ------------------ ---------- ---------- ------------
Current Assets $1,725,072 $1,415,903 $1,364,714
Total Assets $3,131,525 $2,219,874 $2,260,398
Current Liabilities $ 332,355 $ 486,247 $1,218,551
Working Capital $1,392,717 $ 929,656 $ 146,163
Long-Term Debt $ -0- $ -0- $ -0-
Shareholders' Equity $2,799,171 $1,733,627 $1,041,847
-2-
<PAGE>
For the Three Months
For the Year Ended Ended December 31,
Statement of Operations September 30, 1995 1996
Data: 1995 1996 (Unaudited) (Unaudited)
- ----------------------- ---------- ----------- ----------- -----------
Revenues $4,435,956 $ 1,710,898 $1,326,000 $ 52,212
Operating Expenses $2,491,548 $ 2,750,536 891,643 655,106
Other Income (Expense) $ 371,648 $ 771,884 2,972 (88,886)
Net Income (Loss) $1,531,333 $(1,812,322) 437,329 (691,780)
Net Income (Loss) Per
Common Share $ .22 $ (.26) .062 (.098)
-3-
<PAGE>
RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a high degree of risk of a loss of part or all of the investment.
Therefore, prospective investors should read this entire Prospectus and
carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus prior to making an
investment.
1. ACCUMULATED DEFICIT; OPERATING LOSSES. As of December 31, 1996,
the Company had an accumulated deficit since inception of approximately
$4,802,773. The Company reported a net loss of $1,812,322 for the fiscal year
ended September 30, 1996, and a net loss of $691,780 for the three months
ended December 31, 1996. There can be no assurance that the Company will be
profitable in the future.
2. SUCCESS DEPENDENT ON MANAGEMENT AND OTHERS. Alain Clenet, Jack
McCormack and certain other executive officers have been primarily responsible
for the development and expansion of the Company's business, and Brian Chang,
the President of the Taisun Automotive PTE LTD, has been primarily responsible
for the development of the Company's Chinese joint venture. The loss of the
services of any one or more of these individuals could have a material adverse
effect on the Company. The Company maintains a $2,000,000 key man life
insurance policy on Mr. Clenet and a $1,000,000 key man life insurance policy
on Mr. McCormack. See "MANAGEMENT."
3. VARIABILITY OF QUARTERLY OPERATIONS. Results of the Company's
operations have fluctuated significantly in the past and are likely to
continue to fluctuate significantly in future periods as a result of several
factors, including, but not limited to: (i) lack of any royalty revenue
related to sales of vehicles which have GERODISC traction control systems;
(ii) uncertainties associated with signing new license or option agreements
relating to GERODISC; (iii) the long lead time it typically takes large
automobile manufacturers to commit to a new technology; and (iv) the long lead
time it takes to incorporate a new technology into an automobile production
line. In addition, the Company believes that the potential for new GERODISC
option or license agreements, and the potential for revenues from the world
car project, all of which are difficult to predict, have the possibility of
significantly increasing the Company's revenues. Accordingly, the Company's
future operating results are likely to be subject to significant variability
from quarter to quarter and could be adversely affected in any particular
quarter. Due to the foregoing factors, it is possible that the Company's
operating results may from time to time be below the expectations of public
market analysts and investors. In such event, the price of the Company's
securities could be adversely affected.
4. PRODUCT ACCEPTANCE AND MARKET DEVELOPMENT. The market for
GERODISC is still relatively new and may not develop as anticipated by the
Company. The Company's success is dependent upon market acceptance of
GERODISC in preference to current competing products and those that may be
developed by others. There can be no assurance that GERODISC will achieve a
significant level of market acceptance to result in profitable operations.
-4-
<PAGE>
The market for the Company's ABC technology is also new, and the market for
the products being developed by the first joint venture utilizing this
technology is new and untested. Although management believes, based on
discussions with representatives for several third world countries, there is a
demand for its ABC technology, there is no assurance that these or other
countries will be willing to adopt this technology. There is also no
assurance that the taxi product of the ASHA-TAISUN Joint Venture will achieve
a significant level of market acceptance and generate profitable operations
for the Joint Venture.
5. AUTOMOTIVE INDUSTRY. The United States is a significant market
for the Company's GERODISC product, and in order to penetrate this market it
is necessary to convince the major U.S. automobile manufacturers of the
efficacy of the GERODISC technology. These major corporations are very
bureaucratic and reluctant to adopt new technologies. The Company has been
pursuing these automobile manufacturers for several years and at this point in
time only one of the three has committed to use GERODISC on any of its
vehicles and the first of these vehicles will not be manufactured until the
late summer of 1997. The other two have tested GERODISC and are considering
its use, however, no commitments have been made. There can be no assurance
that these other two manufacturers will ever decide to use GERODISC.
6. PATENTS AND PROTECTION OF PROPRIETARY RIGHTS. The Company believes
that GERODISC is covered by patents issued in the United States and certain
foreign countries. However, there can be no assurance that any issued patent,
or any patent that may issue from currently pending patent applications, will
provide the Company with significant competitive advantages, or that
challenges will not be instituted against the validity or enforceability of
any patent which may be owned by the Company, or, if instituted, that such
challenges will not be successful. The cost of litigation to uphold the
validity of a patent and to prevent infringement can be substantial.
Furthermore, there can be no assurance that others will not independently
develop similar or more advanced technologies or design around aspects of the
Company's technology. There is also a significant risk that the Company's
patent rights in its ABC technology will not be protected in China where the
ASHA-TAISUN Joint Venture is conducting its operations. See "BUSINESS --
Patent Rights."
7. COMPETITION. The business of the Company is subject to
substantial competition from other companies in the automobile industry.
Substantially all of such companies have significantly greater financial and
technical resources than the Company.
8. INTERNAL POLITICAL AND OTHER RISKS OF DOING BUSINESS IN CHINA.
The first joint venture the Company formed for the purposes of exploiting its
ABC technology (the "ASHA-TAISUN Joint Venture") has established its
manufacturing facility in Jiaxing City, China. As a result, this Joint
Venture's operations and assets are subject to significant political,
economic, legal and other uncertainties. Changes in policies by the Chinese
government resulting in changes in laws, regulations or the interpretation
thereof, confiscatory taxation, restrictions on imports and sources of supply,
current devaluations or the expropriation of private enterprise could
materially adversely affect the Company. Under its current leadership, the
Chinese government has been pursuing economic reform policies, including the
encouragement of private economic activity and greater economic
-5-
<PAGE>
decentralization. There can be no assurance, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successfully pursued, that such policies will not be significantly altered
from time to time or that business operations in China would not become
subject to the risk of nationalization, which could result in the total loss
of investments in that country. Economic developments may be limited as well
by the imposition of austerity measures intended to reduce inflation, the
inadequate development of an infrastructure and the potential unavailability
of adequate transportation, adequate power and water supplies, satisfactory
roads and communications and raw materials and parts. If for any reason the
Joint Venture were required to close its manufacturing operation in China, the
Company's profitability would be materially adversely affected.
9. UNCERTAIN LEGAL SYSTEM AND APPLICATION OF LAWS IN CHINA. The
legal system of China relating to foreign investments is both new and
continually evolving, and currently there can be no certainty as to the
application of its laws and regulations in particular instances. China does
not have a comprehensive system of laws. Enforcement of existing laws or
agreements may be sporadic and implementation and interpretation of laws
inconsistent. The Chinese judiciary is relatively inexperienced in enforcing
the laws that exist, leading to a higher than usual degree of uncertainty as
to the outcome of any litigation. Even where adequate laws exist in China, it
may not be possible to obtain swift and equitable enforcement of that law.
10. DEPENDENCE ON AGREEMENTS WITH PROVINCIAL GOVERNMENT. The
ASHA-TAISUN Joint Venture's operations are dependent on its manufacturing
operations conducted in China. Pursuant to a lease in which Zhejiang Province
is the landlord, the Joint Venture occupies a manufacturing facility and a
20,000 square foot three story building in Jiaxing City in Zhejiang Province.
The lease has a 50 year term. This lease is dependent on the Joint Venture's
continuing good relationship with the local government. In the event of a
dispute involving the lease or the Joint Venture's business activities, the
current arrangement under which the Joint Venture conducts its business may be
difficult to enforce in China. The Joint Venture's operations and prospects
will be materially and adversely affected by the failure of the local
government to honor the current lease and working arrangements.
11. INFLATION AND CHINA'S RAPID ECONOMIC GROWTH. Over the last
several years, China's economy has grown at rates which have created problems
such as inflation. The Chinese government has imposed measures attempting to
check inflation and to date these methods have had a limited effect but it is
uncertain as to their effect in the future. The Company believes, because its
Chinese operations are initially intended to involve manufacturing products
for customers in China, that the current economic climate in China and efforts
to curb inflation should not have a direct adverse impact on the Company's
business. This could change if widespread social or political unrest results
from the economic climate causing the government to take actions similar to
those that were taken in 1989 which led to the student uprising in Tiananmen
Square.
12. DEPENDENCE ON SINGLE CHINA FACTORY COMPLEX; LACK OF INSURANCE.
All of the ASHA-TAISUN Joint Venture products will be manufactured at a single
manufacturing facility located in Jiaxing City, China. Firefighting and
disaster relief or assistance in China are primitive by Western standards.
-6-
<PAGE>
The Joint Venture does not yet have any insurance covering losses from fire,
casualty and theft. Material damage to, or, the loss of, all or material
portions of the factory complex due to fire, severe weather, flood, or other
act of God or cause, would have a material adverse effect on the Joint
Venture's financial condition and business. It is the Company's intention to
obtain insurance on this facility, however, there is no assurance that such
insurance can be obtained, or, if so, that it will be on reasonable terms.
13. LACK OF CONTROL OF JOINT VENTURE. The first business venture
formed to exploit the Company's ABC technology is ASHA/TAISUN PTE Ltd., a
joint venture formed under the laws of Singapore. The Company owns 50% of the
joint venture, and the joint venture owns an 85% interest in a company formed
under the laws of the Peoples Republic of China. The joint venture will
produce and sell in China vehicles built using the ABC technology. The
Company does not exercise complete control over the joint venture and may be
limited from exercising such control by local law. The Company accounts for
its investments in the joint venture using the equity method, which would
result in it recognizing its portion of any net losses incurred by the joint
venture. Moreover, changes in foreign government regulations, political
unrest or other disruptions could threaten or result in the forfeiture of the
Company's investments in the joint venture or further limit the Company's
involvement in its governance or access to their products.
14. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act which are intended to be covered by the safe harbors created
thereby. These statements include the plans and objectives of management for
future operations, including plans and objectives relating to (i) the
licensing of the GERODISC technology to suppliers for the major United States
and foreign automotive and vehicle manufacturers; (ii) licensing and otherwise
exploiting the Company's ABC technology in third world countries; and (iii)
researching and developing new technologies that can be commercially
exploited. The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties. Although
the Company expects to grant additional licenses for the GERODISC technology,
there can be no assurance that any additional licenses will be granted, or if
granted, that they will lead to any future royalty revenues. The Company's
plan and objectives relating to GERODISC are also based on the assumption that
automobile and vehicle manufacturers will elect to incorporate GERODISC in
their future models, that competitive conditions within the industry will not
change materially or adversely, and that there will be no material adverse
change in the Company's operations or business. The Company's plans and
objectives relating to the ABC technology are based on assumptions that there
will be a demand in third world countries for vehicles built using the ABC
technology, and that the actual costs of building such vehicles using the ABC
technology will be substantially lower than the costs of building vehicles
using conventional manufacturing methods. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Prospectus will prove to
be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
-7-
<PAGE>
15. PUBLIC MARKET FOR COMPANY'S COMMON STOCK. Although there
presently exists a limited market for the Company's Common Stock, there can be
no assurance that such a market can be sustained. The investment community
could show little or no interest in the Company in the future. As a result,
purchasers of the Company's securities may have difficulty in selling such
securities should they desire to do so.
16. RISK OF LOW-PRICED SECURITIES. The Securities and Exchange
Commission (the "Commission") has adopted regulations which generally define
"penny stock" to be any equity security that has a market price (as defined)
of less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions, including an exception for any equity
security that is quoted on The Nasdaq Stock Market. If the shares of Common
Stock offered hereby are removed or delisted from The Nasdaq Small Cap Market,
the security may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchaser of such securities and have received the
purchaser's written consent to the transactions prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Commission relating to the penny stock market. The broker-
dealer also must disclose the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and,
if the broker-dealer is the sole market-maker, the broker-dealer must disclose
this fact and the broker-dealer's presumed control over the market. Finally,
among other requirements, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on
the limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of purchasers in this offering to sell the Common Stock
offered hereby in the secondary market.
17. COMMON STOCK ELIGIBLE FOR RESALE. Of the 7,144,877 shares of
Common Stock presently outstanding, approximately 3,734,290 shares are
"restricted securities" and under certain circumstances may be sold in
compliance with Rule 144 adopted under the Securities Act of 1933, as amended.
Of such shares, approximately 3,413,424 shares may presently be eligible for
resale under Rule 144, and 83,040 shares have been registered for resale by
selling shareholders in a concurrent offering. Future sales of such shares
will in all likelihood depress the market price of the Company's Common Stock.
18. CONTROL BY EXISTING MANAGEMENT AND PRINCIPAL SHAREHOLDERS.
Following this Offering, the current executive officers, directors and
principal shareholders of the Company will continue to own beneficially
approximately ____% of the Company's outstanding Common Stock. Accordingly,
it should be anticipated that the current executive officers, directors and
principal shareholders of the Company will continue to have the ability to
significantly influence the outcome of elections of the Company's directors
and other matters presented to a vote of shareholders. (See "PRINCIPAL
SHAREHOLDERS.")
19. IMMEDIATE SUBSTANTIAL DILUTION. Based on an assumed offering
price of $4.875 per share, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution of $4.153 per share (85.2%) in
the pro forma net tangible book value of the Common Stock. (See "DILUTION.")
-8-
<PAGE>
20. BROAD DISCRETION IN APPLICATION OF PROCEEDS. The net proceeds
from this Offering have only been generally allocated by management. As a
result, management will have broad discretion in the application and
allocation of such proceeds. (See "USE OF PROCEEDS.")
21. PREFERRED STOCK AUTHORIZED. The Company's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of Preferred
Stock, the terms, preference, rights and restrictions of which may be
established by its Board of Directors. Other companies on occasion have
issued series of such preferred stock with terms, rights, preferences and
restrictions that could be considered to discourage other persons from
attempting to acquire control of such companies and thereby insulate incumbent
management. It is possible the Company could issue shares of its Preferred
Stock for such a purpose. In certain circumstances, the existence of
corporate devices which would inhibit or discourage takeover attempts could
have a depressant effect on the market value of the stock of a company.
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and
quotations are carried on the OTC Bulletin Board under the symbol "ASHA." The
following table sets forth the high and low bid price for the Company's Common
Stock for the periods indicated. These prices are believed to be inter-dealer
quotations and do not include retail mark-ups, mark-downs, or other fees or
commissions, and may not necessarily represent actual transactions.
QUARTER ENDED HIGH BID LOW BID
December 31, 1994 $6.50 $2.00
March 31, 1995 $6.75 $4.00
June 30, 1995 $6.25 $4.375
September 30, 1995 $5.375 $3.50
December 31, 1995 $6.25 $2.25
March 31, 1996 $6.00 $4.00
June 30, 1996 $7.25 $5.125
September 30, 1996 $6.00 $4.00
December 31, 1996 $4.375 $3.50
March 31, 1997
(Through March 19, 1997) $5.50 $4.625
The number of holders of record of the Company's Common Stock at
February 28, 1997, was 2,590. Many shares are registered in the names of
brokerage firms or other nominee names. As a result the Company estimates
that it has in excess of 6,000 shareholders.
DIVIDENDS
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends have been paid
with respect to the Company's Common Stock and no dividends are anticipated to
be paid in the foreseeable future. The Company currently intends to retain
all earnings to finance the development and expansion of its operations. The
declaration of cash dividends in the future will be determined by the Board of
Directors based upon the Company's earnings, financial condition, capital
requirements and other relevant factors.
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<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the ______ Shares of Common
Stock offered hereby by the Company will be approximately $5,000,000 after
deducting underwriting discounts and expenses of the offering. Such proceeds
will be applied substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT
<S> <C>
Repayment of Private Placement Notes<FN1> $ 900,000
Marketing of GERODISC Technology 1,000,000
Research and Engineering<FN2> 700,000
Aftermarket Development of GERODISC<FN3> 500,000
Additional Investments in ASHA-TAISUN Joint
Venture<FN4> 1,000,000
Working Capital and General Corporate
Purposes<FN5> 900,000
----------
Total $5,000,000
_______________
<FN>
<FN1>
The Private Placement Notes bear interest at 8% per annum, are secured by a
$1,000,000 account receivable from New Venture Gear, Inc., and are due on the
earliest of (a) the consummation of this public offering; (b) December 31,
1997; (c) the payment of the $1,000,000 receivable; or (d) the consummation of
any financing or series of financings with gross proceeds of at least
$4,000,000. The proceeds from the sale of the Private Placement Notes were
used for working capital purposes.
<FN2>
Represents amounts to be expended on advanced engineering and research
activities for the GERODISC technology and new products.
<FN3>
Represents amounts to be expended developing GERODISC "aftermarket" products
for existing vehicles as opposed to GERODISC products which are incorporated
in the initial design of new vehicles.
<FN4>
Represents additional contributions to be made to the ASHA-TAISUN Joint
Venture. These amounts are intended to be expended by the joint venture on
research and development activities related to the taxi and passenger van
carried out at the Company's Santa Barbara facility over the next 12 months.
<FN5>
Includes amounts to be expended on salaries, office expenses and other general
overhead costs.
</FN>
</TABLE>
The amounts set forth above are only an estimate. The Company is unable
to predict precisely what amount will be used for any particular purpose. To
the extent the proceeds received are inadequate in any area of expenditures,
supplemental amounts may be drawn from working capital, if any. Conversely,
any amounts not required for proposed expenditures will be retained and used
for working capital. Should the proceeds actually received, if any, be
insufficient to accomplish the purposes set forth above, the Company may be
required to seek other sources to finance the Company's operations, including
individuals and commercial lenders.
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<PAGE>
Pending utilization, management intends to make temporary investment of
the proceeds in bank certificates of deposit, interest-bearing savings
accounts, prime commercial paper or government obligations. Such investment
in interest-bearing assets, if continued for an excessive period of time
within the definition of the Investment Company Act of 1940, could subject the
Company to classification as an "investment company" under the Act and to
registration and reporting requirements thereunder.
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<PAGE>
DILUTION
At December 31, 1996, the proforma net tangible book value of the
Company was $1,041,847, or approximately $.146 per share of Common Stock based
on 7,140,507 shares of Common Stock outstanding, after giving effect to the
issuance of 64,290 shares of Common Stock in the Company's December 1996-
January 1997 bridge financing. The net tangible book value per share
represents the amount of the Company's total assets less the amount of its
intangible assets and liabilities, divided by the number of shares of Common
Stock outstanding. After giving effect to the receipt of net proceeds
(estimated to be approximately $5,000,000) from the sale of the shares of
Common Stock offered hereby, the proforma net tangible book value of the
Company at December 31, 1996, would be $6,041,847, or approximately $.722 per
share of Common Stock. This would result in dilution to the public investors
(i.e., the difference between the estimated public offering price per share of
Common Stock and the net tangible book value thereof after giving effect to
this offering) of approximately $4.153 per share. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price<FN1> $4.875
Proforma net tangible book value per
share at December 31, 1996 $.146
Increase in proforma net tangible book
value per share attributable to new
investors $.576
Proforma net tangible book value per share
after this offering $ .722
Dilution of net tangible book value per share
to new investors $4.153
_________________
<FN>
<FN1>
For purposes of this table it is assumed that the offering price will be
$4.875 per share which was estimated based on the average of the closing bid
and ask quotations on the OTC Bulletin Board on March 19, 1997.
</FN>
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 VERSUS THREE MONTHS ENDED DECEMBER
31, 1995
During the three months ended December 31, 1996, the Company had
approximately $52,212 in revenue compared to approximately $1,326,000 in
revenue during the corresponding prior year period. The decrease in revenue
was the result of a decrease in license and option revenue. The decrease is
due to the fact that during the three months ended December 31, 1995, the
Company entered into a new option agreement with a major customer and had
additional revenue from engineering services that resulted in substantial
revenues. During the quarter ended December 31, 1996, the Company remained
involved with tier one and OEM testing of its GERODISC technology, but no
option or license agreements were signed.
Expenses for the three months ended December 31, 1996, were
approximately $236,000 less than the corresponding prior year period.
Research and development expenses decreased $165,000 as a result of the
Company's transfer of technology and fabrication work related to the Jiaxing,
China factory as the ASHA-TAISUN Joint Venture continues to develop. General
selling and other administrative expenses decreased by approximately $86,000
as a result of cost cutting procedures being implemented as well as reduced
travel.
The net (loss) of $(691,780) for the three months ended December 31,
1996, was substantially less than net income of $437,329 for the three months
ended December 31, 1995. The decrease was due to reduced revenues and was
moderated by cost savings and reduced fabrication expenses.
YEAR ENDED SEPTEMBER 30, 1996 VERSUS YEAR ENDED SEPTEMBER 30, 1995
During the year ended September 30, 1996, the Company had revenue of
approximately $1,711,000 as compared to approximately $4,436,000 during the
year ended September 30, 1995. The substantial decrease was due to a
reduction of license and right of first refusal revenue of approximately
$2,725,000 as compared to the prior year. During the year ended September 30,
1996, the Company only entered into one new option agreement, that being with
American Axle, and renewed one license with an Indycar race team. During the
year ended September 30, 1995, the Company entered into major license
agreements with New Venture Gear and Dana Corporation, and also entered into
the license agreement with the Indycar race team.
Revenue from contract services increased in the year ended September 30,
1996 by approximately $49,000, as compared to the prior year. Additional
support services to licensees and optionees resulted in this increase.
Total expenses for the year ended September 30, 1996, increased by
approximately $259,000 over the prior year, primarily due to increased general
and administrative expenses. Research and development expenses decreased by
approximately $23,000 as a result of the Company's decreased use of outside
services due to the purchase of new equipment. Officers' salaries increased
primarily as a result of bonuses. Legal and accounting expenses increased by
approximately $14,000 as a result of matters related to foreign operations.
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<PAGE>
Patent application expenses decreased by approximately $28,000 due to reduced
patent application activity. Taxes and licenses expenses increased by
approximately $37,000 due primarily to increased payroll tax expense.
Selling, general and administrative expenses for the year ended
September 30, 1996 were approximately $871,000 as compared to approximately
$705,000 during the prior year. The increase is due to increased marketing
activities.
The Company had a loss of approximately $(887,000) on its investment in
the ASHA/TAISUN Joint Venture during the year ended September 30, 1996, as
compared to a loss on its investment of approximately $(470,000) in the prior
year. The Company has an ownership interest in the joint venture and
accordingly records 50% of the joint venture's loss in its statement of
operations. The increased net loss was due to the fact that the Joint
Venture's activities in China increased, but no revenues have yet been
generated.
The net (loss) of $(1,812,322) for the year ended September 30, 1996,
was a substantial change from the net income of $1,531,333 during the year
ended September 30, 1995. The net loss was primarily a result of the reduced
license and right of first refusal revenue recorded during the current year
and the loss from the investment in an affiliate described above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had working capital of
approximately $146,163 as compared to working capital of approximately
$930,000 at September 30, 1996. The decrease was due primarily to the net
loss of $691,780 during the three month period.
In November 1996, the Company obtained an increase in its line of credit
from Montecito Bank & Trust from $500,000 to $750,000. At December 31, 1996,
$718,000 was outstanding under the line of credit. Amounts borrowed under the
line of credit bear interest at the prime rate plus 1.5%, and are due on June
5, 1997.
In January 1997, the Company received approximately $799,000 in net
proceeds from the private sale of units consisting of promissory notes and
common stock.
With the additional cash made available from the increase in the line of
credit and the private offering, and anticipated revenues from operations, the
Company believes that it has sufficient liquidity to maintain the Company's
current level of activities for the next twelve months.
Operating activities for the quarter ended December 31, 1996 used
approximately $350,000 of net cash as compared to approximately $647,000 cash
provided in the quarter ended December 31, 1995. The decrease in cash from
operating activities was primarily due to the net loss incurred in the current
quarter as compared to the net income in the same quarter last year.
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<PAGE>
Investing activities for the quarter ended December 31, 1996, were
exclusively attributed to the ASHA-TAISUN Joint Venture. The $217,213 of
expenditures in the first quarter represents approximately 19% of the
Company's projected current fiscal year budget for the joint venture.
Cash provided by financing activities was $556,163 for the three months
ended December 31, 1996. Continued use of the Company's credit line was the
primary source of financing activities for the quarter ended December 31,
1996.
During the year ended September 30, 1996, cash provided by operating
activities was approximately $545,000 as compared to approximately $(22,000)
used in operating activities during the year ended September 30, 1995. The
cash provided by operating activities was primarily a result of a reduction of
receivables totaling approximately $1,426,000. This was partially offset by
the net loss for the year.
Cash used in investing activities during the year ended September 30,
1996, was approximately $(1,437,000) as compared to approximately $(740,000)
used in investing activities during the year ended September 30, 1995. The
increase was primarily due to increased purchases of short-term investments
and also an increased investment in the ASHA/TAISUN Joint Venture.
Cash provided by financing activities for the year ended September 30,
1996, was approximately $892,000 as compared to approximately $149,000
provided by financing activities during the year ended September 30, 1995.
The increase was due to the fact that the Company raised $750,000 from the
private sale of Common Stock during the year ended September 30, 1996, and
increased borrowings under its line of credit.
The Company expects to invest an additional $1,100,000 in the
ASHA/TAISUN Joint Venture during calendar year 1997. The Company has no
other commitments to make material capital expenditures.
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<PAGE>
BUSINESS
GENERAL
ASHA Corporation (the "Company" or "ASHA") is an innovative engineering
research and development company serving the global automotive and vehicular
industries. The Company is currently exploiting two proprietary technologies
which it has developed and patented, its GERODISC traction control system, and
a commercially feasible manufacturing process for modularly-based vehicles for
production and use in third world countries.
GERODISC is an automatic hyrdo-mechanical traction control device which
limits a vehicle's wheel spin and improves its traction and handling.
GERODISC is the only technology known to the Company that is compatible with
all cars, vans, sports utility vehicles and trucks and can be used on all four
types of vehicle platforms: front-wheel drive, rear-wheel drive, four-wheel
drive and all-wheel drive. Management believes that, based on the testing it
has conducted, GERODISC is superior to any other competing technologies
currently marketed, including electronic traction control. GERODISC has been
and is being tested by the three major US automobile manufacturers and most
major European automobile manufacturers for use in future model designs. To
date, GERODISC has been specified for inclusion in two 1998 models of a major
US automobile manufacturer, one of which is a leading four-wheel drive
vehicle.
The Company has developed an innovative technology for building and
assembling vehicles which requires significantly reduced levels of tooling,
assembly and manufacturing costs, greatly reducing initial capital
expenditures. This technology, known as the "ASHA Body Concept" ("ABC"), has
been targeted for use in third world countries to facilitate the production of
limited quantities of vehicles while achieving the cost savings normally
associated with the economies of scale of mass production. In July 1994, the
Company established a joint venture relationship with a Singapore-based
manufacturing company to exploit the ABC technology in the China and Southeast
Asia markets. In furtherance of this joint venture, the Company recently
completed its first pre-production prototype of an ABC vehicle which has
successfully undergone extensive road testing, chassis rigidity testing,
handling evaluation, suspension evaluation and heat testing. Based upon these
results, pre-production tooling has commenced at the joint venture's
manufacturing and production facility in Jiaxing City, China. The Company
expects that 100 pre-production ABC vehicles will be produced in China by the
end of 1997.
The Company's strategy is to maximize GERODISC's penetration in the
worldwide automobile and vehicle markets through licensing arrangements which
provide royalty revenue. In addition, the Company intends to exploit the
world-wide market for the ABC production system through joint venture and
license arrangements primarily in third-world countries. Further, the Company
intends to continue to develop products for the world-wide automobile and
vehicle markets through its continuing research and development activities.
THE ASHA GERODISC SYSTEM
GERODISC is an automatic hydro mechanical traction control device. It
is a self-activating device that can prevent wheel spin and improve traction
and handling on all four types of vehicle platforms: front-wheel drive,
rear-wheel drive, four-wheel drive and all-wheel drive.
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<PAGE>
GERODISC competes favorably with electronic traction control, a popular
but expensive option, and various less expensive mechanical and hydro-
mechanical limited slip differentials currently available for certain
applications. Unlike electronic traction control systems which reduce wheel
spin by limiting power to a vehicle's driven wheels, GERODISC transmits power
to the wheels in proportion to the traction available at each driven wheel.
The ability of GERODISC to provide a traction patch for each driven wheel also
differs from a conventional mechanical limited slip differential which only
provides one traction patch per axle. GERODISC is also smaller, lighter and
quicker acting than conventional traction control differentials and does not
introduce noise, vibration or harshness into a vehicle. In addition, the
engagement of GERODISC is transparent to the driver.
GERODISC is sensitive to, and controls speed differences between the
right and left wheels of the drive axle of front-wheel and rear-wheel drive
vehicles and speed differences between the front and rear axles of four-wheel
drive and all-wheel drive vehicles.
GERODISC is the only known limited slip technology that is adjustable
and powerful enough to have universal application in all vehicle drive
architectures. GERODISC is compatible with electronic engine management
systems and with antilock braking systems ("ABS"). GERODISC is uniquely
adaptable to front-wheel drive vehicles in that its operation does not induce
feedback to the driver through the steering wheel and does not impart harsh
forces into the vehicle drive train. Conversely, electronic traction control,
another form of traction control, operates by applying the brake to whichever
wheel has lost traction. This technique pulses the brake, which can be felt
through the steering wheel, induces harmful torque spikes into the axles and
transmission, can overheat brakes, and is costly to manufacture and repair.
For rear-wheel drive, GERODISC has proven to be the most powerful, yet
transparent, speed/torque sensitive limited slip device available.
Four-wheel drive (4WD) and all-wheel drive (AWD) vehicles are typically
expensive, heavy, incorporate drive train components that induce drive train/
transmission stresses, and affect fuel economy negatively. The ASHA GERODISC
System eliminates the expensive components, such as two differentials and/or
viscous couplings, as well as the elimination of a large portion of the
associated weight of a typical 4WD or AWD. With less weight, components,
mechanical stress and transmission windup, GERODISC provides better fuel
economy and maximum traction. In these vehicles, GERODISC eliminates a center
differential or viscous coupling. The secondary drive axle differential is
replaced by two GERODISC couplings. GERODISC activates automatically when
needed, without electronics. Similar to the GERODISC system used on front-
wheel drive and rear-wheel drive, the 4WD/AWD coupling system is
self-activating and transparent to the driver.
On May 10, 1994, the Company received patent approval from the U.S.
Patent and Trademark Office for the GERODISC technology. Other U.S. patents
are pending and international patents have been applied for.
As of December 1996, approximately 80 individual GERODISC prototypes
have been built for evaluation by original equipment manufacturer's ("OEM's")
or first tier suppliers (the companies who supply directly to the OEM's) and
approximately 25 other prototypes are currently in production.
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<PAGE>
The Company is a research and development company and therefore does not
intend to engage in manufacturing the GERODISC units; however, it does build
the prototypes which are used for testing the technology for different
vehicles. The Company's strategy is to license the GERODISC technology to the
large suppliers for the major United States and foreign automotive
manufacturers. Generally, the licenses will provide for up-front payments on
the signing of the license agreements and royalty payments based on the number
of vehicles on which the GERODISC is used. Following is a summary of the
licenses which have been granted by the Company.
NEW VENTURE GEAR, INC. LICENSE AGREEMENT
On August 19, 1993, ASHA entered into a licensing agreement with New
Venture Gear, Inc. ("NVG") to market GERODISC. NVG is a joint venture that is
wholly owned by Chrysler Corp. ("Chrysler") and General Motors Corp. ("General
Motors"). The agreement provides for NVG to manufacture and sell the device
in the next generation of four- wheel drive transfer case products in North
America and Europe, subject to certain restrictions. The Company received a
total of $950,000 in deposits under this agreement during the three years
ended September 30, 1996, which provides NVG with licensed rights throughout
the life of ASHA's patents.
In December 1994, the Company and NVG amended the license agreement to
provide that in the event NVG is awarded a production program by a major OEM,
NVG will pay $1,000,000 to the Company at the commencement of production of
the first model. On December 24, 1994, NVG was awarded a production program
with a major OEM and the first model year is anticipated to be 1998, with
production scheduled to commence in August 1997. In the event such model does
include the GERODISC, the license agreement provides that the Company will be
paid a small royalty for each vehicle produced after the first 200,000 have
been produced.
During October 1995, the Company entered into an option agreement with
NVG which granted NVG a twelve month option to acquire non-exclusive licenses
for up to three different GERODISC applications in North America. The three
applications were rear axles, transaxles and twin-disc front axles. This
option expired in October 1996. The Company is currently negotiating with NVG
concerning possible licenses for these applications, however, there is no
assurance that these negotiations will lead to additional license agreements.
DANA CORPORATION LICENSE AGREEMENT
On December 28, 1994, the Company entered into an agreement with Dana
Corporation ("Dana") in which the Company licensed Dana to manufacture and
market GERODISC for front axles exclusively and for rear axles non-exclusively
in North America, South America, Europe, South Korea and Taiwan. On February
2, 1995, the Company received a $1,000,000 license fee, and an additional
$1,000,000 license fee payment was made during January 1996. In addition, the
Company will receive a royalty on each unit produced under the agreement.
Dana is the largest axle manufacturer in the world. Dana has been approved
for production of the front and rear axles for the same vehicle that will
utilize the NVG GERODISC transfer case, giving the Company three GERODISC
units in one vehicle model starting with the 1999 model year. Production for
this 1999 model is expected to commence in late summer 1998.
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<PAGE>
AMERICAN AXLE AND MANUFACTURING, INC. OPTION AGREEMENT
On November 1, 1995, the Company entered into an agreement with American
Axle and Manufacturing, Inc. which granted American Axle an eighteen month
option to acquire non-exclusive licenses for up to three different GERODISC
applications world-wide. The three applications are rear axles, transaxles
and twin-disc front axles. If American Axle exercises any option, a license
fee ranging from $1,000,000 to $2,000,000 will be payable, depending upon the
application, and a per unit royalty will also be due. American Axle paid
$1,150,000 for the option which expires on May 1, 1997. American Axle is the
second largest axle manufacturer in the world, and it supplies approximately
95% of the axles used by General Motors. There is no assurance that American
Axle will exercise any portion of this option.
STEYR-DAIMLER-PUCH FAHRZEUGTECHNIK GMBH OPTION AGREEMENT
On October 9, 1995, the Company entered into an agreement with
Steyr-Daimler-Puch Fahrzeugtechnik GmbH ("Steyr") which granted Steyr an
option to acquire, on a right of first refusal basis, licenses for up to five
different GERODISC applications for the European market. Steyr is the largest
European automotive supplier for European OEM's. The five applications are
rear axles, transaxles for FWD, AWD front axles, twin-disc front axles, and
AWD couplings. If Steyr exercises its option, a license fee will be payable
in an amount to be agreed upon, and a per unit royalty may also be payable.
Steyr paid $100,000 for the option which expired on June 30, 1996. The
Company also agreed to fabricate, assemble and test a GERODISC prototype for
Steyr for which the Company was paid $80,000. The Company is continuing the
technical development of the prototype and is currently negotiating with Steyr
for a possible license agreement. During December 1996, the Company submitted
a license proposal to Steyr based on these negotiations, however, there is no
assurance that Steyr will execute a license agreement.
HIGH PERFORMANCE GERODISC APPLICATIONS
While the Company's goal is to develop products for license to
automotive OEM's or their suppliers, it has also determined to pursue
opportunities for the specialized application of GERODISC technology in high
performance and racing venues. These activities provide validation of the
technology, and in Europe where the major OEM's are more directly engaged in
racing activities, they provide a means of marketing and exposing the
technology to the OEM's. These activities may also provide an avenue to
generate ongoing revenues that do not have contractual delays that are typical
of OEM agreements. On May 23, 1994, the Company successfully completed
testing of a GERODISC limited slip differential for race car use. ASHA
personnel installed two GERODISC LSD's, one torque/speed sensitive and one
speed sensitive only. The vehicles demonstrated significant improvements in
computer recorded lap times with improved directional stability in dry and wet
conditions. The Company intends to supply performance units on a lease only
basis, thereby protecting its proprietary technology and providing the Company
with an ongoing opportunity to review the durability of each unit throughout
its usefulness.
ABC (ASHA BODY CONCEPT)
The second technology which the Company has developed and is now
actively exploiting is the ASHA Body Concept ("ABC"), a method of producing
cars in third world countries which requires significantly reduced levels of
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<PAGE>
tooling, assembly and other manufacturing costs, greatly reducing the amount
of capital required to set up and operate the manufacturing facility. This
manufacturing process is based on the ability to manufacture very precise
space frames, made of thin wall stainless steel tubing which require a low
tooling investment and can be utilized in either low volume or high volume
production. This stainless steel tubing requires no welding to assemble. The
body design uses a lightweight space-age composite fiber material which does
not require painting. The ABC process allows for the utilization of resources
which are most readily available in the foreign country. For example, the
manufacturing process requires only a limited amount of electrical power and
instead relies on natural gas which is abundant in many third-world countries,
including China. The process does not require robotics and can be learned
with only limited training.
The ABC technology is also very environment-friendly which is important
in many third-world countries. The manufacturing process, unlike conventional
automotive manufacturing technology, creates no by-products which require
recycling and the vehicle's components are almost entirely recyclable.
The first application of this technology is being conducted in China.
In July 1994, the Company entered into a joint venture with Singapore based
TAISUN Automotive PTE LTD. ("TAISUN") for the production and sale of vehicles
in the Far East. TAISUN, which is 85% owned by Brian Chang, a principal
shareholder of the Company, is a manufacturer of vehicles, ships, electrical
motors, fiberglass products, and chemicals. The Company has agreed to
contribute to the joint venture the right to use the ABC technology in the
design and manufacture of taxis.
ASHA/TAISUN is an 85% owner of Jiaxing Independence Auto Design &
Development Co. Ltd. ("JIAD&D"), a corporation formed under the laws of the
Peoples Republic of China, for the purpose of engaging in the production and
sale of automobiles in China. Ten percent (10%) of JIAD&D is owned by Walland
Electric Motor Company, a company owned by Brian Chang, and 5% is owned by
Jack Tang, who is a Chinese national and who manages the factory in China.
Following is a diagram showing the parties and ownership in this joint
venture:
----------------
ASHA TAISUN
50% 50%
----------------
: :
: :
-------------------- ---------------- ---------
ASHA/TAISUN PTE LTD. WALLAND ELECTRIC JACK TANG
85% MOTOR COMPANY 5%
10%
-------------------- ---------------- --------
: : :
: : :
---------------------------------------------
JIAD&D
---------------------------------------------
JIAD&D intends to initially manufacture and sell taxis utilizing the ABC
technology because of the demand for such vehicles in China. The vehicle has
been designed to have a short turning radius with a long suspension to best
accommodate driving conditions in China and Southeast Asian countries.
-21-
<PAGE>
Approximately 80% of the components for the vehicle will come from
China. The balance will come from sources in the United States and Brazil.
There are at least two sources in China for both the engines and transmissions
to be used in the vehicle.
JIAD&D owns a manufacturing plant facility in Jiaxing City in Zhejiang
province in China, and a new 20,000 square foot three story building has been
completed to house engineering and administrative functions. JIAD&D has the
right to use the land on which these facilities are located for 50 years.
JIAD&D presently has approximately 86 employees.
JIAD&D expects to produce up to 10,000 complete vehicles annually at the
facility in Jiaxing. It is also expected to produce complete knock down kits
(or CKD kits) at the same facility. A CKD kit includes all of the components
for one vehicle.
The joint venture intends to sell assembly franchises to persons in
other provinces and then sell CKD kits to these franchisees for assembly and
sale. JIAD&D also expects to export the CKD kits to assemblers in other
countries in Southeast Asia, where the vehicle will be assembled and sold
outside of China.
The Company is building the production tooling and molds for the joint
venture at its Santa Barbara facility before shipping them to the Jiaxing
facility. ASHA has built the first prototype at its facility. This unit has
undergone successful hot weather testing in Death Valley. It has undergone
performance and handling testing and cold weather testing. The pre-production
prototypes and all proof of production models (the first models built using
the final production tooling) will be built in Jiaxing.
The Jiaxing facility is currently building 15 pre-production units which
it intends to complete by June 1997. The joint venture then intends to build
100 pre-production units by December 1997. These units will be used by the
joint venture to market franchises in the other provinces. The goal is to
then build 10,000 units in 1998. However, at this time the Company has no
orders for the vehicles.
The Company has also had discussions with representatives of the
Philippine government regarding the development of a sport utility vehicle to
be manufactured in the Philippines utilizing the ABC technology. The Company
entered into a memorandum of understanding regarding this project in early
1996, however, there is no assurance that a final agreement will be reached.
MARKETING
The Company is marketing its GERODISC technology in the U.S., Europe and
Asia. A full-time Detroit based marketing person was hired in January 1991.
This person has extensive experience in the automotive business. Claude
Dubois, a race car driver and automotive expert in Brussels, Belgium, was
retained in April 1994 as a consultant to market the GERODISC technology to
auto makers in Europe. An automotive import/export consultant was hired in
August 1995 to locate sources for automobile components in South America to
eventually be used in China.
-22-
<PAGE>
PATENT RIGHTS
The Company is aggressively pursuing patent protection for its
technologies in both the United States and overseas. ASHA has the following
patents or pending patents relating to its GERODISC and ABC technologies:
1. Vehicle drivetrain coupling - U.S. Patent No. 5,310,388. This
patent application has proceeded into the national and regional phases in
Australia, Europe, Japan and Korea. In addition, applications have been filed
in China and Mexico.
2. Hydraulic coupling for vehicle drivetrain - U.S. Patent No.
5,536,215.
3. Hydraulic coupling for vehicle drivetrain - U.S. Patent No.
5,595,214.
4. Vehicle drivetrain coupling - U.S. Patent No. 5,611,746.
5. Hydraulic coupling for vehicle drivetrain - one other patent
application relating to a variation of this technology has been filed with the
U.S. Patent Office.
6. Vehicle body space frame (ABC technology) - one patent application
has been filed with the U.S. Patent Office.
7. Vehicle body construction (ABC technology) - one patent
application has been filed with the U.S. Patent Office.
MAJOR CUSTOMERS
During the year ended September 30, 1996, 16% of the Company's revenues
were received from prototype development, 67% from American Axle for an option
to license GERODISC, 6% for license and development of a racing GERODISC and
11% from a foreign tier one supplier for an option to license GERODISC and
prototype development.
During the year ended September 30, 1995, 39% of the Company's revenues
were received or accrued from licenses for research and development and
prototype development, 43% from DANA for licensing of GERODISC, 15% from
ASHA/TAISUN for development of the world car, 2% for development of a racing
GERODISC, and 1% from a foreign OEM for research and development and prototype
development.
STAFF
As of March 15, 1997, the Company had 34 employees consisting of 3
executive officers, 27 automotive designers, engineers and fabricators, and 4
administrative support personnel.
FACILITIES
The principal offices of the Company are located at 600 C Ward Drive,
Santa Barbara, California 93111. This space is rented at a monthly rate of
$6,556 through January 1999. Beginning in January 1995 and every January
thereafter, the base rent is adjusted in proportion to the percentage increase
-23-
<PAGE>
or decrease of the official Consumers Price Index of the Bureau of Labor
Statistics, United States Department of Labor. In no event will the rent be
increased more than 8% for any one adjustment period nor shall rent be less
than the base rent. These facilities include office space, work areas for
designers and a shop and equipment suitable for performing design, development
and styling work. Approximately 11,300 square feet of space are utilized at
this location.
LEGAL PROCEEDINGS
The Company knows of no material pending legal proceedings to which the
Company is a party.
-24-
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
---- --- -------------------------------
Alain J-M Clenet 52 Chairman of the Board and Chief Executive
Officer
John C. McCormack 65 President, Chief Operations Officer,
Secretary and Treasurer
Kenneth R. Black 50 Vice President of Sales and Marketing
Steven E. Sanderson 44 Chief Financial Officer and Controller
Sheila R. Ronis 46 Director
Robert J. Sinclair 64 Director
Lawrence Cohen 52 Director
There are no family relationships among any of the Directors or executive
officers.
ALAIN J-M CLENET. Mr. Clenet has served as Chairman of the Board of
Directors of the Company since August 1986; he served as President from August
1986 until February 1, 1995; and he has served as Chief Executive Officer
since February 1, 1995. He also served as President and a Director of
Stehrenberger/Clenet, Inc. (S/C), an automotive design company, from its
inception in February 1983 until it was liquidated in early 1988 at the
formation of ASHA Corporation. S/C employed approximately 15 people in
design, engineering and fabricating trades.
From 1983 until the sale of the business in November 1986, Mr. Clenet
also served as President and a Director of Wood, Ltd., a Michigan corporation
which manufactures automotive wood components. From July 1976 until September
1981, he served as President and a Director of Clenet Coachworks, Inc., a
company which designed, manufactured and sold approximately 500 Clenet
automobiles. From 1965 until 1975, Mr. Clenet conducted automotive design,
research and development in France and the United States. Mr. Clenet received
a CAFAS Degree from the Ecole des Beaux Arts, Angers, France in 1963 and an
E.N.S.A.D. Degree from the National Superior School of Design of Paris in
1965.
JOHN C. McCORMACK. Mr. McCormack has served as President and Chief
Operations Officer of ASHA since February 1, 1995, and as Secretary and
Treasurer since January 31, 1996. Mr. McCormack helped start American Honda
Motor Company in 1959 and he has been described as the driving force in its
rise to prominence in the U.S. motorcycle market. He was co-founder of U.S.
Suzuki Motor Corporation in 1964, and by 1967 this company was second in the
U.S. market for motorcycles, behind Honda. He served as President and CEO of
McCormack International Motors, Inc. from 1969 until 1975. McCormack
International Motors was the first to bring a wide range of motorized
-25-
<PAGE>
recreational vehicles under one label, and it established some 925 dealers and
10 overseas distributors. From 1975 until 1980, he was a founder and
President of Jacwall Corporation. Mr. McCormack was a founder and served as
President and COO of Hirsch Electronics Corporation from 1980 to 1985, where
he guided product development to successful completion at less than budgeted
costs. These systems are now in use in the White House, Pentagon, IBM,
General Motors, FBI, British Secret Service, as well as many other secure
government and business installations around the world. He was a co-founder
and he served as President and CEO of the Napa Valley Railroad and the Napa
Valley Wine Train from 1985 until April 1991. From April 1991 until April
1994, he served as Vice President of Marketing and Sales for Mission
Industries, an industrial laundry business, and from April 1994 until January
1995, he was engaged in general business consulting under the name McCormack
and McCormack Consulting.
KENNETH R. BLACK. Mr. Black has served as the Company's Vice President
of Sales and Marketing since July 1992 after having served as the Sales
Director since January 1991. From 1985 until December 1990, he served as
President of Technologies International Ltd., a company he founded and which
was involved in market development and technology licensing for various
domestic and foreign clients. From 1979 until 1985, he served as a Director
of New Business Development for the Paint, Plastics and Vinyl Division of Ford
Motor Company.
STEVEN E. SANDERSON. Mr. Sanderson has served as Controller of the
Company since January 1997 and as Chief Financial Officer since March 1997.
From 1991 until December 1996, he served as the President and owner of
Sanderson Investments, Inc., a consulting company which prepared financial
analyses encompassing productivity, variances, standard costs and production
bonus plans, time studies, rate of return, and risk management. From 1985
until 1991, he served as Controller for the Systems Division of Computer
Products Inc., a public company, where he was responsible for the accounting
and management information systems group for two manufacturing facilities.
From 1981 until 1985, he served as Controller of Southeastern Public Service
Company, a public company, where he had complete responsibility for the
accounting and management information systems functions for this multi-state
business. From 1977 to 1981, he was employed by the Solid State Division of
RCA where his last position was cost accounting supervisor. Mr. Sanderson
received a B.B.A. Degree in Accounting from Florida Atlantic University in
1977.
SHEILA R. RONIS, PH.D. Dr. Sheila Ronis has served as a Director of
ASHA since 1989. She has been President of The University Group, Inc., a
management consulting company since 1988. She is also an adjunct professor at
the University of Detroit where she teaches Strategic Management and Business
Policy in the M.B.A. program. Dr. Ronis received a B.S. degree in Physics and
Mathematics in 1972 from Ohio State University. She received M.A. and Ph.D.
degrees in Organizational Behavior from Ohio State University in 1974 and
1976, respectively. Dr. Ronis consults for many organizations as diverse as
General Motors, Ameritech, The White House, the Pentagon and USCAR.
ROBERT J. SINCLAIR. Mr. Sinclair has served as a Director of the
Company since April 1994. Mr. Robert J. Sinclair is retired Chairman and
Chief Executive Officer of Saab Cars USA, Inc. Early in his automotive career
he served as advertising manager and public relations manager of Saab, before
joining Volvo North America where he rose to President of Volvo's Western US
organization. He rejoined Saab as President in 1979, retiring as Chairman and
CEO in 1991. Mr. Sinclair consults for many organizations, and serves as a
director of Hansa Reinsurance Co. of America, which is publicly-held.
-26-
<PAGE>
LAWRENCE COHEN. Mr. Cohen has served as a Director of the Company since
January 20, 1995. Mr. Cohen has served as Vice Chairman of the Board,
Executive Vice President and Treasurer of Bristol Technology Systems, Inc.
("Bristol") since its inception in April 1996. Bristol is in the business of
establishing a national network of full service dealerships of retail
automation equipment such as point of sale systems. From November 1990 to
September 1996, Mr. Cohen served as Chairman of the Board of BioTime, Inc.
("BioTime"), a publicly-held biotechnology company engaged in the artificial
plasma business. Mr. Cohen has also served as a director of Apollo Genetics
Inc., a company founded by Mr. Cohen which is engaged in the genetic
pharmaceutical business, from January 1993 to the present; a director of
Registry Magic Inc., a company founded by Mr. Cohen which develops voice
recognition equipment, from November 1995 to present; and a director of Kaye
Kotts Associates, Inc., a publicly-held company in the management services
business, from April 1995 to the present.
The standing committees of the Board of Directors are the Audit
Committee and the Compensation Committee.
The Audit Committee consists of Sheila Ronis, Robert Sinclair and
Lawrence Cohen, each of whom is an independent Director. The Audit Committee's
function is to review and report to the Board of Directors with respect to the
selection and the terms of engagement of the Company's independent public
accountants, and to maintain communications among the Board of Directors, such
independent public accountants, and the Company's internal accounting staff
with respect to accounting and audit procedures, the implementation of
recommendations by such independent public accountants, the adequacy of the
Company's internal controls and related matters. The Audit Committee also
reviews certain related party transactions and any potential conflict of
interest situations involving officers, directors or stockholders beneficially
owning more than 10% of an equity security of the Company.
The Compensation Committee consists of Sheila Ronis, Robert Sinclair and
Lawrence Cohen. The Compensation Committee's function is to review and
approve annual salaries and bonuses for all executive officers and review,
approve and recommend to the Board of Directors the terms and conditions of
all employee benefit plans or changes thereto, including the granting of stock
options pursuant to the Company's 1994 Option Plan.
The Company has agreed with the Representative that, for a period of 36
months from the date of closing of this offering, the Company will allow an
observer designated by the Representative and acceptable to the Company to
attend all meetings of the Board of Directors. Such observer will have no
voting rights. He or she will be reimbursed for out-of-pocket expenses
incurred in attending such meetings, and will be indemnified against any
claims arising out of participation at Board meetings, including claims based
on liabilities arising under the securities laws.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer, President and
Executive Vice President. No other executive Officer received compensation in
excess of $100,000 for the fiscal years ended September 30, 1996, 1995 and
1994:
-27-
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
SECURI-
TIES
UNDERLY-
OTHER RE- ING
ALL
ANNUAL STRICTED OPTIONS/
OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP
COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS
SATION
- ------------------ ---- -------- ------- ------ -------- -------- -------
- -------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Alain J-M Clenet, 1996 $152,500 $73,000 -0- -0- -0- -0-
$7,819
<FN1>
<FN2>
Chief Executive 1995 $152,500 -0- -0- -0- -0- -0-
$3,035
Officer
<FN3>
1994 $152,500 -0- -0- -0- -0- -0-
-0-
John C. McCormack, 1996 $ 90,000 $10,000 -0- -0- 65,786 -0-
$ 504
President
<FN4>
1995 60,000 -0- -0- -0- -0- -0-
-0-
1994 -0- -0- -0- -0- -0- -0-
-0-
Theo E. Shaffer, 1996 $ 92,025 $19,373 -0- -0- -0- -0-
-0-
Executive Vice 1995 $ 90,000 -0- -0- -0- 3,098 -0-
-0-
President<FN5> 1994 $ 90,000 -0- -0- -0- -0- -0-
-0-
Kenneth R. Black, 1996 $100,592 $10,000 -0- -0- 10,524 -0-
-0-
Vice President of <FN6>
Sales and Market- 1995 $ 85,000 -0- -0- -0- 2,788 -0-
-0-
ing 1994 $ 78,000 -0- -0- -0- -0- -0-
-0-
- -------------------
<FN>
<FN1>
Of this amount, $88,958 was paid during the fiscal year ended September 30,
1996, and the remainder was deferred until January 1997.
<FN2>
Represents medical expense reimbursements for Mr. Clenet and his family.
<FN3>
Includes $981 in medical expense reimbursements for Mr. Clenet and his family,
$857 paid for premiums on a $5 million umbrella liability insurance policy for
Mr. Clenet, and other expenses paid on his behalf.
<FN4>
Represents amounts paid by the Company as a matching amount to a 401(k) plan
contribution.
<FN5>
Mr. Shaffer resigned on October 1, 1996.
<FN6>
Includes $15,592 paid to Mr. Black in settlement of unused vacation time.
</FN>
</TABLE>
-28-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
- ----------------- ------------ ------------ ---------- ----------
Alain J-M Clenet -- -- -- --
John C. McCormack 40,786 33.1% $4.625 11/01/98
25,000 20.3% $4.50 9/24/99
Theo E. Shaffer -0- -- -- --
Kenneth R. Black 10,524 8.5% $4.625 11/01/98
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES UNDER- VALUE OF UNEXER-
SHARES LYING UNEXER- CISED-IN-THE
ACQUIRED CISED OPTIONS MONEY\OPTIONS/
ON SARS AT FY-END SARS AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------- -------- -------- ---------------- ---------------
Alain J-M Clenet -- -- -- --
John C. McCormack -- -- 65,786 / 0 0 / 0
Theo E. Shaffer -- -- -- --
Kenneth R. Black -- -- 13,312 / 0 $ 697 / 0
Subsequent to September 30, 1996, the Company's Board of Directors
granted additional stock options to executive officers under the Company's
1994 Stock Option Plan. In December 1996, the Board of Directors granted
stock optiosn, exercisable at $3.6875 per share, to John C. McCormack to
purchase 6,386 shares of Common Stock, to Kenneth R. Black to purchase 4,257
shares of Common Stock, and to Alain J-M Clenet to purchase 8,278 shares of
Common Stock. Each of the options granted in December 1996 expire on December
17, 1999. In January 1997, the Board of Directors granted stock options,
exercisable at $4.00 per share, to John C. McCormack and Kenneth R. Black each
to purchase 100,000 shares of Common Stock, expiring on January 15, 2002.
EMPLOYMENT AGREEMENTS
In April 1995, the Company entered into an Amended and Restated
Employment Agreement with Alain J-M Clenet, the Company's Chairman of the
Board and Chief Executive Officer, pursuant to which he receives a base annual
salary of $152,500. Mr. Clenet's base salary is subject to cost-of-living
adjustments and may be increased by the Board of Directors. The initial term
is through April 20, 2000, and will be automatically extended for additional
two year terms unless either party notifies the other at least six months in
advance. Mr. Clenet is entitled to participate in all insurance plans and
benefits of the Company and to also be reimbursed for all of his and his
family's medical and dental expenses not paid for under such programs. Mr.
Clenet also receives a $5 million umbrella liability insurance policy paid for
by the Company.
-29-
<PAGE>
On March 1, 1997, the Company entered into employment agreements with
Jack McCormack and Ken Black. Each of the Employment Agreements expires as of
February 28, 1999, however, they will be automatically renewed for additional
two year terms unless either the Company or the employee gives to the other
six months notice that the agreement is to be terminated. Pursuant to the
employment agreements, Mr. Black is entitled to a salary of $90,000 per year
and Mr. McCormack is entitled to a salary of $90,000 per year. Both
agreements provide for cost of living adjustments and participation in all
fringe benefits available to other executive officers. Mr. McCormack's
agreement also provides that he is to be granted options to purchase 25,000
shares annually, in addition to the 100,000 options he was granted on January
15, 1997.
Effective during the fiscal year ended September 30, 1995, the Company's
Directors do not receive fees for their attendance at Board or committee
meetings, but they have received options under the Company's 1994 Stock Option
Plan. Directors are also reimbursed for their reasonable expenses in
attending meetings of the Board of Directors and any committees thereof.
DIRECTORS COMPENSATION
During the last three years the Company has granted to the independent
members of the Company's Board of Directors options to purchase 25,000 shares
of common stock each year. The most recent options granted under this policy
were granted on December 17, 1996, with an exercise price of $3.6875, when
25,000 options were granted to each of Sheila Ronis, Robert Sinclair and
Lawrence Cohen.
STOCK OPTION PLANS
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan provides for the grant of options to purchase
up to 750,000 shares of Common Stock to employees, officers, directors and
consultants of the Company. The purpose of this plan is two-fold. First, the
plan will further the interests of the Company and its shareholders by
providing incentives in the form of stock options to employees who contribute
materially to the success and profitability of the Company. Second, the plan
will provide the Company flexibility and the means to reward directors and
consultants who render valuable contributions to the Company. The Board has
the power to determine at the time the option is granted whether the option
will be an incentive stock option (an option which qualifies under Section 422
of the Internal Revenue Code of 1986) or an option which is not an incentive
stock option. However, incentive stock options will only be granted to
persons who are employees of the Company. Vesting provisions are determined
by the Board at the time options are granted. The option price must be
satisfied by the payment of cash. The Board of Directors may amend the plan
at any time, provided that the Board may not amend the plan to materially
increase the number of shares available under the plan to materially change
the eligible class of employees without shareholder approval.
As of March 15, 1997, there were 656,806 options outstanding under the
plan with exercise prices ranging from $3.6875 to $4.5625.
401(K) PLAN
Effective October 1, 1995, the Company implemented a 401(K) Plan
pursuant to which all eligible employees may contribute up to 15% of their
compensation.
-30-
<PAGE>
The Company matches contributions in the amount of 10% of all elective
deferrals, and, at the Company's option, may contribute annually up to 15% of
the total compensation of all eligible employees. Executive Officers of the
Company are eligible to participate in this plan. During the fiscal year
ended September 30, 1996, the Company made $8,047 in matching contributions
under this plan.
-31-
<PAGE>
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering by certain Selling
Shareholders of 83,040 shares of Common Stock issued in connection with the
Company's December 1996 - January 1997 Private Placement. These shares may be
sold in the open market, in privately negotiated transactions, or otherwise
directly by the holders thereof, subject to the following contractual
restrictions. Each Selling Shareholder has agreed not to sell, transfer or
otherwise publicly dispose of the Selling Shareholders' Stock for up to six
months from the date of this Prospectus without the prior written consent of
the Representative.
The Company will not receive any proceeds from the sale of any of the
Selling Shareholders' shares. Sales of such stock or the potential of such
sales may have an adverse effect on the market price of the shares of Common
Stock offered hereby.
-32-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of shares of
the Company's no par value Common Stock owned beneficially, as of February 28,
1997, by any person, who is known to the Company to be the beneficial owner of
5% or more of such Common Stock, and, in addition, by each Director of the
Company and by all Directors and Executive Officers of the Company as a group.
Information as to beneficial ownership is based upon statements furnished to
the Company by such persons.
<TABLE>
<CAPTION>
Amount and Percent of Class
Name and Address Nature of Bene- Before After
Of Beneficial Owner ficial Ownership Offering Offering
- ------------------- ---------------- -------- --------
<S> <C> <C> <C>
Alain J-M Clenet 2,019,742 <FN1> 28.5%
600 C Ward Drive
Santa Barbara, CA 93111
Sheila R. Ronis 63,596 <FN2> 0.9%
640 Rolling Green Circle
Rochester Hills, MI 48309
Robert J. Sinclair 63,377 <FN2> 0.9%
1025 North Ontare Road
Santa Barbara, CA 93103
Lawrence Cohen 50,000 <FN3> 0.7%
3311 NE 26th Avenue
Lighthouse Point, FL 33064
Brian Chang 1,217,113 17.2%
1 Chatworth Road, No. 2421
Singapore 1024
All Directors and Executive 2,496,456 <FN4> 32.8%
Officers as a Group (7
persons)
- --------------------
<FN>
<FN1>
Includes 8,278 shares underlying stock options held by Mr. Clenet.
<FN2>
Includes 50,000 shares underlying stock options held by such person.
<FN3>
Represents shares underlying stock options held by Mr. Cohen.
<FN4>
Includes shares beneficially owned by the following persons who are Executive
Officers of the Company; 172,172 shares underlying stock options held by John
C. McCormack; 117,569 shares underlying options held by Kenneth R. Black; and
10,000 shares underlying options held by Steven E. Sanderson.
</FN>
</TABLE>
-33-
<PAGE>
CERTAIN TRANSACTIONS
On August 11, 1994, ASHA Corporation entered into a joint venture with
TAISUN Automotive of which Mr. Brian Chang is 85% shareholder. Mr. Chang is a
principal shareholder of the Company. The joint venture was formed as a
Singapore corporation named ASHA/TAISUN PTE LTD. ("ASHA/TAISUN"). The purpose
of this Joint Venture is to exploit the Company's ABC technology in the China
and Southeast Asia markets.
ASHA/TAISUN, through its 85%-owned subsidiary, Jiaxing Independent Auto
Design and Development Co., Ltd., is developing an automobile manufacturing
facility in Jiaxing, China. ASHA/TAISUN has also contracted with the Company
for automobile design work. During the year ended September 30, 1996, the
Company invested $1,540,727 in the joint venture.
In March 1994, Brian Chang purchased 235,924 shares of the Company's
Common Stock for $1,000,000 in cash. On November 2, 1995, Mr. Chang purchased
an additional 181,818 shares of ASHA Common Stock from the Company for
$750,000 in cash.
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock.
COMMON STOCK
The holders of Common Stock are entitled to vote per share on all
matters to be voted on by stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, if any, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. See "DIVIDENDS." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior rights of Preferred Stock, if any, then
outstanding. The Common Stock has no preemptive or other subscription rights
and there are no conversion rights or redemption or sinking fund provisions
with respect to such shares. All of the outstanding shares of Common Stock
are fully paid and nonassessable.
On December 9, 1993, the Company's shareholders approved a proposed
reverse split of the outstanding shares of the Company's Common Stock of 1 for
85. The reverse split was effective on February 1, 1994. All share data in
this Prospectus gives a retroactive effect to the reverse stock split.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of
undesignated Preferred Stock. The Board of Directors will have the authority
to issue the undesignated Preferred Stock in one or more series and to
determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of undesignated Preferred Stock, as well as to fix the number of shares
constituting any series and the designations of such series, without any
further vote or action by the shareholders. The issuance of any Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the shareholders and may
adversely affect the voting and other rights of the holders of the Common
Stock. At present, the Company has no plans to issue any shares of Preferred
Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
TranSecurities International, Inc., 2510 North Pines, Suite 202, Spokane,
Washington 99206.
BANK WARRANT
In connection with the increase in the Company's line of credit from
Montecito Bank and Trust (the "Bank") in November 1996, the Company issued a
warrant to the Bank to purchase up to 18,750 shares of Common Stock at $4.00
per share. The warrant is exercisable until November 24, 2001. The warrant
contains certain registration rights, and the resale of the shares issuable
under this warrant is covered by the Registration Statement of which this
Prospectus is a part. See "CONCURRENT OFFERING."
-35-
<PAGE>
UNDERWRITING
The Underwriters listed below (the "Underwriters") have agreed, subject
to the terms and conditions of the Underwriting Agreement between the Company
and H.J. Meyers & Co., Inc., as Representative of the Underwriters, to
purchase from the Company the number of shares of Common Stock set forth
opposite their names. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent
and that the Underwriters shall be obligated to purchase all of the shares of
Common Stock if any of the shares are purchased. The 10% underwriting
discount set forth on the cover page of this Prospectus will be allowed to the
Underwriters at the time of delivery to the Underwriters of the shares of
Common Stock so purchased.
NAME OF UNDERWRITER NUMBER OF SHARES
------------------- ----------------
H.J. Meyers & Co., Inc. ................... __________
Total ................................. __________
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at an offering price of $____ per Share
and that the Underwriters may allow certain dealers who are members of the
National Association of Securities Dealers, Inc. ("NASD") a concession of not
in excess of $____ per Share. After commencement of the offering, the public
offering price and concession may be changed.
The Underwriters have advised the Company that they do not intend to
sell any of the securities offered hereby to accounts for which they exercise
discretionary authority.
The Company has granted to the Representative an option, exercisable
during the 30 business-day period from the date of this Prospectus, to
purchase up to a maximum of ________ additional Shares on the same terms set
forth above. The Representative may exercise such right only to satisfy over-
allotments in the sale of the Shares.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 3% of the total proceeds of the offering, or
$180,000 ($207,000 if the Representative exercises the over-allotment option
in full), of which $50,000 has already been paid. In addition to the
Underwriter's commissions and Representative's expense allowance, the Company
is required to pay the costs of qualifying the shares under federal and state
securities laws, together with legal and accounting fees, printing and other
costs in connection with this offering, estimated to total approximately
$220,000.
At the closing of the offering, the Company will issue to the
Representative, for $5.00, a warrant (the "Representative's Warrant") to
purchase for investment a maximum of _____ Shares of Common Stock. The
Representative's Warrant will be exercisable for a four year period commencing
one year from the date of this Prospectus. The exercise price of the
Representative's Warrant is 120% of the public offering price per Share, or
$_____ per Share. The Representative's Warrant will not be transferable prior
to its exercise date except to officers of the Representative and members of
the selling group and officers and partners thereof.
-36-
<PAGE>
The Representative's Warrant will contain anti-dilution provisions
providing for adjustment in the event of any stock dividend, stock split,
recapitalization, reclassification or similar transaction. The
Representative's Warrant does not entitle the Representative to any rights as
a shareholder of the Company until such warrant is exercised and the shares of
Common Stock are purchased thereunder.
The Representative's Warrant and the shares of Common Stock thereunder
may not be offered for sale except in compliance with the applicable
provisions of the Securities Act. The Company has agreed that, upon written
request by a holder or holders of 50% or more of the Representative's Warrants
which is made during the exercise period of the Representative's Warrant, the
Company will, on two separate occasions, register the Representative's Warrant
and any of the securities issuable upon exercise thereof. The initial such
registration will be at the Company's expense and the second such registration
will be at the expense of the holder(s) of the Representative's Warrant.
For the period during which the Representative's Warrant is exercisable,
the holder or holders will have the opportunity to profit from the rise in the
market value of the Company's Common Stock, with a resulting dilution in the
interests of the other shareholders of the Company. The holder or holders of
the Representative's Warrant can be expected to exercise it at a time when
the Company would, in all likelihood, be able to obtain any needed capital
from an offering of its unissued Common Stock on terms more favorable to the
Company than those provided for in the Representative's Warrant. Such fact
may adversely affect the terms on which the Company can obtain additional
financing. To the extent that the Representative realizes any gain from the
resale of the Representative's Warrant or the securities issuable thereunder,
such gain may be deemed additional underwriting compensation under the
Securities Act.
Officers, directors and holders of five percent or more of the Company's
outstanding capital stock have agreed that they will not sell any shares of
Common Stock owned by them (or subsequently acquired under any option, warrant
or convertible security owned prior to this offering) for eighteen months
following the date of this Prospectus, without the Representative's prior
written consent. However, the Representative has agreed to allow Alain J-M
Clenet, the Company's Chief Executive Officer and Chairman of the Board, to
sell up to 30,000 shares of Common Stock commencing 90 days after the date of
this Prospectus, provided such sales are made through the Representative.
During the three (3) year period after the closing date of the Offering, the
Representative will have the right to purchase for its own account or sell for
the account of the Company's officers, directors and principal shareholders
(any person holding 5% or more of the Company's voting securities) any
securities sold pursuant to Rule 144 under the Securities Act.
The Company has agreed that for a period of eighteen months from the
date of this Prospectus it will not sell any securities (with the exception of
the shares of Common Stock issued upon the exercise of the Redeemable Warrants
or currently outstanding options or warrants) without the prior written
consent of the Representative, which consent shall not be unreasonably
withheld. The Company has also agreed that with respect to sales of
securities to be made pursuant to Regulation S under the Securities Act such
period shall be for twenty-four months.
-37-
<PAGE>
The Company has also agreed that, for a period of two years from the
date of this Prospectus, if it participates in any merger, consolidation or
other transaction which the Representative has brought to the Company
(including an acquisition of assets or stock for which it pays, in whole or in
part, with shares of the Company's Common Stock or other securities) then it
will pay for the Representative's services an amount equal to 5% of the first
$3,000,000 of value paid or received in the transaction, 2-1/2% of any
consideration paid over $3,000,000 and not greater than $5,000,000, and 2% of
all such value above $5,000,000. The Company has also agreed that if, during
this two-year period, someone other than the Representative brings such a
merger, consolidation or other transaction to the Company, and the
Representative renders advice in connection therewith, then upon consummation
of the transaction the Company will pay to the Representative as a fee the
appropriate amount as set forth or as otherwise agreed to between the Company
and the Representative.
The Company has also agreed that during the three (3) year period from
the closing of this Offering, the Representative will have the right of first
refusal to act as underwriter or agent for any public of private offering or
sale of the securities of the Company or any successor to the Company or any
of the officers or directors of the Company or shareholders owning
beneficially 5% or more of the Company's Common Stock.
The Company has agreed to enter into a consulting agreement with the
Representative under the terms of which the Representative will be paid a non-
refundable fee of $5,000.00 per month for 12 months. The Company has agreed
to pay the Representative the entire one year fee upon the closing of this
Offering. The Representative will perform consulting services related to
corporate finance and other financial service matters, upon the request of the
President of the Company, and will make available qualified personnel for this
purpose and devote such business time and attention to such matters as it
shall determine is required.
The Company has agreed that, for a period of three years from the date
of this Prospectus, it will allow a non-voting observer to the Company's Board
of Directors designated by the Representative and acceptable to the Company,
who shall be invited to attend all meetings and shall be compensated in the
same manner as are non-employee directors of the Company.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Representative against certain liabilities in
connection with the registration statement, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the Underwriting Agreement, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The foregoing is a brief summary of certain provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A copy of the Underwriting Agreement is on file with
the Commission as an exhibit to the Registration Statement of which this
Prospectus is a part. See "AVAILABLE INFORMATION."
-38-
<PAGE>
The initial public offering price of the Shares offered hereby has been
negotiated between the Company and the Representative. Among the factors
considered in determining the offering price were the market price of the
Common Stock, the Company's financial condition and prospects, market prices
of similar securities of comparable publicly-traded companies, certain
financial and operating information of companies engaged in activities similar
to those of the Company and general conditions of the securities markets.
The rules of the Commission generally prohibit the Underwriters from
making a market in the Common Stock during the two business days prior to
commencement of sales in the offering (the "Cooling Off Period"). The
Commission has, however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an
exemption from such prohibition for certain passive market making
transactions. Such passive market making transactions must comply with
applicable price and volume limits and must be identified as passive market
making transactions. In general, pursuant to Rule 10b-6A, a passive market
maker may display its bid for a security at a price not in excess of the
highest independent bid for the security. If all independent bids are low or
below the passive market maker's bid, however, such bid must then be lowered
when certain purchase limits are exceeded. Further, net purchases by a
passive market maker on each day are generally limited to a specified
percentage of the passive market maker's average daily trading volume in a
security during a specified prior period and must be discontinued when such
limit is reached. Pursuant to the exemption provided by Rule 10b-6A, certain
of the Underwriters and selling group numbers may engage in passive market
making in the Common Stock during the Cooling Off Period. Passive market
making may stabilize the market price of the Common Stock at a level above
that which might otherwise prevail, and if commenced, may be discontinued at
any time.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. In addition, the Underwriters may bid
for and purchase shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members
in the offering, if the syndicate repurchases previously distributed Common
Stock in syndicate covering transactions, in stabilizing transactions or
otherwise. Any of these activities may stabilize or maintain the market of
the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may discontinue any of these
activities at any time.
-39-
<PAGE>
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Krys Boyle Freedman Scott & Sawyer, P.C., Suite 2700 South
Tower, 600 Seventeenth Street, Denver, Colorado 80202. Brooks & Kushman,
P.C., Southfield, Michigan, has acted as patent counsel for the Company. The
law firm of Morse, Zelnick, Rose & Lander, a limited liability partnership,
450 Park Avenue, New York, New York 10022-2605, has acted as legal counsel to
the Representative in connection with certain legal matters relating to this
offering.
EXPERTS
The audited financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of the Company for the year ended September 30,
1996, included in this Prospectus and in the Registration Statement, have been
included herein in reliance upon the report of McDirmid, Mikkelsen & Secrest,
P.S., Certified Public Accountants, given upon the authority of that firm as
experts in accounting and auditing.
-40-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Reports of Independent Public Accountants .............. F-1
Financial Statements
Balance Sheets ................................... F-3
Statements of Operations ......................... F-4
Statements of Stockholders' Equity ............... F-5
Statements of Cash Flows ......................... F-6
Notes to Financial Statements .................... F-8
-41-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ASHA Corporation:
We have audited the accompanying balance sheet of ASHA CORPORATION (a Delaware
Corporation) as of September 30, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of ASHA-TAISUN Pte.
Ltd., a joint venture in which the Company owns 50 percent (see Note 5), which
investment is reflected as $600,491 on the September 30, 1996 balance sheet.
Those statements were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts
included for that entity, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report
of other auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of ASHA Corporation at September 30, 1996,
and the results of its operations and its cash flows for the year then ended
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
December 6, 1996
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors of
ASHA Corporation
Santa Barbara, California
We have audited the accompanying balance sheet of ASHA CORPORATION as of
September 30, 1995, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ASHA Corporation at September
30, 1995, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ McDirmid, Mikkelsen & Secrest, P.S.
MCDIRMID, MIKKELSEN & SECREST, P.S.
January 11, 1996
F-2
<PAGE>
ASHA CORPORATION
BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1996 1996
(unaudited)
CURRENT ASSETS: ----------- ----------- -----------
Cash and cash equivalents $ 12,804 $ 13,581 $ 1,960
Short-term investments - 247,548 247,548
Accounts receivable 1,624,272 1,089,955 1,105,167
Prepaid expenses and other 87,996 64,819 10,039
----------- ----------- -----------
Total current assets 1,725,072 1,415,903 1,364,714
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
and amortization 147,407 203,480 186,586
OTHER ASSETS:
Long-term receivable 829,345 - -
Investment in affiliate 429,702 600,491 709,098
----------- ----------- -----------
1,259,047 600,491 709,098
----------- ----------- -----------
$ 3,131,526 $ 2,219,874 $ 2,260,398
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 85,000 $ 275,000 $ 718,000
Due to related party 45,000 - -
Accounts payable 74,723 102,262 180,813
Accrued liabilities 127,632 108,985 319,738
----------- ----------- -----------
Total current liabilities 332,355 486,247 1,218,551
----------- ----------- -----------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value
Authorized- 10,000,000 shares;
no shares issued or outstanding - - -
Common stock, $.00001 par value:
Authorized- 20,000,000 shares
Issued and outstanding- 6,891,837
shares in 1995 and 7,076,217
shares in 1996 69 71 71
Additional paid-in capital 5,139,936 5,926,456 5,926,456
Accumulated deficit (2,298,671) (4,110,993) (4,802,773)
Less: Treasury stock, at cost (42,163) (81,907) (81,907)
----------- ----------- -----------
2,799,171 1,733,627 1,041,847
----------- ----------- -----------
$ 3,131,526 $ 2,219,874 $ 2,260,398
=========== =========== ===========
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
ASHA CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended
Year Ended September 30, December 31,
1995 1996 1995 1996
(unaudited)
---------- ----------- ---------- ---------
REVENUES:
License and right of refusal $4,089,643 $ 1,315,000 $1,150,000 $ -
Contract and other services 346,313 395,898 176,000 52,212
---------- ----------- ---------- ---------
4,435,956 1,710,898 1,326,000 52,212
---------- ----------- ---------- ---------
OPERATING EXPENSES:
Research and development 1,067,795 1,044,873 421,577 256,899
Officers' salaries 414,415 480,900 110,913 106,300
Legal and accounting 82,854 97,149 30,788 59,301
Patent application 73,253 45,537 12,508 1,124
Taxes and licenses 98,946 136,076 21,108 17,896
Selling, general and
administrative 705,493 870,529 282,594 196,692
Depreciation and amortization 48,792 75,472 12,155 16,894
---------- ----------- ---------- ---------
2,491,548 2,750,536 891,643 655,106
---------- ----------- ---------- ---------
Income(loss) from
operations 1,944,408 (1,039,638) 434,357 (602,894)
OTHER INCOME (EXPENSE):
Loss from investment
in affiliate (470,298) (886,592) - (108,606)
Interest and investment
income 100,095 117,322 2,972 29,902
Interest expense (1,445) (2,614) - (10,182)
---------- ----------- ---------- ---------
(371,648) (771,884) 2,972 (88,886)
---------- ----------- ---------- ---------
Income (loss) before pro-
vision for income taxes 1,572,760 (1,811,522) 437,329 (691,780)
PROVISION FOR INCOME TAXES 41,427 800 - -
---------- ----------- ---------- ---------
NET INCOME(LOSS) $1,531,333 $(1,812,322) $ 437,329 $(691,780)
========== =========== ========== =========
NET INCOME(LOSS) PER
COMMON SHARE $ .22 $ (.26) $ .06 $ (.10)
========== =========== ========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,838,196 7,057,635 7,072,111 7,074,673
========== =========== ========== =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ASHA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Stock Paid-in Accumulated Treasury Stockholders'
Shares/Amount Capital Deficit Stock Equity
--------- --- ---------- ----------- -------- ------------
BALANCE,
September 30,
1994 6,842,591 $68 $5,009,087 $(3,830,004) $(19,788) $1,159,363
Issuance of
common stock
for services 15,104 - 70,457 - - 70,457
Issuance of common
stock 39,142 1 60,392 - - 60,393
Purchase of common
stock for treasury (5,000) - - - (22,375) (22,375)
Net income - - - 1,531,333 - 1,531,333
--------- --- ---------- ----------- -------- ----------
BALANCE,
September 30,
1995 6,891,837 69 5,139,936 (2,298,671) (42,163) 2,799,171
Issuance of
common stock
for cash 181,818 2 749,998 - - 750,000
Issuance of
common stock,
due to exercise
of stock options 8,921 - 36,522 - - 36,522
Retirement of
common stock for
treasury (6,359) - - - (39,744) (39,744)
Net loss - - - 1,812,322) - (1,812,322)
--------- --- ---------- ----------- -------- ----------
BALANCE,
September 30,
1996 7,076,217 71 5,926,456 (4,110,993) (81,907) 1,733,627
Net loss
(unaudited) - - - (691,780) - (691,780)
--------- --- ---------- ----------- --------- ----------
BALANCE,
December 31,
1996
(unaudited) 7,076,217 $71 $5,926,456 $(4,802,773) $(81,907) $1,041,847
========= === ========== =========== ======== ==========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ASHA CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended
Year Ended September 30, December 31,
1995 1996 1995 1996
(unaudited)
----------- ----------- ---------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 1,531,333 $(1,812,322) $ 437,329 $(691,780)
Adjustments to reconcile net
income(loss) to net cash
provided by(used in) opera-
ting activities:
Depreciation and
amortization 48,792 75,472 12,155 16,894
Issuance of common stock
for services 70,457 - - -
Accrued interest on long-
term receivable - (62,057) - (29,617)
Gain on sale of equipment (2,401) - - -
Loss on sale of short-term
investments 1,121 - - -
Loss on investment in
affiliate 470,298 886,592 - 108,606
Changes in assets and
liabilities:
Decrease(increase) in:
Accounts receivable (1,434,450) 1,425,719 119,057 14,405
Officer receivable 20,515 - - -
Long-term receivable (829,345) - - -
Prepaid expenses and
other 2,383 23,177 4,679 54,780
Increase (decrease) in:
Accounts payable 43,220 27,539 81,833 78,551
Accrued liabilities 56,006 (18,647) (7,581) 210,753
----------- ----------- ---------- ---------
Net cash provided by
(used in) operating
activities (22,071) 545,473 647,472 (237,408)
----------- ----------- ---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of short-term
investments (7,782) (247,548) (1,349,404) -
Proceeds from sale of
short-term investments 253,207 - - -
Additions to property and
equipment (90,575) (131,545) (21,476) -
Proceeds from sale of
property and equipment 5,500 - - -
Investment in affiliate (900,000) (1,057,381) - (217,213)
----------- ----------- ---------- ---------
Net cash used in
investing activities (739,650) (1,436,474) (1,370,880) (217,213)
----------- ----------- ---------- ---------
(Continued)
F-6
<PAGE>
ASHA CORPORATION
STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
Year Ended September 30, December 31,
1995 1996 1995 1996
(unaudited)
----------- ----------- ---------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowing under line
of credit agreement 85,000 190,000 (85,000) 443,000
Due to related party 45,000 (45,000) 65,000 -
Proceeds from issuance of
common stock - 750,000 750,000 -
Proceeds from exercise of
stock options 41,813 36,522 - -
Purchase of common stock
for treasury (22,375) - - -
Repayment of receivable
through retirement of
common stock - (39,744) - -
Principal payments on
obligations under
capital lease (733) - - -
----------- ----------- ---------- ---------
Net cash provided by
financing activities 148,705 891,778 730,000 443,000
----------- ----------- ---------- ---------
Net increase (decrease) in
cash and cash equivalents (613,016) 777 6,592 (11,621)
Cash and cash equivalents
at beginning of period 625,820 12,804 12,804 13,581
----------- ----------- ---------- ---------
Cash and cash equivalents
at end of period $ 12,804 $ 13,581 $ 19,396 $ 1,960
=========== =========== ========== =========
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ASHA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
ASHA Corporation (the Company) is incorporated in the State of Delaware. The
Company's operations include the design, development and marketing of
automobiles, automobile components and accessories. Manufacturing and
distribution are expected to be contracted to other companies through
licensing, joint venture or other arrangements. During fiscal 1996, all of
the Company's revenues were related to its GERODISC product. The GERODISC is
an automated hydromechanical traction control device.
Management is continuing its marketing and development activities with the
goal of generating revenue through prototype and product development and the
eventual sale or license of its products.
Management believes that continuation of its marketing and product development
efforts will produce increasing revenues. Management also believes it will be
able to generate sufficient funds through the issuances of debt or equity to
sustain operations until revenues are sufficient to sustain operations.
During fiscal 1996, the Company raised approximately $787,000 through the sale
of common stock. In January 1997, the Company received approximately $799,000
in net proceeds from the private sale of units consisting of promissory notes
and common stock.
The Company is subject to numerous business risks at this stage of its
development. These risks include, but are not limited to, the Company's
accumulated deficit and recent operating losses, the uncertainty of market
acceptance of the Company's GERODISC product into the U.S. automotive
industry, the dependence upon primarily one product (GERODISC), potential
competition and the uncertainty of doing business in China.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue from license fees over the period the license
fee is earned. Service revenues are recognized as the service is performed.
RESEARCH AND DEVELOPMENT
Costs associated with developing and testing new concepts and designs are
expensed as incurred. All research and development and patent acquisition
costs have been expensed through September 30, 1996.
F-8
<PAGE>
SIGNIFICANT CUSTOMERS
During fiscal 1996, revenues from one customer (see Note 3) represented 75
percent of the Company's total revenues. At September 30, 1996, a receivable
from another customer accounted for 82 percent of the Company's accounts
receivable balance.
During fiscal 1995, revenues from two customers (see Note 3) represented 82
percent of the Company's total revenues. At September 30, 1995, receivables
from these two customers accounted for 89 percent of the Company's accounts
receivable balance.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS
The Company accounts for its investments in debt and equity securities under
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". As defined
by the new standard, the Company has classified its investments as "trading
securities". The investments are recorded at cost, which approximated their
market values at September 30, 1996.
INVESTMENT IN AFFILIATE
Investment in affiliate is accounted for on the equity method (see Note 5).
Foreign currency gains and losses resulting from transactions with the
affiliated company are included in results of operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on
straight-line and accelerated methods over estimated useful lives of five to
seven years.
STATEMENTS OF CASH FLOWS
Cash paid for income taxes was $41,427 in 1995 and $28,026 in 1996. Cash paid
for interest was $1,445 in 1995 and $2,614 in 1996.
In 1996, the long-term receivable was reclassified into accounts receivable.
This non-cash transaction is excluded from the 1996 Statement of Cash Flows.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share amounts are based on the weighted average
number of shares of common stock and common stock equivalents (dilutive stock
options) outstanding during the related periods. The weighted average number
of common stock equivalent shares includes shares issuable upon the assumed
exercise of stock options, less the number of shares assumed purchased with
the proceeds available from such exercise. The effect of dilutive common
share equivalents is not included in the net loss per common share calculation
for fiscal 1996.
F-9
<PAGE>
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year presentation.
3. LICENSING AND RIGHT OF FIRST REFUSAL AGREEMENTS
In August 1993, the Company entered into a licensing agreement with New
Venture Gear, Inc. (NVG) to manufacture and market one of its products (the
GERODISC). During fiscal 1995, the Company received $250,000 under the
agreement and NVG committed to pay $450,000 to keep the agreement in force
through 1996. The $450,000 was paid in fiscal 1996. The agreement also calls
for the Company to receive a royalty for each unit produced under the
agreement. Through September 30, 1996, no royalties had been earned under the
agreement.
In December 1994, the Company and NVG amended the license agreement to provide
that in the event NVG is awarded a production program by a major original
equipment manufacturer (OEM), NVG will pay $1,000,000 to the Company at the
beginning of the first model year of production, in addition to the amounts
discussed above. On December 24, 1994, NVG was awarded a production program
with a major OEM, with the first model year scheduled to begin in August 1997.
The $1,000,000 was recognized as revenue in fiscal 1995 as the amount will be
paid in August 1997 irrespective of any units ever being produced and with no
further performance required on the part of the Company. The long-term
receivable in 1995 represents the $1,000,000 payment due discounted to its
present value of $829,345 as of September 30, 1995. At September 30, 1996,
this receivable is included in accounts receivable at its present value of
approximately $900,000.
On December 28, 1994, the Company entered into an agreement with DANA
Corporation in which the Company licensed DANA the right to manufacture and
market GERODISC. The license agreement provides for a licensing fee of
$2,000,000, of which $1,000,000 was paid in February 1995 and $1,000,000 was
paid in January 1996. The $2,000,000 was recorded as license revenue in
fiscal 1995 as the license fee was solely for the right to manufacture and
market the product and there was no further performance required on the part
of the Company. In addition, the Company will receive a royalty on each unit
produced under the agreement. Through September 30, 1996, no royalties had
been earned under the agreement.
On November 10, 1995, the Company and Hall Racing entered into an agreement
for the 1996 IndyCar racing season. The November 1995 agreement requires Hall
Racing to pay $65,000 for the right to use GERODISC on an exclusive basis for
the 1996 racing season. This amount has been recorded as revenue in fiscal
1996.
On October 9, 1995, the Company and Steyr-Daimler-Puch Fahrzeugtechnik,
GmbH,(Steyr) entered into an option agreement to use GERODISC applications.
In fiscal 1996, Steyr paid $100,000 for the option. This amount has been
recorded as revenue in fiscal 1996.
On November 1, 1995, the Company entered into an option agreement with
American Axle and Manufacturing, Inc., which granted American Axle an eighteen
month option to acquire non-exclusive licenses for up to three different
applications world-wide. The agreement also calls for the Company to receive
a royalty on each unit produced under the agreement. In November 1995,
American Axle paid $1,150,000 for the option. As of September 30, 1996, no
royalties had been earned under the agreement.
F-10
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1995 and
1996:
1995 1996
Vehicles $ 33,196 $ 70,378
Furniture and fixtures 98,945 103,284
Machinery and equipment 234,974 320,705
Leasehold and improvements 31,374 35,667
--------- ---------
398,489 530,034
Accumulated depreciation and
amortization (251,082) (326,554)
--------- ---------
$ 147,407 $ 203,480
========= =========
5. INVESTMENT IN AFFILIATE
On August 11, 1994, the Company entered into a joint venture agreement with
TAISUN Automotive Pte. Ltd., a Singapore corporation. The joint venture is
operated through ASHA-TAISUN Pte. Ltd. (ASHA-TAISUN), a Singapore corporation,
which is owned 50 percent by the Company and 50 percent by TAISUN Automotive
Pte. Ltd. The purpose of this joint venture is for the licensing of the
Company's GERODISC technology in China and Malaysia and for the development of
an automotive industry for China and Southeast Asia.
ASHA-TAISUN is a holding company, which through its 85 percent-owned
subsidiary, Jiaxing Independence Auto Design and Development Co., Ltd.
(Jiaxing Auto), is developing automobile manufacturing facilities in Jiaxing,
China.
The Company has recorded its investment in ASHA-TAISUN at its invested capital
contributions less its share of the operating losses in fiscal years 1995 and
1996 of $470,298 and $886,592, respectively.
A reconciliation of the Company's investment in the joint venture as recorded
on the accompanying September 30, 1996 Balance Sheet, to the balance as
reported in the financial statements covered by the report of other auditors,
is as follows:
Balance per the financial statements
of ASHA-TAISUN $ 2,494,516
Additional investment by the Company 1,057,381
Write-off of capitalized research and
development (R&D) costs (988,816)
Write down of investment in Jiaxing
Auto, primarily related to capitalized
organization costs and R&D costs (1,362,099)
-----------
1,200,982
Company interest at 50 percent .50
-----------
Balance per the accompanying
September 30, 1996 Balance Sheet $ 600,491
===========
F-11
<PAGE>
6. SHORT-TERM BORROWINGS
The Company has entered into a line of credit agreement with a bank under
which the Company may borrow up to $500,000. Borrowings under this facility
bear interest at the prime rate (8.25 percent at September 30, 1996) plus 1.5
percent. The line is secured by essentially all assets of the Company. The
line expires in November 1996 (see Note 12 for renewal of the agreement). At
September 30, 1996, $275,000 was outstanding on the line.
7. DUE TO RELATED PARTY
The amount due to a related party at September 30, 1995 consisted of an
unsecured note payable of $45,000 to TAISUN Automotive Pte. Ltd., which is 85
percent owned by a major stockholder of the Company. The note was repaid in
full in fiscal 1996.
8. EQUITY TRANSACTIONS
SALE OF COMMON STOCK FOR CASH
On November 2, 1995, the Company sold 181,818 shares of its common stock for
$750,000 in cash to the majority shareholder of TAISUN Automotive Pte. Ltd.
STOCK OPTION PLANS
In August 1993, the Company's Board of Directors approved the 1993
Nonqualified Stock Option Plan in which any employee, officer, director or
consultant that the Board, in its sole discretion, designates is eligible to
participate. At September 30, 1996, no options were outstanding under this
plan.
In May 1994, the Company granted an option to a consultant to purchase up to
11,765 shares of its common stock at the exercise price of $1.28 per share.
The option expires on September 30, 1997.
In December 1994, the Company's Board of Directors approved the 1994 Stock
Option Plan which provides for the granting of options to purchase up to
750,000 shares of common stock, consisting of both incentive and nonqualified
stock options. Incentive stock options are issuable only to employees of the
Company and may not be granted at an exercise price less than the fair market
value of the common stock on the date the option is granted. Vesting
provisions are determined by the Board at the time the options are granted,
and the options expire three to five years from the date of grant.
A summary of option activities under the 1994 Stock Option Plan is as follows:
Number of
Shares Option Price
Balance, September 30, 1994 - $ -
Granted 75,745 4.00
Exercised (5,396) 4.00
Cancelled - -
------- ---------------
Balance, September 30, 1995 70,349 4.00
Granted 198,402 4.125 to 4.625
Exercised (8,921) 4.00 to 4.125
Cancelled (1,239) 4.00
------- ---------------
Balance, September 30, 1996 258,591 $4.00 to 4.625
======= ===============
F-12
<PAGE>
STOCK INCENTIVE PLANS
In December 1988, the Board of Directors approved a stock incentive plan.
Under this plan, 58,824 shares of common stock have been reserved for issuance
to participants, defined as any person or firm providing services to the
Company. The stock will be granted at the discretion of the Board of
Directors and a cash payment equal to twenty percent of the value of the stock
granted will be paid to the participant. Granting of stock under this plan is
intended to encourage a continued relationship and services by the participant
and to reward creative or noteworthy efforts to the participant.
The stock is 100 percent forfeitable if the services of the participant are
terminated within two years of the grant of the stock and 50 percent
forfeitable if services are terminated after two years but less than three
years from the grant of the stock.
A balance of 45,523 shares are available for issuance under this plan at
September 30, 1996. No stock has been issued under this plan since fiscal
1990.
DIRECTOR STOCK COMPENSATION PLAN
In June 1994, the Company's Board of Directors approved a Director Stock
Compensation Plan and have reserved 20,000 shares of the Company's common
stock for issuance in exchange for services provided to the Company outside of
their regular duties as directors. All members of the Board of Directors will
be eligible to receive shares under the plan. A balance of 10,000 shares are
available for issuance under this plan at September 30, 1996. No shares have
been issued since fiscal 1994.
9. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109.
Deferred income tax assets or liabilities are computed based on the temporary
difference between the financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in effect for the
year in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.
The components of the net deferred income tax asset at September 30, 1995 and
1996 are as follows:
1995 1996
--------- -----------
Loss in investment in affiliate $ 203,639 $ 587,534
Capitalized research and
development costs 91,307 175,007
Net operating loss carryforwards 611,353 919,389
Other, net 11,717 49,371
--------- -----------
918,016 1,731,301
Less: Valuation reserve (918,016) (1,731,301)
--------- -----------
$ - $ -
========= ===========
F-13
<PAGE>
Realization of the net deferred income tax asset is dependent on generating
sufficient taxable income during the periods in which temporary differences
will reverse. Due to the Company's limited profitable operating history and
the uncertainty of long-term profitability, management believes it is more
likely than not that the net deferred income tax asset may not be realized.
The amount of the net deferred income tax asset considered realizable,
however, may be adjusted in the future if estimates of future taxable income
during the reversal periods justify such adjustment.
The components of the current provision for income taxes for the years ended
September 30, 1995 and 1996 are as follows:
1995 1996
------- --------
Federal $35,914 $ -
State 5,513 800
------- --------
$41,427 $ 800
======= ========
There was no deferred provision for income taxes for the years ended September
30, 1995 and 1996.
A reconciliation of the provision for income taxes to the amount computed at
the federal statutory rate for the years ended September 30, 1995 and 1996 is
as follows:
1995 1996
--------- ---------
Federal income tax
provision (benefit)
at the statutory rate $ 534,738 $(615,917)
State taxes, net of
federal benefit 95,938 800
Utilization of net
operating loss
carryforwards (625,163) -
Tax benefits not recognized - 615,917
Other 35,914 -
--------- ---------
$ 41,427 $ 800
========= =========
The net operating loss carryforward as of September 30, 1996 for federal tax
purposes is approximately $2,700,000 and expires beginning in 2006.
10. COMMITMENTS
LEASE COMMITMENTS
The Company leases its facility under an operating lease agreement with
monthly payments of approximately $6,300 through January 1999. Rent expense
under this agreement was $54,562 and $68,389 for the years ended September 30,
1995 and 1996, respectively.
The Company also leases certain equipment under operating lease agreements
that expire in April 2001.
Minimum future obligations under these agreements are as follows:
F-14
<PAGE>
Years ending September 30,
-------------------------
1997 $119,165
1998 112,826
1999 60,860
2000 41,863
2001 16,600
--------
$351,314
========
EMPLOYMENT AGREEMENT
In April 1995, the Company entered into a five-year employment contract with
its Chief Executive Officer providing for an annual salary of $152,500,
subject to annual review by the Board of Directors. In addition, the contract
authorizes health insurance, medical reimbursements, expense accounts,
executive incentives and other fringe benefits.
11. 401(K) PLAN
Effective October 1, 1995, the Company implemented a 401(k) Plan pursuant to
which all eligible employees may contribute up to 15 percent of their
compensation. The Company matches contributions in the amount of 10 percent
of all elective deferrals, and, at the Company's option, may contribute
annually up to 15 percent of the total compensation of all eligible employees.
During the year ended September 30, 1996, the Company made $8,047 in matching
contributions under this plan.
12. UNAUDITED INFORMATION
BASIS OF PRESENTATION
The unaudited financial statements related to December 31, 1996 and the three
month periods ended December 31, 1995 and 1996 have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These unaudited
financial statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly present
the results of operations, changes in cash flows and financial position as of
and for the periods presented. These unaudited financial statements should be
read in conjunction with the audited financial statements and related notes
thereto, appearing elsewhere herein. The results for the interim periods
presented are not necessarily indicative of results to be expected for the
full year.
SHORT-TERM INVESTMENTS
The Company accounts for its investments in debt and equity securities under
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". As
defined by the new standard, the Company has classified its investments as
"trading securities". The investments are recorded at cost, which
approximated their market values at December 31, 1996.
F-15
<PAGE>
INVESTMENT IN AFFILIATE
Investment in affiliate is accounted for on the equity method (see Note 5).
Foreign currency gains and losses resulting from transactions with the
affiliated company are included in results of operations. During the three
month period ended December 31, 1996, the Company invested an additional
$217,213 into the joint venture and recorded a loss on their investment in the
amount of $108,606.
INCOME TAXES
For the three month period ended December 31, 1996, the provision for income
taxes differs from the amount computed by applying the federal statutory
income tax rate to the loss before income taxes as follows:
Expected federal benefit $(235,205) (34.0)%
Benefit not recognized 235,205 34.0
--------- -----
$ - - %
========= =====
SHORT-TERM BORROWINGS
In November 1996, the Company renewed its line of credit agreement with the
same bank through November 1997. Under the revised terms, the Company may
borrow up to $750,000 at the borrowing rate of prime plus 1.5 percent. The
line is secured by essentially all assets of the Company. At December 31,
1996, $718,000 was outstanding on the line. In connection with the renewal,
the Company issued a warrant to the bank to purchase up to 18,750 shares of
the Company's common stock at $4.00 per share. The fair value of the warrant
(approximately $40,000) will be amortized as interest expense over the life of
the agreement.
STOCK OPTIONS
In December 1996, the Company granted options to purchase up to 152,999 shares
of its common stock at the exercise price of $3.69 per share. In January
1997, the Company granted options to purchase up to 260,000 shares of its
common stock at exercise prices ranging from $3.75 to $4.00 per share. The
options expire three to five years from the date of grant.
BRIDGE LOAN FINANCING
In January 1997, the Company received net proceeds of approximately $799,000
from the sale of units, each of which consisted of a promissory note and
common stock. This sale is in connection with the Company's signing of a
Letter of Intent with an underwriter concerning a proposed public offering of
the Company's common stock. In connection with the financing, the Company
issued 64,290 shares of its common stock (with a fair value of approximately
$225,000) and incurred $900,000 of debt. The fair value of the stock will be
amortized as interest expense during the second and third quarters of fiscal
1997. The notes are repayable at the earlier of the closing of the proposed
public offering, the receipt of the $1,000,000 receivable due from NVG (see
Note 3) or December 31, 1997.
STOCK-BASED COMPENSATION PLAN
The Company accounts for its 1994 Stock Option Plan under the provisions of
APB Opinion No. 25, under which no compensation cost has been recognized for
the employee and director stock option awards. The Company has elected to
follow the disclosure provisions of Statement of Financial Accounting
Standards No. 123
F-16
<PAGE>
(SFAS 123), "Accounting for Stock-Based Compensation". Had compensation cost
for the stock option awards been determined consistent with SFAS 123, the
Company's net loss and loss per common share amounts would have been reduced
to the following pro forma amounts for the year ended September 30, 1996 and
the three month period ended December 31, 1996:
September 30, December 31,
1996 1996
------------ -----------
Net loss As Reported $(1,812,322) $(691,780)
Pro Forma (2,205,390) (947,288)
Net loss per As reported $ (.26) $ (.10)
common share Pro Forma (.31) (.13)
F-17
<PAGE>
No dealer, salesperson or any other per-
son has been authorized to give any in-
formation or to make any representations
not contained in this Prospectus and, if
given or made, such information or re-
presentations must not be relied upon as ASHA CORPORATION
having been authorized by the Company,
the Underwriter or by any other person.
This Prospectus does not constitute an
offer to sell or a solicitation of an
offer to buy, any security other than ________ SHARES OF COMMON STOCK
the shares of Common Stock offered here-
by nor does it constitute an offer to
sell or a solicitation of an offer to
buy any of the securities offered here-
by to any person in any jurisdiction
to which it is unlawful to make such
an offer or solicitation to such person.
Neither the delivery of this Prospectus
nor any sale made hereunder shall under
any circumstances create any implication
that the information contained herein is
correct as of any date subsequent to the
date hereof.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY .................
RISK FACTORS .......................
THE COMPANY ........................
PRICE RANGE OF COMMON STOCK ........ PROSPECTUS
DIVIDENDS ..........................
USE OF PROCEEDS ....................
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .........
BUSINESS ........................... H. J. MEYERS & CO., INC.
MANAGEMENT .........................
CONCURRENT OFFERING.................
PRINCIPAL SHAREHOLDERS..............
CERTAIN TRANSACTIONS ...............
DESCRIPTION OF SECURITIES ..........
UNDERWRITING........................ ________, 1997
LEGAL MATTERS ......................
EXPERTS ............................
INDEX TO FINANCIAL STATEMENTS.......
<PAGE>
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 25, 1997
Prospectus
83,040 Shares of Common Stock
ASHA CORPORATION
This Prospectus relates to 83,040 shares of common stock (the "Common
Stock") of ASHA Corporation (the "Company"), held by nine (9) holders (the
"Selling Shareholders"). Of the 83,040 shares of Common Stock offered hereby
(i) 64,290 shares of Common Stock are presently held by the Selling
Shareholders and (ii) 18,750 shares of Common Stock are issuable upon the
exercise of a warrant ("Warrant") which entitles the holder to purchase up to
18,750 shares of Common Stock at $4.00 per share. The shares of Common Stock
presently held by the Selling Shareholders were issued in a private placement
by the Company in December 1996 (the "Private Placement"), and the Warrant was
issued to one of the Selling Shareholders in November 1996 in connection with
an increase in the Company's line of credit from a bank. See "Selling
Shareholders" and "Plan of Distribution."
The Common Stock offered by the Selling Shareholders pursuant to this
Prospectus may be sold from time to time by the Selling Shareholders or by
their transferees. The distribution of the Common Stock offered hereby by the
Selling Shareholders may be effected in one or more transactions that may take
place on the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or
more dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Shareholders.
The Selling Shareholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders. See "Selling Shareholders" and "Plan of
Distribution."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
of ______ shares of Common Stock was declared effective by the Securities and
Exchange Commission (the "Commission"). The Company will receive approximately
$___________ in net proceeds from such offering (assuming no exercise of the
Underwriter's over-allotment option) after payment of underwriting discounts
and commissions and estimated expenses of such offering.
----------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE ___
----------------------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------------------
The date of this Prospectus is _____________, 1997
<PAGE>
[ALTERNATE PAGE]
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to such Registration
Statement and exhibits. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal offices in Washington, D.C., and copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission.
The Company is subject to the reporting requirements of Section 13(a)
and to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Electronic filings made through
the Electronic Data Gathering, Analysis and Retrieval system are publicly
available through the Commission's web site (http.//www.sec.gov).
<PAGE>
[ALTERNATE PAGE]
SELLING SHAREHOLDERS
An aggregate of up to 83,040 shares of Selling Shareholders' Common
Stock may be offered for resale by the investors listed below.
The following table sets forth certain information with respect to each
Selling Shareholder for whom the Company has registered Selling Shareholders'
Common Stock for resale to the public. The Company will not receive any of the
proceeds from the sale of such Common Stock. There are no material
relationships between any of the Selling Shareholders and the Company or any
of its predecessors or affiliates, nor have any such material relationships
existed within the past three years except as footnoted below. Except as
described below, no Selling Shareholder will beneficially own any Common Stock
of the Company if the Selling Shareholders' Common Stock is sold.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER TO BE BENEFICIALLY OWNED
NUMBER OF SHARES SHARES ON COMPLETION OF THE
OFFERING
NAME OF SELLING BENEFICIALLY OWNED BEING % OF
SHAREHOLDER RECORD OTHER OFFERED RECORD OTHER CLASS
- --------------- ------ ------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Michael Canter 5,358 -0- 5,358 -0- -0- --
Villandry Invest-
ments Ltd. 10,715 -0- 10,715 -0- -0- --
Dhananjay Wadeker 2,679 -0- 2,679 -0- -0- --
Paribus Bank 14,286 -0- 14,286 -0- -0- --
Robert Kassenbrock 5,358 -0- 5,358 -0- -0- --
Swan Alley Limited 8,036 -0- 8,036 -0- -0- --
Wiseman Family Trust 3,572 -0- 3,572 -0- -0- --
Thomas Lutri 14,286 -0- 14,286 -0- -0- --
Montecito Bank & -0- 18,750 18,750 -0- -0- --
Trust <FN1>
_____________________
<FN>
<FN1>
Represents shares issuable upon the exercise of a warrant held by Montecito
Bank &
Trust. See "DESCRIPTION OF SECURITIES."
</TABLE>
Each of the Selling Shareholders has agreed not to sell the share being
offered hereby until six months after the date of this Prospectus without the
consent of the Representative.
<PAGE>
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
The sale of the Common Stock by the Selling Shareholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Shareholders) in the over-the-counter market or
in negotiated transactions or otherwise. Sales may be made at fixed prices
which may be changed, at market prices prevailing at the time of sale, or at
negotiated prices.
The Selling Shareholders may effect such transactions by selling their
Common Stock directly to purchasers, through broker-dealers acting as agents
for the Selling Shareholders or to broker-dealers who may purchase Common
Stock as principals and thereafter sell the Common Stock from time to time in
the over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the purchasers for
whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions).
Each Selling Shareholder has agreed not to sell, transfer, or otherwise
dispose publicly the Selling Shareholders' Common Stock for a period of six
months after the date of this Prospectus without the consent of the
Representative of the Underwriters in the underwritten public offering.
Under applicable rules and regulations under the Securities Exchange Act
of 1934 ("Exchange Act"), any person engaged in the distribution of the
Selling Shareholders' Common Stock may not simultaneously engage in market
making activities with respect to any securities of the Company for a period
of at least two (and possibly nine) business days prior to the commencement of
such distribution. Accordingly, in the event that H.J. Meyers & Co., Inc., the
Representative of the Underwriters of the Company's public offering, is
engaged in a distribution of the Selling Shareholders' Common Stock it will
not be able to make a market in the Company's Common Stock during the
applicable restrictive period. However, the Representative has not agreed to
nor is it obliged to act as broker-dealer in the sale of the Selling
Shareholders' Common Stock. The Selling Shareholders may be required, and in
the event the Underwriter is a market maker, will likely be required to sell
such Common Stock through another broker-dealer. In addition, each Selling
Shareholder desiring to sell Common Stock will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules l0b-6 and l0b-7, which provisions may
limit the timing of the purchases and sales of the Company's Common Stock by
such Selling Shareholders.
The Selling Shareholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
<PAGE>
[ALTERNATE PAGE]
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten offering by
the Company of _________ shares of Common Stock by the Company and up to
_______ additional shares of common stock to cover over-allotments, if any.
<PAGE>
[ALTERNATE PAGE]
----------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
rospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities offered by this
Prospectus, or an offer to sell or a solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, imply that the
information in this Prospectus is correct as of any time subsequent to the
date of this Prospectus.
----------------------------------
TABLE OF CONTENTS
Page
Prospectus Summary .............. __
The Company ..................... __
Price Range of Common Stock...... __
Dividends ....................... __
Risk Factors .................... __
Use of Proceeds ................. __
Management's Discussion and
Analysis of Results of Opera-
tions and Financial Condition .. __
Business ........................ __
Management ...................... __
Principal Shareholders .......... __
Certain Transactions ............ __
Selling Shareholders ............ __
Concurrent Public Offering ...... __
Description of Securities ....... __
Plan of Distribution ............ __
Legal Matters ................... __
Experts ......................... __
Index to Financial Statements ... __
----------------------------------
ASHA CORPORATION
83,040 Shares of Common Stock
----------------------------------
PROSPECTUS
---------------------------------
_________________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrange-
ment under which any controlling person, Director or Officer of the Registrant
is insured or indemnified in any manner against any liability which he may
incur in his capacity as such, is as follows:
The Delaware General Corporation Law (the "Code") permits the Company to
indemnify an officer and director who was or is a party or is threatened to be
made a party to any proceeding because of his or her position, if the officer
or director acted in good faith and in a manner he or she reasonably believed
to be in the best interests of the Company. The Code authorizes the Company
to advance expenses incurred in defending any such proceeding under certain
circumstances, and if the officer or director is successful on the merits, it
authorizes the Company to indemnify the officer or director against all
expenses, including attorney's fees, incurred in connection with any such
proceeding. The Company's Certificate of Incorporation, as amended, provides
that the Company shall indemnify its officers and directors to the full extent
authorized by the Code.
The Code permits the Company to limit the personal liability of its
directors for monetary damages for breaches of fiduciary duty as a director,
except for breaches that involve the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, acts involving unlawful dividends or stock
redemptions or transactions from which the director derived an improper
personal benefit. Article VII of the Company's Certificate of Incorporation,
as amended, includes such a provision which limits the personal monetary
liability of its directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Registrant, are as follows:
SEC Filing Fee ................................... $ 2,432
Nasdaq Listing Fees .............................. 10,000
NASD Filing Fee .................................. 1,300
Underwriter's Non-Accountable Expense Allowance... 180,000
Printing Expenses................................. 75,000
Accounting Fees and Expenses...................... 5,000
Legal Fees and Expenses........................... 60,000
Blue Sky Fees and Expenses........................ 55,000
Registrar and Transfer Agent Fees................. 1,000
Miscellaneous..................................... 10,268
Total ........................................ $400,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three fiscal years, the Company issued securities which
were not registered under the Securities Act of 1933, as amended (the "Act"),
as follows. The numbers of shares of Common Stock stated give retroactive
effect to a 1 for 85 reverse stock split which was effected on February 1,
1994.
II-1
<PAGE>
In February 1994 and October 1995, the Company sold 235,295 and 181,818
shares of Common Stock, respectively, in offshore transactions, as defined in
Rule 902(i) of Regulation S, to Brian Chang, a foreign investor, for
$1,000,000 and $750,000, respectively, in cash. In connection with the first
sale, the Company paid a finder 6,000 shares of its Common Stock for his
services. In connection with such sales, the Company complied with the
requirements of Rule 903 of Regulation S in that all sales were made in
offshore transactions, no directed selling efforts were made in the United
States, the Company is a reporting issuer, offering restrictions were
implemented, offers and sales were not made to any U.S. persons or for the
account or benefit of any U.S. persons, and 40-day restricted periods were
implemented.
During the period from October 1, 1993, through September 30, 1994, the
Company issued a total of 22,621 shares of its Common Stock to the following
persons who were either Directors or consultants to the Company is exchange
for services to the Company:
RELATIONSHIP VALUE
NAME TO COMPANY NUMBER OF SHARES OF SERVICES
- --------------------- ------------ ---------------- -----------
Sheila Ronis Director 726 $ 400
Robert Sinclair Director 10,000 $43,200
Larry Phillips Consultant 1,376 $ 9,000
Robert L. French Consultant 2,357 $15,803
Corporation Relations
Group Consultant 3,362 $ 8,571
Mark Depew Consultant 4,800 $30,000
In connection with these issuances, the Registrant relied on Section
4(2) of the Securities Act of 1933, as amended. The shares were offered for
investment only to sophisticated investors and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During the period from October 1, 1994 through September 30, 1995, the
Company issued a total of 13,556 shares of its Common Stock to the following
persons who were consultants to the Company in exchange for services to the
Company:
NAME NUMBER OF SHARES VALUE OF SERVICES
- ------------------------- ---------------- -----------------
Larry Phillips 2,012 $12,837
Rebecca, Inc. 6,000 $30,000
Corporate Relations Group 1,961 $ 9,230
Mark Depew 3,583 $12,199
In connection with these issuances, the Registrant relied on Section
4(2) of the Securities Act of 1933, as amended. The shares were offered for
investment only to sophisticated investors and not for the purpose of resale
or distribution, and the transfer thereof was appropriately restricted by the
Registrant.
II-2
<PAGE>
In December 1996 and January 1997, the Company sold 24 Units, each Unit
consisting of a $37,500 principal amount 8% Secured Promissory Note and
2,678.57 shares of Common Stock, to eight accredited investors for net
proceeds of $798,750. In connection with such sales the Company paid H.J.
Meyers & Co., Inc. a commission of $62,500 and a non-accountable expense
allowance of $18,750 for its services as placement agent.
With respect to these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder. Each investor was given a copy of a Private Placement Memorandum
containing complete information concerning the Company, a Form D was filed
with the SEC and the Company complied with the other applicable requirements
of Rule 506. Each investor signed a subscription agreement in which he
represented that he was purchasing the shares for investment only and not for
the purpose of resale or distribution. The appropriate restrictive legends
were placed on the certificates and stop transfer instructions were issued to
the transfer agent.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION LOCATION
1.1 Form of Underwriting Filed herewith electronically
Agreement
1.2 Form of Representative's Filed herewith electronically
Warrant
3.1 Articles of Incorporation Incorporated by reference to the
Company's Registration Statement on
Form S-18 (SEC File No. 33-3135D)
3.2 Bylaws Incorporated by reference to the
Company's Registration Statement on
Form S-18 (SEC File No. 33-3135D)
5 Opinion of Krys Boyle Filed herewith electronically
Freedman Scott & Sawyer,
P.C. regarding the legal-
ity of the securities
being registered
10.1 License Agreement with Incorporated by reference to Exhibit
New Venture Gear, Inc.* 10.2 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1993
10.2 License Agreement with Incorporated by reference to Exhibit
Dana Corporation 10.3 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1993 and year
ended September 30, 1994
II-3
<PAGE>
10.3 1994 Stock Option Plan Incorporated by reference to Exhibit
10.4 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1994
10.4 License Agreement with Incorporated by reference to Exhibit
ASHA/TAISUN Pte. Ltd. 10.4 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.5 Amended and Restated Incorporated by reference to Exhibit
Employment Agreement 10.5 to the Company's Annual Report
with Alain Clenet on Form 10-K for the fiscal year
ended September 30, 1995
10.6 Lease Agreement, as amended Incorporated by reference to Exhibit
10.6 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.7 Option Agreement with Incorporated by reference to Exhibit
American Axle and Manu- 10.7 to the Company's Annual Report
facturing, Inc. on Form 10-K for the fiscal year
ended September 30, 1995
10.8 Employment Agreement with Filed herewith electronically
John McCormack
10.9 Employment Agreement with Filed herewith electronically
Ken Black
23.1 Consent of Arthur Andersen Filed herewith electronically
23.2 Consent of McDirmid, Filed herewith electronically
Mikkelsen & Secrest,
P.S.
23.3 Consent of Krys Boyle Contained in Exhibit 5
Freedman Scott & Sawyer,
P.C.
_________________
* Portions of this document have been excluded pursuant to a confidential
treatment request.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for indemni-
fication against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered,
II-4
<PAGE>
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdic-
tion the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(I) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(6) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Barbara, State of California,
on the 20th day of March 1997.
ASHA CORPORATION
By:/s/ Alain J-M Clenet
Alain J-M Clenet, Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------------------------- ----------------------- --------------
/s/ Alain J-M Clenet Chairman of the Board, March 20, 1997
Alain J-M Clenet Chief Executive Officer
and Director
/s/ Sheila R. Ronis Director March 20, 1997
Sheila R. Ronis
/s/ Robert J. Sinclair Director March 20, 1997
Robert J. Sinclair
/s/ Lawrence Cohen Director March 20, 1997
Lawrence Cohen
/s/ Steven E. Sanderson Chief Financial Officer March 20, 1997
Steven E. Sanderson (Principal Financial and
Accounting Officer)
UNDERWRITING AGREEMENT
________ __, 1997
H.J. Meyers & Co., Inc.
as Representatives of the several Underwriters
named in Schedule I hereto
1895 Mt. Hope Avenue
Rochester, New York 14620
Gentlemen:
ASHA CORPORATION, a Delaware corporation (the "Company"), confirms
its
agreement with H.J. Meyers & Co., Inc. ("Meyers") and each of the underwriters
named in Schedule I hereto (collectively, the "Underwriters", which term shall
also include any underwriter substituted as hereinafter provided in Section
9), for whom Meyers is acting as representative (in such capacity, Meyers
shall hereinafter be referred to as "you" or the "Representative"), with
respect to the sale by the Company and the purchase by the Underwriters of
______ of shares (the "Shares") of the Company's Common Stock, $___ par value
per share ("Common Stock"). Such Shares are hereinafter referred to as the
"Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters up to an additional _______ Shares
[15% of the Firm Shares] for the purpose of covering over-allotments, if any.
Such _______ Shares are hereinafter referred to as the "Option Shares." The
Company also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional
_______Shares [10% of the Firm Shares]. The Shares issuable upon exercise of
the Representative's Warrants are hereinafter referred to as the
"Representative's Securities." The Firm Shares, the Option Shares, the
Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, each
Underwriter that:
(a) A registration statement (File No.333-_____) on Form SB-2
relating
to the public offering of the Securities, including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933 (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, and has been filed with
the Commission under the Act. As used herein, "Preliminary Prospectus" shall
mean each prospectus filed pursuant to Rule 430 of the Rules and Regulations.
The registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are respectively hereinafter referred to as the "Registration
Statement" and the "Prospectus," except that (i) if the prospectus first filed
by the
<PAGE>
Company pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations or
otherwise utilized and not required to be so filed shall differ from said
prospectus as then amended, the term "Prospectus" shall mean the prospectus
first filed pursuant to Rule 424(b) or Rule 430A or so utilized from and after
the date on which it shall have been filed or utilized, and (ii) if such
registration statement or prospectus is amended or such prospectus is
supplemented after the effective date of such registration statement and prior
to the Option Closing Date (as defined in Section 2(b)), the term
"Registration Statement" shall include such registration statement as so
amended or supplemented, or both, as the case may be, and the term
"Prospectus" shall include the prospectus as so amended or supplemented, or
both, as the case may be.
(b) At the time the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date (as defined herein) and
each Option Closing Date (as defined herein), if any, and during such longer
period as the Prospectus may be required to be delivered in connection with
sales by the Underwriters or a dealer, (i) the Registration Statement and
Prospectus will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and (ii) neither the Registration Statement
nor the Prospectus will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein, in light of the
circumstances in which they were made, or necessary to make the statements
therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf
of you or by or on behalf of the Underwriters for use in the preparation
thereof. It is understood that the statements set forth in the Prospectus
with respect to stabilization, the material set forth in the second, fourth
and thirteenth paragraphs under the heading "Underwriting" and the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by you, or by the Underwriters through
you, for inclusion in the Registration Statement and Prospectus, as the case
may be.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus and is duly qualified to
do business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where failure to so
qualify will not materially affect its business, properties or financial
condition.
(d) The authorized capital stock of the Company as of the Effective
Date is set forth under "Capitalization" in the Prospectus. The shares of
issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued and are fully paid and non-assessable;
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company. The Securities
conform in all material respects to all statements relating thereto contained
in the Registration Statement and Prospectus.
(e) The Securities are duly authorized and, when issued, delivered
and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company.
-2-
<PAGE>
(f) This Agreement, the Representative's Warrant Agreement, the
Financial Consulting Agreement described in Subsection 3(s) (the "Financial
Consulting Agreement") and the Merger and Acquisition and Indemnification
Agreements described in Subsection 3(w) (collectively, the "M/A Agreement")
have been duly and validly authorized; this Agreement has been duly executed
and delivered by the Company and, assuming due execution by the Company with
regard to the Representative's Warrant, Financial Consulting and M/A
Agreements and by the other party or parties hereto and thereto, constitutes
and will constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally. The Company has full power and
lawful authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of anyone, including any governmental
authority, is required in connection with the authorization, issuance and sale
of the Securities or the Representative's Warrant, except such as may be
required under the Act or state or corporate securities laws, all of which
have been duly obtained.
(g) The Company is not in violation, breach or default of or under,
and the consummation of the transactions herein contemplated, and the
fulfillment of the terms of this Agreement and the agreements referred to in
Subsection 1(f) will not conflict with, or, with or without giving the notice
or the passage of time or both, result in a breach of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other material agreement
or instrument to which the Company is a party or by which the Company may be
bound or to which any of the property or assets of the Company are subject,
nor will such action result in any violation of the provisions of the
certificate of incorporation or the by-laws of the Company, or any statute or
any order, rule or regulation applicable to the Company of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company, or any judgment or order of any court or other tribunal by which the
Company may be bound; in each case where the breach or default would have a
material adverse effect on the Company.
(h) Subject to any qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets described
in the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, or any other rights whatsoever of any other
entity or person, except such as are not materially significant or important
in relation to its business; all of the leases and subleases under which the
Company is the lessor or sublessor of properties or assets or under which the
Company holds properties or assets as lessee or sublessee as described in the
Prospectus are in full force and effect and, except as described in the
Prospectus, the Company is not in default with respect to any of the terms or
provisions of any of such leases or subleases and, except as described in the
Prospectus, no claim has been asserted by anyone adverse to rights of the
Company as lessor, sublessor, lessee or sublessee under any of the leases or
subleases to which it is a party, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease except as described or referred to in the
Prospectus; and the Company owns or leases all such properties described in
the Prospectus as are necessary to its operations as now conducted.
-3-
<PAGE>
(i) Except as set forth in the Prospectus, the Company owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, mark registrations, copyrights and licenses necessary for the
conduct of its business and has not received any notice of conflict with the
asserted rights of others in respect thereof. All patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, franchises and other intangible properties and assets (all of the
foregoing being herein called "Intangibles") that the Company owns or has
pending, or under which it is licensed are accurately described in the
Prospectus. There is no right under any Intangible necessary to the business
of the Company as presently conducted or as the Prospectus may indicate it
contemplates conducting, except as accurately described in the Prospectus.
Except as set forth in the Prospectus, to the knowledge of the Company, it has
not infringed, is not infringing, and has not received notice of infringement
with respect to, asserted Intangibles of others, except for such infringement
or alleged infringement that has not had, or cannot be reasonably expected to
have, a material adverse effect on the financial condition, results of
operations, business, properties, assets or future prospects of the Company.
Except as accurately described in the Prospectus, to the knowledge of the
Company, there is no infringement by others of any of the Intangibles of the
Company. Except as accurately described in the Prospectus, to the knowledge
of the Company, there is no Intangible of any other entity or person which has
had or may in the future have a material adverse effect on the financial
condition, results of operations, business, properties, assets or future
prospects of the Company.
(j) To the knowledge of the Company, Arthur Andersen LLP, who have
given their report on certain financial statements filed and to be filed with
the Commission as a part of the Registration Statement which are included in
the Prospectus are, with respect to the Company independent public accountants
as required by the Act and the Rules and Regulations.
(k) The financial statements and schedules, together with related
notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in cash
flows of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. To the knowledge of the Company, no
other financial statements are required by Form SB-2 or otherwise to be
included in the Registration Statement or the Prospectus. There has at no
time been a material adverse change in the financial condition, results of
operations, business, properties, or assets of the Company from the latest
information set forth in the Registration Statement or the Prospectus, except
as properly described in the Prospectus; and, except as set forth in the
Prospectus, there is no fact known to the Company which could reasonably be
expected to have a material and adverse effect on the future prospects of the
Company (other than political or economic matters of general applicability or
as properly described in the Prospectus).
(l) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and Prospectus, the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which is
material to the business of the Company, and there has not been any change in
the capital stock of, or any incurrence of long-term debt by, the Company or
any issuance of
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options (except for the issuance of options pursuant to the Company's
Performance Incentive Stock Option Plan), warrants or other rights to purchase
the capital stock of the Company or any adverse change or any development
involving, so far as the Company can now reasonably foresee, a prospective
adverse change in its condition (financial or other), net worth, results of
operations, business, management or properties which would be material to the
business or financial condition of the Company, and the Company has not become
party to, and neither the business nor the property of the Company has become
the subject of, any material litigation whether or not in the ordinary course
of business.
(m) Except as set forth in the Prospectus, there is not now pending
nor, to the knowledge of the Company, threatened, any action, suit or
proceeding (including those related to environmental matters, sexual
harassment, discrimination on the basis of age, sex, religion or race, or any
regulatory matters) to which the Company is a party before or by any court or
governmental agency or body, which could result in any material adverse change
in the condition (financial or other), business prospects, net worth or
properties of the Company; and no labor disputes involving the employees of
the Company exist which could be expected to materially adversely affect the
conduct of the business, property or operations or the financial condition or
earnings of the Company.
(n) Except as set forth in the Prospectus, the Company (i) has paid
all federal, state, local and foreign taxes for which it is liable to the
extent such taxes are due and payable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable,
and (iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(p) Except as set forth in the Prospectus, the Company has all
licenses, permits and other governmental authorizations currently required for
the conduct of its business or the ownership of its property as described in
the Prospectus and is in all material respects complying therewith. To the
best knowledge of the Company, none of the activities or business of the
Company is in violation of, or could cause the Company to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business,
property, prospective results of operations or net worth of the Company.
(q) The Company has not, directly or indirectly, at any time (i)
made
any contributions to any candidate for political office, or if made, failed to
disclose fully any such contribution made in violation of law, or (ii) made
any
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payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are sufficient to enable
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(r) On the Closing Dates (as defined in Section 2(c)), all transfer
or
other taxes (including franchise, capital stock or other tax, other than
income taxes imposed by any jurisdiction), if any, which are required to be
paid in connection with the sale and transfer of the Securities to the
Underwriters hereunder will have been fully paid or provided for by the
Company and all laws imposing such taxes will have been fully complied with.
(s) Any contract, agreement, instrument, lease or license required
to
be described in the Registration Statement or the Prospectus has been properly
described therein. Any contract, agreement, instrument, lease, or license
required to be filed as an exhibit to the Registration Statement has been
filed with the Commission as an exhibit to the Registration Statement.
(t) The Company has not taken and will not take, directly or
indirectly, any action which might cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Securities hereunder.
(u) The Company has no subsidiaries.
(v) Except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings, oral or written, for
services in the nature of a finder's or origination fee with respect to the
sale of the Securities hereunder or any other arrangements, agreements,
understandings, payments or issuances with respect to the Company or any of
its officers, directors, stockholders, partners, employees or affiliates that
may affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(w) Neither the Commission nor, to the knowledge of the Company, the
"blue sky" or securities authority of any jurisdiction has issued an order (a
"Stop Order") suspending the effectiveness of the Registration Statement,
preventing or suspending the use of any Preliminary Prospectus, the
Prospectus, the Registration Statement, or any amendment or supplement
thereto, refusing to permit the effectiveness of the Registration Statement,
or suspending the registration or qualification of the Securities, nor, to the
knowledge of the Company, has any of such authorities instituted or threatened
to institute any proceedings with respect to a Stop Order.
(x) The Company has all requisite power and authority to execute,
deliver, and perform this Agreement. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery and
performance of this Agreement by the Company. This Agreement has been duly
authorized, executed and delivered by the Company, is the legal, valid and
binding obligation of the Company, and is enforceable as to the Company in
accordance with its terms (subject to applicable bankruptcy, insolvency and
other laws affecting creditors' rights generally and except as rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws and public policy). Except as
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described in the Prospectus, no consent, authorization, approval, order, lien,
certificate, or permit of or from, or declaration or filing with, any federal,
state, local or other governmental authority or any court or other tribunal is
required for the execution, delivery or performance of this Agreement by the
Company (except filings under the Act which have been or will be made before
the Closing Date and such consents consisting only of consents under "blue
sky" or securities laws which have been obtained at or prior to the date of
this Agreement). No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the Company
is a party, or to which any of its properties or assets are subject, is
required for the execution, delivery or performance of this Agreement; and the
execution, delivery and performance of this Agreement will not violate, result
in a breach of, conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or declare a default
under any such material contract, agreement, instrument, lease, license,
arrangement or understanding, or violate or result in a breach of any term of
the certificate of incorporation or by-laws of the Company, or violate, result
in a breach of, or conflict with, any law, rule, regulation, order, judgment,
or decree binding on the Company or to which any of its operations,
businesses, properties, or assets is subject.
(y) The Company has caused to be duly executed agreements ("Lock-up
Agreements") pursuant to which each of the Company's officers, directors and
stockholders has agreed (i) not to, directly or indirectly, offer to sell,
sell, grant any option for the sale of, assign, transfer, pledge, hypothecate
or otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for, or evidencing any right to
purchase or subscribe for, any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of 18 months following the Closing Date without
the prior written consent of the Representative (provided, however, that as to
transfers to immediate family members, trusts for such family members or
recognized charities, the transferees of which execute like Lock-up
Agreements, such consent shall not be unreasonably withheld; and, provided,
further, that, notwithstanding the foregoing restrictions and prohibitions
with respect to the disposition of shares of the Company's Common Stock, Mr.
A. Clenet shall have the right to sell up to 30,000 shares of Common Stock of
the Company owned by him commencing 90 days from the Effective Date provided
that such sale or sales shall be pursuant to Rule 144 and shall be effected
through the Representative), and (ii) during the five (5) year period
following the Closing Date, to give the Representative the right to purchase
for its own account or sell for the account of such persons, any securities
sold by such persons pursuant to Rule 144. The Company has no reason to
believe that the Lock-up Agreements are not legally binding upon, and
enforceable against, the respective security holder signatories thereto. The
Company will cause the Transfer Agent to mark an appropriate legend on the
face of stock certificates representing all of such securities and to place
"stop transfer" orders on the Company's stock ledgers.
(z) The Common Stock has been approved for listing on the National
Association of Securities Dealers, Inc. Automated Quotation System Small Cap
Market ("NASDAQ") and approved for listing on The Pacific Stock Exchange
("PSE"), subject to notice of issuance.
(aa) Except as set forth in the Prospectus, no officer, director,
principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities has or has
had,
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<PAGE>
either directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus
under "Certain Transactions", there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, principal stockholder of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities required to be set forth
in the Prospectus.
(bb) Any certificate signed by any officer of the Company and
delivered
to the Underwriters or to Underwriters' Counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(cc) The minute book of the Company has been made available to the
Underwriters and contains a complete record in all material respects of all
meetings and actions of the directors and stockholders of the Company,
respectively, since the time of its incorporation, contains a complete record
of all matters discussed at all such meetings and accurately reflects all
transactions referred to in such minutes in all material respects.
(dd) Except and to the extent the same may be described in the
Prospectus, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have
the right to include any securities issued by the Company in the Registration
Statement or in any other registration statement to be filed by the Company or
to require the Company to file a registration statement under the Act and
except as described in the Registration Statement, no person or entity holds
any price protection anti-dilution rights with respect to any securities of
the Company.
(ee) The Company has generally enjoyed a satisfactory
employer-employee
relationship with its employees and is in compliance in all material respects
with all federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours. There are no pending investigations involving the Company by
the U.S. Department of Labor or any other governmental agency responsible for
the enforcement of such federal, state, local or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company, or any predecessor entity, and none has ever occurred.
No representation question exists respecting the employees of the Company and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
(ff) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan" or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") ("ERISA Plans"). The Company does not maintain or
contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No
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<PAGE>
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code, which could subject the Company to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is
in compliance with all material reporting, disclosure and other requirements
of the Code and ERISA as they relate to any such ERISA Plan. Determination
letters have been received from the Internal Revenue Service with respect to
each ERISA Plan which is intended to comply with Code Section 401(a) stating
that such ERISA Plan and the attendant trust are qualified thereunder. The
Company has never completely or partially withdrawn from a "multiemployer
plan."
(gg) The Company has as of the effective date of the Registration
Statement (A) entered into employment agreements with Alain J-M Clenet, Jack
McCormack and Ken Black providing for annual salaries of $152,500, $90,000 and
$90,000, subject to cost of living increases, respectively, each on terms and
conditions properly described in the Prospectus, and (B) maintains "key-man"
insurance on the lives of Alain J-M Clenet and Jack McCormack in the face
amount of $_____________ and $_____________, respectively, which name the
Company as the sole beneficiary.
(hh) Immediately prior to the effective date of the Registration
Statement there shall be no more than an aggregate of 7,524,367 shares of
Common Stock issued and outstanding or reserved for issuance (including any
and all (A) securities with equivalent rights as the Common Stock, (B) Common
Stock or such equivalent securities, issuable upon the exercise of options,
warrants and other contract rights, and (C) securities convertible directly or
indirectly into Common Stock or such equivalent securities, and excluding the
Representative's Warrant). Of the total shares outstanding or reserved for
issuance, no more than ______ shares of Common Stock are reserved for issuance
under the employees restricted stock option plan, after giving effect to the
grant prior to the date hereof of options to purchase _____ shares thereunder.
2. Purchase, Delivery and Sale of the Shares.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company agrees to issue and sell to the Underwriters, and the Underwriters
agree to buy from the Company, at $____ per Share at the place and time
hereinafter specified, the Firm Shares.
Delivery of the Firm Shares against payment therefor shall take place
at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester,
New
York 14620 (or at such other place as may be designated by agreement between
you and the Company) at 10:00 a.m. New York time on ________ __, 1997, or at
such later time and date as you may designate, such time and date of payment
and delivery for the Firm Shares being herein called the "First Closing Date."
Time shall be of the essence and delivery at the time and place specified in
this subsection (a) is a further condition to the obligations of the
Underwriters hereunder.
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants an option to the
Underwriters to purchase all or any part of an aggregate of _______ additional
Shares at the same price per Share as the Underwriters shall pay for the Firm
Shares being sold pursuant to the provisions of subsection (a) of this Section
2 (such additional Shares being referred to herein as the "Option Shares").
This option may be exercised within 30 business days after the Effective Date
upon notice by you to the
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<PAGE>
Company advising it as to the amount of Option Shares as to which the option
is being exercised, the names and denominations in which the certificates for
such Option Shares are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined by
you but shall not be earlier than four (4) and not later than ten (10) full
business days after the exercise of said option, nor in any event prior to the
First Closing Date, and such time and date is referred to herein as the
"Option Closing Date." Delivery of the Option Shares against payment therefor
shall take place at the offices of H.J. Meyers & Co., Inc., 1895 Mt. Hope
Avenue, Rochester, New York 14620 (or at such other place as may be designated
by agreement between you and the Company). Time shall be of the essence and
delivery at the time and place specified in this subsection (b) is a further
condition to the obligations of the Underwriters hereunder.
The Option granted hereunder may be exercised only to cover over-
allotments in the sale by the Underwriters of Firm Shares referred to in
subsection (a) above.
(c) The Company will make the certificates for the Shares to be
purchased by the Underwriters hereunder available to you for inspection at
least two (2) full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing Dates"
and individually as a "Closing Date"), as the case may be. The certificates
shall be in such names and denominations as you may request, at least two (2)
full business days prior to the relevant Closing Dates. Time shall be of the
essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
Definitive certificates in negotiable form for the Shares to be
purchased by the Underwriters hereunder will be delivered by the Company to
you for the account of the Underwriters against payment of the purchase price
by you, for the account of the Underwriters, at your option, by certified or
bank cashier's checks in New York Clearing House funds or by wire transfer,
payable to the order of the Company or up to three (3) designees of the
Company.
In addition, in the event the Underwriters exercise the option to
purchase from the Company all or any portion of the Option Shares pursuant to
the provisions of subsection (b) above, payment for such Option Shares shall
be made to or upon the order of the Company by you, for the account of the
Underwriters, at your option, by certified or bank cashier's checks payable in
New York Clearing House funds or by wire transfer, at the offices of H.J.
Meyers & Co., Inc. at the time and date of delivery of such Option Shares as
required by the provisions of subsection (b) above, against receipt of the
certificates for such Option Shares by you, for the account of the
Underwriters, registered in such names and in such denominations as you may
request.
It is understood that the Underwriters propose to offer the Shares to
be purchased hereunder to the public upon the terms and conditions set forth
in
the Registration Statement, after the Registration Statement becomes
effective.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants, for an aggregate purchase price of
$5.00, which warrants shall entitle the holders thereof to purchase an
aggregate of _______ shares [10% of the Firm Shares] of Common Stock. The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement
at
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<PAGE>
a price equaling one hundred twenty percent (120%) of the initial public
offering price of the Shares. The Representative's Warrant Agreement and form
of Warrant Certificate shall be substantially in the form filed as Exhibit __
to the Registration Statement. Payment for the Representative's Warrants
shall be made on the Closing Date.
3. Covenants of the Company
The Company covenants and agrees with the Underwriters that:
(a) The Company shall use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will
not at any time, whether before or after the Effective Date, file any
amendment to the Registration Statement or supplement to the Prospectus of
which you shall not previously have been advised and furnished with a copy or
to which you or counsel for the Underwriters shall have objected in writing or
which is not in compliance with the Act and the Rules and Regulations. At any
time prior to the later of (i) the completion by the Underwriters of the
distribution of the Securities contemplated hereby (but in no event more than
nine (9) months after the Effective Date) and (ii) twenty-five (25) days after
the Effective Date, the Company shall prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the Registration
Statement or Prospectus which, in your reasonable opinion, may be necessary or
advisable in connection with the distribution of the Securities.
Promptly after you or the Company is advised thereof, you will advise
the Company or the Company will advise you, as the case may be, and confirm
the advice in writing, of the receipt of any comments of the Commission, of
the effectiveness of any post-effective amendment to the Registration
Statement, of the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop orders or other order suspending
the effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering in any jurisdiction, or the
institution of any proceedings for any of such purposes, and the Company will
use its best efforts to prevent the issuance of any such order and, if issued,
to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Prelim-
inary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and selected dealers to use the Prospectus in
connection with the sale of the Securities for such period as in the opinion
of counsel for the Underwriters the use thereof is required to comply with
the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by an underwriter or
dealer, of any event of which the Company has knowledge and which materially
affects the Company or the Securities, or which in the opinion of counsel for
the Company or counsel for the Underwriters should be set forth in an amend-
ment to the Registration Statement or a supplement to the Prospectus in order
to make the statements therein not then misleading, in light of the circum-
stances existing at the time the
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<PAGE>
Prospectus is required to be delivered to a purchaser of the Securities, or in
case it shall be necessary to amend or supplement the Prospectus to comply
with the Act or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which
they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters, except that in case the Underwriters are required, in connection
with the sale of the Securities, to deliver a Prospectus nine (9) months or
more after the Effective Date, the Company shall, upon request of and at the
expense of the Underwriters, amend or supplement the Registration Statement
and Prospectus and furnish the Underwriters with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
The Company shall comply with the Act, the Rules and Regulations and
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations promulgated thereunder in connection with the issuance and
offering of the Securities.
(b) The Company shall use its best efforts to qualify or register
the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and shall make such applications and the
Company shall furnish such information to counsel for the Underwriters as may
be required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer
in securities or to execute a general consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale
of the Securities. The Company shall, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as you may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated due to the Company's breach of any representation or warranty or
condition contained in this Agreement, or because of the Company's actions or
failure to take such actions as are reasonably required hereunder, and the
Underwriters are prepared, and desire at their option, to perform in
accordance with the terms herein, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder in
accordance with Section 8 hereof.
(d) The Company shall furnish to you as early as practicable prior
to
the Closing Date and any Option Closing Date, as the case may be, but no less
than two (2) full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company which have been read by
the Company's independent certified public accountants, as stated in their
letters to be furnished pursuant to Section 4(e) hereof.
(e) For so long as the Company is a reporting company under either
Section 12(b), Section 12(g) or Section 15(d) of the Exchange Act, the
Company, at its expense, shall furnish to its stockholders an annual report
(including financial statements audited by independent public accountants), in
reasonable detail and at its expense, will furnish to you during the period
ending five (5)
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years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, a balance sheet of the Company and any subsidiaries as at the end
of such fiscal year, together with statements of income, stockholders' equity
and cash flows of the Company and any subsidiaries as at the end of such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent public accountants; (ii) as soon
as they are available, a copy of all quarterly financial statements; (iii) as
soon as they are available, a copy of all reports (financial or other) mailed
to security holders; (iv) as soon as they are available, a copy of all non-
confidential reports and financial statements furnished to or filed with the
Commission; and (v) such other information as you may from time to time
reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company shall deliver to you at or before the First Closing
Date two (2) signed copies of the Registration Statement including all
financial statements and exhibits filed therewith and of all amendments
thereto. The Company shall deliver to or upon your order, from time to time
until the Effective Date, as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to you on the Effective Date and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriters may from time to time
reasonably request.
(h) The Company shall make generally available to its security
holders
and deliver to you as soon as it is practicable to do so, but in no event
later than 90 days after the end of 12 months after the end of its current
fiscal quarter, an earnings statement (which need not be audited) covering a
period of at least 12 consecutive months beginning after the Effective Date
which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company shall, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, preliminary Prospectus or Prospectus and take any other action,
which in the opinion of Morse, Zelnick, Rose & Lander, LLP, counsel to the
Underwriters, may be reasonably necessary or advisable in connection with the
distribution of the Securities and will use its best efforts to cause the same
to become effective as promptly as possible.
(j) Prior to the Effective Date, the persons described in Section
1(y)
shall have executed the Lock-up Agreements described therein. You shall have
received written waivers of demand and/or piggy-back registration rights, if
any, from all the holders thereof prior to the Effective Date of the
Registration Statement.
(k) The Company shall upon the initial filing of the Registration
Statement make all filings required to obtain approval for listing for
quotation of the Securities on the National Association of Securities Dealers,
Inc. ("NASDAQ") National Market System of the Firm Shares and the Option
Shares and shall use its best efforts to maintain such listing for at least
five (5) years from the date of this Agreement. In the event that the
Securities do not
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initially qualify for listing on the NASDAQ National Market System, such
Securities shall be listed on the NASDAQ SmallCap System. In addition, the
Company shall upon the initial filing of the Registration make all filings
required to obtain approval for listing the Firm Shares and the Option Shares
on the PSE. Within ten (10) days after the Effective Date, the Company shall
cause the Company to be listed in Moody's OTC Industrial Manual and shall use
its best efforts to cause such listings to be maintained for five (5) years
from the date of this Agreement.
(l) The Company represents that it has not taken, and agrees that it
will not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock or Securities
or to facilitate the sale or resale of the Common Stock or Securities.
(m) During the ninety (90)-day period commencing as of the First
Closing Date, the Company shall not, without your prior written consent, which
consent shall not be unreasonably withheld, grant options to purchase shares
of Common Stock at a price less than the closing bid price of the Common Stock
on the Effective Date. Furthermore, during the 24-month period commencing on
the Effective Date, no options shall be granted by the Company to its officers
or directors pursuant to any stock option plan unless such option is either
(a) not exercisable during such 24-month period, or (b) the shares issuable
upon exercise of such option are subject to a lock-up agreement with the
Representative restricting the sale of such shares during such twenty-four
(24) month period.
(n) Prior to the Closing Date or any Option Closing Date, as the
case
may be, the Company shall not issue any press release or other communication
directly or indirectly and shall hold no press conference with respect to the
Company or its financial condition, results of operations, business,
properties, or assets or this offering, without your prior written consent,
which consent will not be unreasonably withheld.
(o) During the period of the offering, and for a period of twelve
(12)
months from the Effective Date, the Company shall not sell or otherwise
dispose of any securities of the Company, except for shares of Common Stock
issuable upon exercise of options, warrants or convertible securities
outstanding on the Effective Date or options authorized for grant under stock
option plans as of the Effective Date, without your prior written consent,
which consent shall not be unreasonably withheld. During the period of the
offering, and for a period of twenty-four (24) months from the Effective Date,
the Company shall not sell or otherwise dispose of any securities of the
Company pursuant to Regulation S under the Act without your prior written
consent.
(p) The Company shall reserve and keep available that number of its
authorized but unissued shares of Common Stock, which are issuable upon
exercise of the Representative's Warrant outstanding from time to time.
(q) Within ninety (90) days from the First Closing Date, the Company
shall deliver to you, at the Company's expense, six (6) bound volumes in form
and content acceptable to you, containing the Registration Statement and all
exhibits filed therewith, and all amendments thereto, and all other
correspondence, filings, certificates and other documents filed and/or
delivered in connection with this offering, together with an index to all such
documents.
(r) On or prior to the Effective Date, the Company shall retain a
public relations firm, reasonably acceptable to you, for a period of two (2)
years from the Effective Date.
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(s) On or prior to the Closing Date, the Company shall enter into
the
Financial Consulting Agreement with you for a period of one (1) year pursuant
to which you will consult with the Company on corporate financing and other
financial service matters for a fee of $60,000 payable in full on the Closing
Date.
(t) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. Except as described in the Prospectus, no
portion of the net proceeds shall be used, directly or indirectly, to acquire
any securities issued by the Company.
(u) For a period of three (3) years from the Closing Date, the
Company
shall, as the Representative may reasonably request, but not more often than
monthly, furnish to the Representative at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock (ii) the list
of holders of all of the Company's securities.
(v) For a period of three (3) years from the date of the Prospectus,
the Representative shall have the right, but not the obligation, to designate
one (1) representative to be a non-voting observer to receive notice of and to
attend all meetings of the Company's Board of Directors. Such individual
shall be reimbursed for all out-of-pocket expenses incurred in connection with
attending such meetings and shall be indemnified by the Company against any
claims arising out of his attendance at such Board meetings. The Company's
Board of Directors shall hold at least four (4) meetings in each year.
(w) For a period of two (2) years from the Closing Date, pursuant to
the M/A Agreement, the Company shall, if it participates in any merger,
consolidation or other transaction which the Representative has brought to the
Company (including an acquisition of assets or stock for which it pays, in
whole or in part, with shares of the Company's Common Stock or other
securities) pay for the Representative's services an amount equal to 5% of the
first $3,000,000 of value paid or received in the transaction, 2 1/2% of any
consideration paid over $3,000,000 and less than $5,000,000 and 2% of all
such value above $5,000,000; in addition, during such two-year period, if
someone other than the Representative brings such a merger, consolidation or
other transaction to the Company, and if the Company in writing retains the
Representative for consultation or other services in connection therewith,
then upon consummation of the transaction the Company shall pay to the
Representative as a fee the aforesaid amount or as otherwise agreed to between
the Company and the Representative.
(x) The Company shall cause a Registration Statement under the
Exchange Act to be declared effective concurrently with the completion of the
offering of the Securities.
(y) For a period of six (6) months following the Effective Date the
Company shall provide the Representative with DTC Stock Transfer Sheets on a
weekly basis and thereafter on a monthly basis.
4. Conditions of Underwriters' Obligations.
The obligations of the Underwriters to purchase and pay for the
Shares
hereunder are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations, warranties and
covenants of the Company herein, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
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(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 4:00 p.m., New York time, on
the date following the date of this Agreement, or at such later time or on
such later date as to which you may agree in writing; on the Closing Dates, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that or any similar purpose shall have
been instituted or shall be pending or, to the knowledge of the Underwriters
or to the knowledge of the Company, shall be contemplated by the Commission;
any request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of Morse, Zelnick, Rose
& Lander, LLP, counsel to the Underwriters; and no stop order shall be in
effect denying or suspending effectiveness of the Registration Statement nor
shall any stop order proceedings with respect thereto be instituted or pending
or threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Krys Boyle Freedman Scott & Sawyer, P.
C., counsel for the Company, in form and substance satisfactory to counsel for
the Underwriters, to the effect that:
(i) the Company has been duly organized and is validly existing
as a corporation in good standing under the laws of its state of incorporation
and is duly authorized to transact business as a foreign corporation in good
standing in each other jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified and in good standing would not have a
material adverse effect on the Company; to such counsel's knowledge, the
Company does not own an equity interest in any other corporation, partnership,
joint venture, trust or other business entity;
(ii) to the best knowledge of such counsel, (a) the Company
has obtained, or is in the process of obtaining, all licenses, permits and
other
governmental authorizations necessary to the conduct of its business as
described in the Prospectus, and (b) such obtained licenses, permits and other
governmental authorizations are in full force and effect and the Company is in
all material respects complying therewith;
(iii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all of the Company's
outstanding securities requiring authorization for issuance by the Company's
Board of Directors have been duly authorized and validly issued, are fully
paid and non-assessable and conform in all material respects to the
description thereof contained in the Prospectus; the outstanding securities of
the Company have not been issued in violation of the preemptive rights of any
stockholder, under the Delaware General Corporation Law or the Company's
certificate of incorporation or by-laws and the stockholders of the Company do
not have any statutory preemptive rights or, to the best of such counsel's
knowledge, other than as set forth in the Prospectus, other rights to
subscribe for or to purchase, and there are no restrictions upon the voting of
any of the Common Stock; the Shares, the Common Stock and the Representative's
Warrant conform to the respective descriptions thereof contained in the
Prospectus; the Securities to be issued as contemplated in the Registration
Statement have been duly authorized and, when issued and paid for, will be
non-assessable and free of preemptive rights under the New York Business
Corporation Law or the Company's certificate of incorporation or by-laws, or,
to the best of such counsel's knowledge, contractual preemptive rights, and no
personal liability will attach to the ownership thereof; a sufficient number
of shares of Common Stock have been
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reserved for issuance upon exercise of the Representative's Warrant (without
regard to the anti-dilution provisions thereof) and upon such issuance upon
exercise in accordance with the terms of the Representative's Warrant, when
the purchase price is paid, will be fully paid, non-assessable and free of
preemptive rights under the Delaware General Corporation or the Company's
certificate of incorporation or by-laws or, to the best of such counsel's
knowledge, contractual preemptive rights, and no personal liability will
attach to the ownership thereof; and to the best of such counsel's knowledge,
except as set forth in the Prospectus, neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied, for or relating to the registration
of the Securities;
(iv) this Agreement, the Financial Consulting Agreement,
the
M/A Agreement and the Representative's Warrant have been duly and validly
authorized, executed and delivered by the Company and, assuming due execution
and delivery by you, all of such agreements are, or when duly executed will
be, the valid, legally binding and enforceable obligations of the Company,
except (i) as limited by applicable bankruptcy, insolvency, reorganization and
other laws affecting creditors' rights, or (ii) as limited by general
principles of equity; provided, however, that no opinion need be expressed as
to the enforceability of the indemnity provisions contained in Section 6 or
the contribution provisions contained in Section 7 of this Agreement;
(v) the certificates evidencing the shares of Common Stock are
in valid and proper form;
(vi) except as disclosed in the Prospectus, such counsel
knows of no pending legal or governmental proceedings to which the Company is
a party which could materially adversely affect the business, property,
financial condition or operations of the Company or which question the
validity of the Securities, this Agreement, the Financial Consulting
Agreement, the M/A Agreement or the Representative's Warrant, or of any
action taken or to be taken by the Company pursuant to this Agreement, the
Financial Consulting Agreement, the M/A Agreement or the Representative's
Warrant; except as disclosed in the Prospectus, no such proceedings are
known to such counsel to be threatened against the Company; and there are no
governmental proceedings or regulations known to such counsel required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(vii) to the knowledge of such counsel, the Company is not in
violation of or default under this Agreement, the Financial Consulting
Agreement, the M/A Agreement or the Representative's Warrant, and the
execution and delivery hereof and thereof and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated will not result in a violation of,
or constitute a default under, the certificate of incorporation or by-laws of
the Company, or, to the best of such counsel's knowledge, in the performance
or observation of any material obligation, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or in
any contract, indenture, mortgage, loan agreement, lease, joint venture or
other agreement or instrument to which the Company is a party or, to the best
of such counsel's knowledge, in a violation of any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign applicable to the Company or to
which it is subject;
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(viii) the Registration Statement has become effective under
the
Act, and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, no proceedings for
that purpose have been instituted or are pending before, or threatened by, the
Commission and the Registration Statement and the Prospectus (except for the
financial statements and other financial and statistical data contained
therein, or omitted therefrom, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(ix) during the course of the preparation of the Registration
Statement, such counsel has participated in conferences with officers and
other representatives of the Company, the Underwriters and independent public
accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus contained therein and related
matters were discussed and, although such counsel need not pass upon and does
not assume any responsibility for the adequacy, accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus contained therein (except as specified in such counsel's opinion),
solely on the basis of the foregoing without independent check and
verification, no facts have come to such counsel's attention which lead it to
believe that the Registration Statement or any amendment thereto, at the time
the Registration Statement or amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading or the Prospectus or any
amendment or supplement thereto, at the time they were filed pursuant to Rule
424(b) or at the date hereof, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading (except that no view need be expressed as to (i)
financial information and statistical data and information included in the
Registration Statement or the Prospectus, (ii) information included in the
Registration Statement or the Prospectus which was furnished by or on behalf
of the Underwriters, or (iii) information included in the second paragraph of
the "Underwriting" section of the Prospectus).
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate and complete in all material respects and such counsel
is familiar with the contracts and other documents referred to in the
Registration Statement and the Prospectus and any such amendment or
supplement, or filed as exhibits to the Registration Statement, and such
counsel does not know of any contracts or documents of a character required to
be summarized (other than real property leases) or described therein or to be
filed as exhibits thereto which are not so summarized, described or filed;
each of the Preliminary Prospectus, the Registration Statement, and the
Prospectus and any amendments or supplement thereto (other than the financial
statements and other financial and statistical data included therein, as to
which no opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations.
(xi) except as described in the Prospectus, no
authorization,
approval, consent or license of any governmental or regulatory authority or
agency is necessary in connection with the authorization, issuance, transfer,
sale or delivery of the Securities by the Company, in connection with the
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execution, delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the issuance
of the Representative's Warrant or the shares of Common Stock underlying the
Representative's Warrant, other than registration or qualification of the
Securities under applicable state or foreign securities or blue sky laws (as
to which such counsel need express no opinion) and registration under the Act;
(xii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds," "Management - Summary Compensation"
(other than the data contained in the Summary Compensation table), "Principal
Shareholders," "Certain Transactions," and "Description of Securities" have
been reviewed by such counsel and, insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xiii) to the knowledge of such counsel, except as described in
the Prospectus, no holders of Common Stock or other securities of the Company
have any registration rights with respect to Common Stock, except as described
in the Prospectus or which have been validly waived or satisfied. All
registration rights known to such counsel have been so described and have been
validly waived or satisfied with respect to the transaction contemplated
hereby;
(xiv) the Company is not required, and will not be required,
as a result of this offering, to be registered as an "investment company"
under the Investment Company Act of 1940, as amended;
(xv) the properties and business of the Company conform to the
descriptions thereof contained in the Registration Statement and the
Prospectus;
(xvi) the Company is not in breach of, or in default under,
any term or provision of any license, contract, indenture, mortgage,
installment
sale agreement, deed of trust, lease, voting trust agreement, shareholders'
agreement, partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected, which could materially
adversely affect the Company; and the Company is not in violation of any term
or provision of its certificate of incorporation or by-laws, or in violation
of any franchise, license, permit, judgment, decree, order, statute, rule or
regulation the result of which would materially and adversely affect the
condition, financial or otherwise, or the earnings, business affairs,
position, stockholders' equity, value operation, properties, business or
results of operations of the Company.
(xvii) the Company owns or possesses, free and clear of all
liens
or encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses
necessary to conduct its business (including, without limitation, any such
licenses or rights described in the Prospectus as being owned or possessed by
the Company), and to the best of such counsel's knowledge after reasonable
investigation, there is no claim or action by any person pertaining to, any
proceeding, pending, or threatened, which challenges the exclusive rights of
the Company with respect to, any trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses used in
the conduct of the Company's business (including, without limitations any such
licenses or rights described in the Prospectus as being owned or possessed by
the Company).
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(xviii) except as described in the Prospectus, the Company does
not (A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA, and (C) has never completely or partially
withdrawn from a "multiemployer plan"; and
(xix) the Securities have been approved for listing on the
Nasdaq SmallCap Market and the PSE, and the Company's Registration Statement
on
Form 8-A under the Exchange Act has become effective.
(xx) to such counsel's knowledge, the persons listed under the
caption "Principal Shareholders" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
(xxi) to such counsel's knowledge, except as described in
the
Prospectus, no person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities of the Company
in the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration
statement;
(xxii) to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee
with respect to the sale of the Shares or the financial consulting arrangement
between the Representative and the Company, if any, or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD;
(xxiii) the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against each such party and
any subsequent holder of the securities subject thereto in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable); and
(xxiv) all actions under the Act necessary to make the public
offering and consummate the sale of the Securities as provided in this
Agreement have been taken by the Company; and the provisions of the
certificate of incorporation and by-laws of the Company comply as to form in
all material respects with the Act and the Rules and Regulations.
Such opinion shall also cover such matters incident to the
transactions
contemplated hereby as you or counsel for the Underwriters shall reasonably
request. In rendering such opinion, such counsel may rely upon certificates
of any officer of the Company or public officials as to matters of fact and
may rely as to matters relating to patent law and regulations on the opinion
of Brooks & Kushman, P. C. and as to matters relating to Singapore law on the
opinion of __________.
(c) All corporate proceedings and other legal matters relating to
this
Agreement, the Registration Statement, the Prospectus, and other related
matters shall be reasonably satisfactory to or approved by Morse, Zelnick,
Rose & Lander, LLP, counsel to the Underwriters.
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(d) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of Brooks & Kushman, P. C. with respect to
all patent matters and of ______________ with respect to all matters
concerning Singapore law in form and substance satisfactory to counsel for the
Underwriters.
(e) At the time this Agreement is executed and at the Closing Date
and
any Additional Closing Date, as the case may be, you shall have received a
letter, addressed to the Underwriters and in form and substance satisfactory
to you, with reproduced copies or signed counterparts thereof for each of the
Underwriters, from Arthur Andersen. LLP, dated the date of delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus that
they were, independent certified public accountants with respect to the
Company within the meaning of the Act and the public Regulations and stating
that the response to Item 10 of the Registration Statement is correct insofar
as it relates to them;
(ii) stating that, in their opinion, the financial statements
and
schedules of the Company included in the Registration Statement examined by
them comply in form in all material respects with the applicable accounting
requirements of the Act and the Regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and Board of Directors of the Company
and committees of such board, inquiries to certain officers and other
employees of the Company responsible for financial and accounting matters, and
other specified procedures and inquiries, nothing has come to their attention
that caused them to believe that (A) the unaudited financial statements and
schedules of the Company included in the Registration Statement and Prospectus
do not comply in form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published rules
and regulations under either such act or are not fairly presented in
conformity with generally accepted accounting principles (except to the extent
that certain footnote disclosures regarding any stub period may have been
omitted in accordance with the applicable rules of the Commission under the
Exchange Act) applied on a basis consistent with that of the audited financial
statements appearing therein, (B) any unaudited financial information of the
Company included in the Prospectus was not determined on a basis substantially
consistent with the corresponding information in the audited statements of
operations, (C) there was any change in the capital stock or debt of the
Company or any decrease in the net current assets or stockholders' equity of
the Company as of the date of the latest available monthly financial
statements of the Company or as of a specified date not more than five (5)
business days prior to the date of such letter, each as compared with the
amounts shown in the September 30, 1996 balance sheet included in the
Registration Statement and Prospectus, other than as properly described in the
Registration Statement and Prospectus or any change or decrease (which shall
be set forth therein) which you in your sole discretion shall accept, or (D)
there was any decrease in revenue, net earnings, or net earnings per share of
Common Stock of the Company during the period of September 30, 1996 to the
date of the latest available monthly financial statements of the Company or to
a specified date not
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more than five (5) business days prior to the date of such letter, each as
compared with the corresponding prior year period, other than as properly
described in the Registration Statement and Prospectus or any decrease (which
shall be set forth therein) which you in your sole discretion shall accept;
and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, each Preliminary Prospectus, and the Prospectus, if applicable,
which have been specified by you prior to the date of this Agreement, to the
extent that such data and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
(which procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter, and found them
to be in agreement.
(f) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects with the same effect as if made on and as of
such Closing Date, and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Date; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which
are required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statements of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change
in the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the Effective Date, and the Company shall not have
incurred any material liabilities or entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before
or by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, rule or finding would materially
and adversely affect the business, property, condition (financial or
otherwise), results of operations or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the Chief Executive Officer and the principal financial or
accounting officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (f).
(g) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the Underwriters to purchase and pay for the Option Shares
referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
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(i) the Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness thereof shall
have been issued, and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Underwriters or the
knowledge of the Company, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Morse,
Zelnick, Rose & Lander, LLP, counsel to the Underwriters;
(ii) at the Option Closing Date there shall have been delivered
to you the opinion of Krys Boyle Freedman Scott & Sawyer, P. C., counsel to
the Company, Brooks & Kushman, P.C. and ____________, dated as of the Option
Closing Date, in form and substance reasonably satisfactory to Morse, Zelnick,
Rose & Lander, LLP, counsel to the Underwriters, which opinion shall be
substantially the same in scope and substance as the opinion furnished to you
at the First Closing Date pursuant to Sections 4(b) and 4(d) hereof,
respectively, except that such opinion, where appropriate, shall cover the
Option Shares rather than the Firm Shares. If the First Closing Date is the
same as the Option Closing Date, such opinions may be combined;
(iii) at the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and the
principal financial or accounting officer of the Company dated the Option
Closing Date, in form and substance satisfactory to Morse, Zelnick, Rose &
Lander, LLP, counsel to the Underwriters, substantially the same in scope and
substance as the certificate furnished to you at the First Closing Date
pursuant to Section 4(f) hereof;
(iv) at the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from Arthur
Andersen, LLP, dated the Option Closing Date and addressed to you, confirming
the information in each of their letters referred to in Section 4(e) hereof as
of the date thereof and stating that, without any additional investigation
required, nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five (5) days prior to the Option Closing Date which would require any change
in said letter if it were required to be dated the Option Closing Date;
(v) all proceedings taken at or prior to the Option Closing
Date
in connection with the sale and issuance of the Option Shares shall be
reasonably satisfactory in form and substance to you, and you and Morse,
Zelnick, Rose & Lander, LLP, counsel to the Underwriters, shall have been
furnished with all such documents, certificates and opinions as you may
request in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of
the Company or its compliance with any of the covenants or conditions
contained herein.
(h) If any of the conditions herein provided for in this Section
shall
not have been completely fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriters under this
Agreement may be canceled at, or at any time prior to, each Closing Date by
your notifying the Company of such cancellation in writing or by telegram at
or prior to the applicable Closing Date. Any such cancellation shall be
without liability of the Underwriters to the Company, except as otherwise
provided herein.
(i) The Company shall have entered into the Financial Consulting
Agreement with the Representative providing for the non-refundable payment to
the Representative, commencing on the Closing Date, of a three thousand dollar
($5,000) per month retainer for a period of 12 months, all of which shall be
payable in advance at the Closing.
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(k) The Company shall have entered into the M/A Agreement with the
Representative in final form and substance satisfactory to the Representative
and its counsel.
5. Conditions of the Obligations of the Company.
The obligation of the Company to sell and deliver the Shares is
subject
to the following conditions:
(a) The Registration Statement shall have become effective not later
than 4:00 p.m. New York time, on the date following the date of this
Agreement, or on such later date or time as the Company and you may agree in
writing.
(b) On the Closing Dates, no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the First Closing Date but are not
fulfilled
after the First Closing Date and prior to the Option Closing Date, then only
the obligation of the Company to sell and deliver the Option Shares on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriters, each officer, director, employee and agent of the Underwriters
and each person, if any, who controls the Underwriters, within the meaning of
the Act, from and against any losses, claims, damages or liabilities (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees), joint or several, to which the Underwriters or such controlling person
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment thereof or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the Company filed in any state or other jurisdiction in order to qualify any
or all of the Securities under the securities laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any supplement thereto, or in
any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made; provided, however, that the Company
will not be liable in any such case to the extent, but only to the extent,
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company through you by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity shall be in addition to any liability
which the Company may otherwise have.
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(b) The Underwriters agree to indemnify and hold harmless the
Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company, within the meaning of the
Act, from and against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees) to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged untrue
statement or omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or omission or
alleged untrue statement or omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company through you by or on behalf of the Underwriters and with
respect to the Underwriters specifically for use in preparation thereof,
provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. The Company acknowledges that the
statements with respect to the public offering of the Securities set forth
under the heading "Underwriting" and the stabilization legend in the
Prospectus have been furnished by the Underwriters expressly for use therein
and constitute the only information furnished in writing by or on behalf of
the Underwriters for inclusion in the Prospectus. This indemnity will be in
addition to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify in writing the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party under this
Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying
party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) the named parties to any such action (including
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any impleaded parties) include both such Underwriters or such controlling
person and the indemnifying party, and the indemnified party or parties shall
have reasonably concluded that the indemnified party or parties have one or
more legal defenses available to it which are in conflict to those available
to the indemnifying party (in which case the indemnifying party shall not have
the right to assume the defense of such action on behalf of such indemnified
party or parties, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys). The
indemnifying party shall be free to settle any claim or action in respect to
which indemnity may be sought against it pursuant to this Section; provided,
however, that the indemnifying party shall not settle any such claim or action
if such settlement would result in the imposition against the indemnified
party or parties of a judgment, decree or order in the nature of equitable
relief without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnified party.
7. Contribution.
In order to provide for just and equitable contribution under the Act
in any case in which (i) an indemnified party makes claims for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of
any Underwriter, then the Company and the persons who control the Company, in
the aggregate, and such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in
either such case (after contribution from others) in such proportions that
such Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price per Share appearing thereon, and Company
shall be responsible for the remaining portion; provided, however, that if
such allocation is not permitted by applicable law, then the relative fault of
the Company and an Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The
relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission
to state a material fact, such statement or omission relates to information
supplied by the Company or the Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if the respective obligations of the Company
and the Underwriters to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate damages or by
any other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and that
the contribution of the Underwriters shall not be in excess of its
proportionate share of the portion of such losses, claims, damages or
liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent
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<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in
this paragraph is not permitted by law, then each Underwriter and each person
who controls each Underwriter shall be entitled to contribution from the
Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in
light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of
the
Shares to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the National Association of
Securities Dealers, Inc. ("NASD") in connection with the filing required by
the NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Underwriters, in connection with the qualification of the Securities under the
state securities or Blue Sky Laws which you shall designate; the cost of
printing and furnishing to the Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selling Agreement and the Blue Sky Memorandum; the cost of printing the
certificates representing the Shares and Warrants, the expenses of Company due
diligence meetings and presentations, and the expense (which shall not exceed
$10,000) of placing one or more "tombstone" advertisements as directed by you.
The Company shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to the
Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to
be attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the
First Closing Date pay to you the balance of a non-accountable expense
allowance of $180,000, of which $____________ has been paid. In the event the
over-allotment option is exercised in part or in full, the Company shall pay
to you at the Option Closing Date, as a non-accountable expense allowance, an
amount equal to three percent (3%) of the gross proceeds received upon
exercise of the over-allotment option. In the event the proposed offering is
terminated for any reason, the Underwriters shall return any portion of the
$____________ advanced by the Company not previously expended in connection
with the proposed offering for actual accountable out-of-pocket expenses. If
the proposed offering is not completed due to the Company's breach of any
representation, warranty, covenant or condition contained in this Agreement,
or because of the Company's actions or failure to take such actions as are
reasonably required hereunder and the Underwriters are prepared to perform in
accordance with the terms herein, the Company shall be liable for all of the
Underwriters' actual accountable out-of-pocket expenses, including reasonable
legal fees.
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(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriters or from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless each Underwriter, and the
Underwriters agree to indemnify and hold harmless, severally and not jointly,
the Company from and against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
attorneys' fees) to which the indemnified party may become subject insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. Effective Date.
This Agreement shall become effective upon its execution, except that
you may, at your option, delay its effectiveness until 4:00 p.m., New York
time, on the first full business day following the Effective Date, or at any
such earlier time after the Effective Date as you in your discretion shall
first commence the initial public offering by the Underwriters of any of the
Shares. The time of the initial public offering shall mean the time of
release by you of the first newspaper advertisement with respect to the
Securities, or the time when the Securities are first generally offered by the
Underwriters to dealers by letter or telegram, whichever shall first occur.
This Agreement may be terminated by you at any time before it becomes
effective as provided above except that Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14
and
15, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2 (b), if exercised, may be canceled, at any
time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by the
Underwriters for the resale of the Shares agreed to be purchased hereunder, by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree, (ii)
trading in securities on the New York Stock Exchange or the American Stock
Exchange having been suspended or limited, (iii) material governmental
restrictions having been imposed on trading in securities generally which are
not in force and effect on the date hereof, (iv) a banking moratorium having
been declared by federal or New York State authorities, (v) an outbreak of
major international hostilities or other national or international calamity
having occurred, (vi) the passage by the Congress of the United States or by
any state legislative body of similar impact, of any act or measure, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by you to have a material adverse impact
on the business, financial condition or financial statements of the Company,
(vii) any material adverse change in the financial or securities markets
beyond normal fluctuations in the United States having occurred since the date
of this Agreement, or (viii) any material adverse change having occurred since
the respective dates for which information is given in the Registration
Statement and Prospectus, in the earnings, business, prospects or general
condition of the Company, financial or otherwise, whether or not arising in
the ordinary course of business.
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<PAGE>
(b) If you elect to prevent this Agreement from becoming effective
or
to terminate this Agreement as provided in this Section 10 or in Section 9,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
11. Representative's Warrant.
On the First Closing Date, the Company will issue to you, for total
consideration of $5.00 and upon the terms and conditions set forth in the form
of Representative's Warrant annexed as an exhibit to the Registration
Statement, a Representative's Warrant to purchase, in the aggregate, one Share
for each ten Firm Shares sold in the offering. In the event of conflict in
the terms of this Agreement and the Representative's Warrant, the language of
the Representative's Warrant shall control.
12. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties
and
other statements of the Company or its affiliates, where appropriate, and the
Underwriters, set forth in or made pursuant to this Agreement shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Underwriters, the Company or any of its officers or directors or any
controlling persons and will survive delivery of and payment for the Shares
and the termination of this Agreement.
13. Notice.
All communications hereunder will be in writing and, except as other-
wise expressly provided herein, if sent to the Representative, will be mailed,
delivered or telecopied and confirmed to it at H.J. Meyers & Co., Inc., 2495
Mt. Hope Avenue, Rochester, New York 14620, with a copy sent to Morse,
Zelnick, Rose & Lander, LLP, 450 Park Avenue, Suite 902, New York, New York
10022, or if sent to the Company, will be mailed, delivered, or telecopied and
confirmed to it at 600 C Ward Drive, Santa Barbara, California 93111, with a
copy sent to Krys Boyle Freedman Scott & Sawyer, P.C., 600 17th Street, Suite
2700 South Tower, Denver, Colorado 80202-5427.
14. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
Underwriters, the Company and, to the extent expressed, the affiliates, any
person controlling the Company, or the Underwriters, and directors of the
Company, nominees for directors of the Company (if any) named in the
Prospectus, the officers of the Company who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such purchaser, from Underwriters.
[Balance of page intentionally blank]
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15. Applicable Law.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it shall become a
binding agreement between the Company and you, as Representative of the
several Underwriters, in accordance with its terms.
Yours very truly,
ASHA CORPORATION
By:_________________________________________
Alain J-M Clenet, Chief Executive Officer
Dated: ________ __, 1997
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
H.J. MEYERS & CO., INC.
By:________________________________
Authorized Officer
Dated: ________ __, 1997
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SCHEDULE I
Name
Shares
H.J. Meyers & Co., Inc.
Total
ASHA CORPORATION
and
H.J. MEYERS & CO., INC.
REPRESENTATIVE'S WARRANT AGREEMENT
Dated as of _______________ __, 1997<PAGE>
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT
THIS REPRESENTATIVE'S WARRANT AGREEMENT (the "Agreement"), dated as
of
___________ ___, 1997, is made and entered into by and between ASHA
CORPORATION, a Delaware corporation (the "Company"), and H.J. MEYERS & CO.,
INC., a Delaware corporation (the "Warrantholder").
The Company agrees to issue and sell, and the Warrantholder agrees to
purchase, for an aggregate purchase price of Five Dollars ($5.00), warrants,
as hereinafter described (the "Warrants"), to purchase up to an aggregate of
____ shares, (subject to adjustment pursuant to Section 8 hereof) (the
"Shares") of the Company's Common Stock, $____ par value (the "Common Stock").
in connection with a public offering by the Company of _______ Shares pursuant
to an underwriting agreement (the "Underwriting Agreement"), dated ___________
___, 1997, among the Company and the Warrantholder, as representative (the
"Representative") of the several Underwriters named in the Underwriting
Agreement. The purchase and sale of the Warrants shall occur on the First
Closing Date, as defined in the Underwriting Agreement, and shall be subject
to the conditions to the Underwriters' obligations to purchase Shares
thereunder.
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby
agree as follows:
Section 1. Transferability and Form of Warrants.
1.1 Registration. The Warrants shall be numbered and regis-
tered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the
books of the Company maintained at its principal office, wherever its
principal office may then be located, upon delivery thereof duly endorsed by
the Warrantholder or by its duly authorized attorney or representative,
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall execute and
deliver new Warrants to the person entitled thereto.
1.3 Limitations on Transfer of the Warrants. Subject to the
provisions of Section 11 of this Agreement, the Warrants shall not be sold,
transferred, assigned or hypothecated by the Warrantholder until ____________.
1998 except to (i) one or more persons, each of whom on the date of transfer
is an officer of the Warrantholder; (ii) any of the several Underwriters set
forth on Schedule I to the Underwriting Agreement or members of the selling
group and/or the officers or partners thereof; (iii) a successor to the
Warrantholder in merger or consolidation; (iv) a purchaser of all or
substantially all of the Warrantholder's assets; or (v) any person receiving
the Warrants from one or more of the persons listed in this subsection 1.3 at
such person's or persons' death pursuant to will, trust or the laws of
intestate succession. The Warrants may be divided or combined, upon request
to the Company by the Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of Shares.
Unless the context indicates otherwise, the term "Warrantholder" shall include
any transferee or transferees of the Warrants pursuant to this subsection 1.3,
and the term "Warrants" shall include any and all warrants outstanding
pursuant to this Agreement, including those evidenced by a certificate or
certificates issued upon division, exchange, substitution or transfer pursuant
to this Agreement.
<PAGE>
1.4 Form of Warrants. The text of the Warrants and of the
form
of election to purchase Shares shall be substantially as set forth in Exhibit
"A" attached hereto. The number of shares issuable upon exercise of the
Warrants is subject to adjustment upon the occurrence of certain events, all
as hereinafter provided. The Warrants shall be executed on behalf of the
Company by its Chief Executive Officer or by a Vice President, attested to by
its Secretary or an Assistant Secretary. A Warrant bearing the signature of
an individual who was at any time the proper officer of the Company shall bind
the Company notwithstanding that such individual shall have ceased to hold
such office prior to the delivery of such Warrant or did not hold such office
on the date of this Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution
or transfer.
1.5 Legend on Shares and Warrants. Each certificate for Shares
initially issued upon exercise of the Warrants shall bear the following
legend, unless, at the time of exercise, such Shares are subject to a
currently effective Registration Statement under the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, EXCHANGED, HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT
IN COMPLIANCE WITH SECTION 11 OF THE AGREEMENT PURSUANT TO WHICH THEY
WERE ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Securities Act of 1933, as amended (the "Act"), of the securities
represented thereby) shall also bear the above legend unless, in the opinion
of the Company's counsel, the securities represented thereby need no longer be
subject to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate
may be exchanged for another certificate or certificates entitling the
Warrantholder to purchase a like aggregate number of Shares as the certificate
or certificates surrendered then entitled such Warrantholder to purchase. Any
Warrantholder desiring to exchange a Warrant certificate shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, with signatures guaranteed, the certificate evidencing the Warrant
to be so exchanged. Thereupon, the Company shall execute and deliver to the
person entitled thereto a new Warrant certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, the Warrantholder
shall have the right, at any time during the period commencing at 9:00 a.m.,
New York City Time, on ____________, 1998 and ending at 5:00 p.m., New York
City Time, on ____________, 2002 (the "Termination Date"), to purchase from
the Company up to the number of fully paid and nonassessable Shares which the
Warrantholder may at the time be entitled to purchase pursuant to this
Agreement, upon surrender to the Company, at its principal office, of the
certificate evidencing the Warrants to be exercised, together with the
purchase form on the reverse thereof duly filled in and signed, with
signatures guaranteed, and upon payment to the Company
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<PAGE>
of the Warrant Price (as defined in and determined in accordance with the
provisions of this section 3 and sections 7 and 8 hereof), for the number of
Shares in respect of which such Warrants are then exercised, but in no event
for less than 100 Shares (unless less than an aggregate of 100 Shares are then
purchasable under all outstanding Warrants held by a Warrantholder).
(b) Except as otherwise provided for in this Section, payment of
the aggregate Warrant Price shall be made in cash or by check, or any
combination thereof. No Warrant may be exercised by the Warrantholder after
5:00 p.m., New York City Time, on ____________, 2002. Subject to the terms of
this Agreement, each Warrant may be exercised to purchase one Share of Common
Stock at a price of $__________ (the "Warrant Price") [120% of the Share
Offering price]. The Warrant Price is further subject to adjustment as
provided for in Section 7 of this Agreement.
Upon such surrender of the Warrants and payment of such Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrantholder and in
such name or names as the Warrantholder may designate a certificate or
certificates for the number of full Shares so purchased upon the exercise of
the Warrant, together with cash, as provided in Section 9 hereof, in respect
of any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the
certificate or certificates representing such securities shall not actually
have been delivered or that the stock transfer books of the Company shall then
be closed. The Warrants shall be exercisable, at the election of the
Warrantholder, either in full or from time to time in part, and, in the event
that a certificate evidencing the Warrants is exercised in respect of less
than all of the Shares specified therein at any time prior to the Termination
Date, a new certificate evidencing the remaining portion of the Warrants will
be issued by the Company.
(c) Notwithstanding the provisions of Section 1(b) with respect to the
payment of the aggregate Warrant Price to the contrary, the Holder may elect
to exercise this Warrant, in whole or in part, by receiving Shares equal to
the value (as herein determined) of the portion of this Warrant then being
exercised, in which event the Company shall issue to the Holder the number of
Shares determined by using the following formula:
X = Y(A-B)
A
where: X = the number of Shares to be issued to the Holder under the
provisions of this Section 1(c).
Y = the number of Shares that would otherwise be issued upon
such exercise.
A = the Current Fair Market Value (as hereinafter defined) of
one Share calculated as of the last trading day immediately
preceding such exercise.
B = the Exercise Price
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As used herein, the "Current Fair Market Value" of the Share as of a
specified date shall mean with respect to each Share, (i) the aggregate of the
average of the last reported sales price regular way of the Common Stock
issuable pursuant to this Agreement sold on all securities exchanges on which
such securities may at the time be listed, or (ii) if there have been no sales
on any such exchange on such day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or (iii) if on such
day such securities are not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York time,
or (iv) if on such day such securities are not quoted in the NASDAQ System,
the average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Current Fair
Market Value is being determined and the 20 consecutive business days prior to
such day. If on the Date for which Current Fair Market Value is to be
determined such securities are not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, then Current Fair Market
Value of such securities shall be the highest price per share and per warrant
which the Company could then obtain from a willing buyer (not a current
employee or director) for such securities sold by the Company for such
securities, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
consolidation, reorganization, acquisition or other similar transaction
pursuant to which the Company is not the surviving entity, in which case the
Current Fair Market Value of the securities shall be deemed to be the per
share value received or to be received in such transaction by the holder of
such securities.
Section 4. Payment of Taxes. The Company shall pay all documentary
stamp taxes, if any, attributable to the initial issuance of the Warrants and
the Shares issuable upon exercise of the Warrants; provided, however, the
Company shall not be required to pay any tax which may be payable in respect
of any secondary transfer of the Warrants or the Shares.
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the
mutilated certificate or certificates, or in lieu of and substitution for the
certificate or certificates lost, stolen or destroyed, a new Warrant
certificate or certificates of like tenor and representing an equivalent right
or interest, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant and a bond of indemnity, if
requested, also satisfactory in form and amount at the applicant's cost.
Applicants for such substitute Warrants certificates shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
Section 6. Reservation of Shares. There have been reserved, and the
Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of
Common Stock as shall be subject to purchase under the Warrants. Every
transfer agent for the Common Stock and other securities of the Company
issuable upon the exercise of the Warrants shall be irrevocably authorized and
directed at all times to reserve such number of authorized shares and other
securities as shall be requisite for such purpose. The Company shall keep a
copy of this Agreement and the Warrant Agreement on file with every transfer
agent for the Common Stock
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and other securities of the Company issuable upon the exercise of the
Warrants. The Company shall supply every such transfer agent with duly
executed stock and other certificates, as appropriate, for such purpose and
will provide or otherwise make available any cash which may be payable as
provided in Section 8 hereof.
Section 7. Adjustment of Number of Shares. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
7.1 Adjustments. The number of Shares purchasable upon the
exercise of the Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in Common
Stock or make a distribution in Common Stock, (ii) subdivide its outstanding
Common Stock, (iii) combine its outstanding Common Stock into a smaller number
of shares of Common Stock, or (iv) issue by reclassification of its Common
Stock other securities of the Company, the number of Shares purchasable upon
exercise of the Warrants immediately prior thereto shall be adjusted so that
the Warrantholder shall be entitled to receive the kind and number of Shares
or other securities of the Company which it would have owned or would have
been entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subsection 7.l(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (or having a conversion price per
share) less than the Initial Price (defined as $______ per share of Common
Stock), the Warrant Price shall be adjusted so that it shall equal the price
determined by multiplying the number of shares as to which the Warrant is then
exercisable by the Warrant Price in effect immediately prior to the date of
such issuance, multiplied by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below plus the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at the Initial Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding on such
record date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered)
after the expiration of such rights or warrants, the Warrant Price shall be
readjusted to the Warrant Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually delivered.
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<PAGE>
(c) In case the Company shall hereafter distribute to all
holders of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Warrant Price
in effect thereafter shall be determined by multiplying the number of shares
as to which the Warrant is then exercisable by the Warrant Price in effect
immediately prior thereto, multiplied by a fraction, the numerator of which
shall be the total number of shares of Common Stock then outstanding
multiplied by the Initial Price, less the fair market value (as determined by
the Company's Board of Directors) of said assets, or evidences of indebtedness
so distributed or of such rights or warrants, and the denominator of which
shall be the total number of shares of Common Stock outstanding multiplied by
such Initial Price. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Warrant Price payable pursuant to this
Agreement is adjusted pursuant to Subsections (a), (b) or (c) above, the
number of Shares purchasable hereunder shall simultaneously be adjusted by
multiplying the number of Shares issuable upon exercise of the Warrants by the
Warrant Price in effect on the date hereof and dividing the product so
obtained by the Warrant Price, as adjusted.
(e) Whenever the number of Shares purchasable upon the
exercise of the Warrants is adjusted as herein provided, the Company shall
cause to be promptly mailed to the Warrantholder by first class mail, postage
prepaid, notice of such adjustment and a certificate of the chief financial
officer of the Company setting forth the number of Shares purchasable upon the
exercise of the Warrants after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was
made.
(f) For the purpose of this subsection 7.1 the term
"Common Stock" shall mean (i) the class of stock designated as the Common
Stock of the Company at the date of this Agreement, or (ii) any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to this Section 7, the Warrantholder
shall become entitled to purchase any securities of the Company other than
Common Stock, (i) if the Warrantholder's right to purchase is on any other
basis than that available to all holders of the Company's Common Stock, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities and (ii) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in this
Section 7.
(i) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Shares purchasable upon exercise of the Warrants, to the extent the Warrants
have not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may
be) on the basis of (A) the fact that the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon
the exercise of such rights, options, warrants or conversion privileges, and
(B) the fact that such
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<PAGE>
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion privileges whether or not
exercised; provided, however, that no such readjustment shall have the effect
of decreasing the number of Shares purchasable upon exercise of the Warrants
by an amount in excess of the amount of the adjustment initially made in
respect of the issuance, sale or grant of such rights, options, warrants or
conversion privileges.
7.2 No Adjustment for Dividends. Except as provided in
subsection 8.1, no adjustment in respect of any dividends or distributions out
of earnings shall be made during the terms of the Warrants or upon the
exercise of Warrants.
7.3 No Adjustment in Certain Cases. No adjustment shall be made
pursuant to Sections 3 or 7 hereof in connection with the issuance of Shares
sold as part of the public sale and issuance of Shares pursuant to the
Underwriting Agreement or the issuance of Shares upon exercise of the
Warrants. No adjustment in the Warrant Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 7.3 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 7 shall be made to the nearest cent or to the nearest one-
thousandth of a share, as the case may be.
7.4 Preservation of Purchase Rights upon Reclassification,
Consolidations. In case of any consolidation of the Company with, or merger
of the Company into, another corporation or in case of any sale or conveyance
to another corporation of the property, assets or business of the Company as
an entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the
Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment of the Warrant Price in effect immediately prior to
such action to purchase, upon exercise of the Warrants, the kind and amount of
shares and other securities and property which it would have owned or have
been entitled to receive after the happening of such consolidation, merger,
sale or conveyance had the Warrants (and each underlying security) been
exercised immediately prior to such action. In the event of a merger
described in Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended, in which the Company is the surviving corporation, the right to
purchase Shares under the Warrants shall terminate on the date of such merger
and thereupon the Warrants shall become null and void, but only if the
controlling corporation shall agree to substitute for the Warrants its warrant
which entitles the holder thereof to purchase upon its exercise the kind and
amount of shares and other securities and property which it would have owned
or been entitled to receive had the Warrants been exercised immediately prior
to such merger. Any such agreements referred to in this subsection 7.4 shall
provide for adjustment, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 7 hereof. The
provisions of this subsection 7.4 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
7.5 Par Value of Shares of Common Stock. Before taking any
action
which would cause an adjustment effectively reducing the portion of the
Warrant Price allocable to each Share below the then par value per share of
the Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which, in the opinion of its counsel, may be
necessary in order that the Company may validly and legally issue fully paid
and nonassessable Common Stock upon exercise of the Warrants.
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<PAGE>
7.6 Independent Public Accountants. The Company may retain a firm
of independent public accountants of recognized national standing (which may
be any such firm regularly employed by the Company) to make any computation
required under this Section 7, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 7.
7.7 Statement on Warrant Certificates. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant
certificates initially issuable pursuant to this Agreement. However, the
Company, at any time in its sole discretion (which shall be conclusive), may
make any change in the form of Warrant certificate that it may deem
appropriate and that does not affect the substance thereof and any Warrant
certificate thereafter issued, whether upon registration of transfer of, or in
exchange or substitution for, an outstanding Warrant certificate, may be in
the form so changed.
Section 8. Fractional Interests; Current Market Price. The
Company shall not be required to issue fractional Shares on the exercise of
the Warrants. If any fraction of a Share would, except for the provisions of
this Section 8, be issuable on the exercise of the Warrants (or specified
portion thereof), the Company shall pay an amount in cash equal to the then
Current Market Price multiplied by such fraction. For purposes of this
Agreement, the term "Current Market Price" shall mean (i) if the Common Stock
is traded in the NASDAQ SmallCap Market and not in the NASDAQ National Market
System nor on any national securities exchange, the average, of the per share
closing bid prices of the Common Stock on the thirty (30) consecutive trading
days immediately preceding the date in question, as reported by NASDAQ or an
equivalent generally accepted reporting service, or (ii) if the Common Stock
is traded in the NASDAQ National Market System or on a national securities
exchange, the average for the thirty (30) consecutive trading days immediately
preceding the date in question, of the daily per share closing prices of the
Common Stock in the NASDAQ National Market System or on the principal stock
exchange on which it is listed, as the case may be. For purposes of clause (i)
above, if trading in the Common Stock is not reported by NASDAQ, the bid price
referred to in said clause shall be the lowest bid price as reported in the
"pink sheets" published by National Quotation Bureau, Incorporated. The
closing price referred to in clause (ii) above shall be the last reported sale
price or, in case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices, in either case in the NASDAQ
National Market System or on the national securities exchange on which the
Common Stock is then listed.
Section 10. No Rights as Stockholder; Notices to Warrantholder.
Nothing contained in this Agreement or in the Warrants shall be construed as
conferring upon the Warrantholder or its transferees any rights as a
stockholder of the Company, including the right to vote, receive dividends,
consent or receive notices as a stockholder in respect of any meeting of
stockholders for the election of directors of the Company or any other matter.
If, however, at any time prior to the expiration of the Warrants and prior to
their exercise, any one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 7.1; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
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<PAGE>
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 13 hereof, at least twenty (20) days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the stockholders entitled to any relevant
dividend, distribution, subscription rights or other rights or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or date
of closing the transfer books, as the case may be. Failure to mail or receive
such notice or any defect therein shall not affect the validity of any action
taken with respect thereto.
Section 11. Restrictions on Transfer; Registration Rights.
(a) The Warrantholder agrees that prior to making any
disposition of the Warrants or the Shares other than to persons or entities
identified in clauses (i) through (v), inclusive, of Section 1.3, the
Warrantholder shall give written notice to the Company describing briefly the
manner in which any such proposed disposition is to be made; and no such
disposition shall be made if the Company has notified the Warrantholder that
in the opinion of counsel reasonably satisfactory to the Warrantholder a
registration statement or other notification or post-effective amendment
thereto (hereinafter collectively a "Registration Statement") under the Act is
required with respect to such disposition and no such Registration Statement
has been filed by the Company with, and declared effective, if necessary, by
the Securities and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of the Warrants
and the Shares to file a Registration Statement as follows:
(i) Whenever during the four-year period beginning on
___________, 1998 and ending on ___________, 2002, the Company proposes to
file with the Commission a Registration Statement (other than as to securities
issued pursuant to an employee benefit plan or as to a transaction subject to
Rule 145 promulgated under the Act or which a Form S-4 Registration Statement
could be used), it shall, at least twenty (20) days prior to each filing, give
written notice of such proposed filing to the Warrantholder and each holder of
Shares, at their respective addresses as they appear on the records of the
Company, and shall offer to include and shall include in such filing any
proposed disposition of the Shares upon receipt by the Company, not less than
ten (10) days prior to the proposed filing date, of a request therefor setting
forth the facts with respect to such proposed disposition and all other
information with respect to such person reasonably necessary to be included in
such Registration Statement. In the event that the managing underwriter, if
any, for said offering advises the Company in writing that the inclusion of
such securities in the offering would be detrimental to the offering, such
securities shall nevertheless be included in the Registration Statement
provided that the Warrantholder and each holder of Warrants and Shares
desiring to have such securities included in the Registration Statement agrees
in writing, for a period of thirty (30) days following such offering not to
sell or otherwise dispose of such securities pursuant to such Registration
Statement, which Registration Statement the Company shall keep effective for a
period of at least nine months following the expiration of such thirty (30)
day period.
(ii) In addition to any Registration Statement pursuant to
subparagraph (i) above, during the four-year period beginning on
_______________, 1998 and ending on ________, 2002, the Company, as promptly
as practicable (but in any event within sixty (60) days) after written request
(the "Request") by
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H.J. MEYERS & CO., INC., or by a person or persons holding (or having the
right to acquire by virtue of holding the Warrants) at least 50% of the shares
of Common Stock which have been (or may be) issued upon exercise of the
Warrants, will prepare and file at its own expense a Registration Statement
with the Commission and appropriate Blue Sky authorities sufficient to permit
the public offering of the Shares, and will use its best efforts at its own
expense through its officers, directors, auditors and counsel, in all matters
necessary or advisable, to cause such Registration Statement to become
effective as promptly as practicable and to maintain such effectiveness so as
to permit resale of the Shares covered by the Request until the earlier of the
time that all such Shares have been sold or the expiration of nine months
following days from the effective date of the Registration Statement;
provided, however, that the Company shall only be obligated to file a
Registration Statement under this Section 1 l(b)(ii) on two occasions.
(c) Except as set forth in the last sentence of this
paragraph, all fees, disbursements and out-of-pocket expenses (other than the
Warrantholder's brokerage fees and commissions and legal fees of counsel to
the Warrantholder, if any) in connection with the filing of any Registration
Statement under Section 10) (or obtaining the opinion of counsel and any no-
action position of the Commission with respect to sales under Rule 144) and in
complying with applicable securities and Blue Sky laws shall be borne by the
Company. The Company at its expense will supply any Warrantholder and any
holder of Shares with copies of such Registration Statement and the prospectus
included therein and other related documents and opinions and no-action
letters in such quantities as may be reasonably requested by the Warrantholder
or holder of Shares. Notwithstanding the foregoing, all costs and expenses of
a second Registration Statement filed pursuant to Section 10(b)(ii) shall be
borne by the holders of the securities included therein.
(d) The Company shall not be required by this Section 10
to file such Registration Statement if, in the opinion of counsel for the
Warrantholders and holders of Shares, and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed public
offering or other transfer as to which such Registration Statement is
requested is exempt from applicable federal and state securities laws and
would result in all purchasers or transferees obtaining securities which are
not "restricted securities," as defined in Rule 144 under the Act.
(e) The Company agrees that until all Shares have been
sold under a Registration Statement or pursuant to Rule 144 under the Act, it
will keep current in filing all materials required to be filed with the
Commission in order to permit the holders of such securities to sell the same
under Rule 144.
Section 11. Indemnification.
(a) In the event of the filing of any Registration
Statement with respect to Warrants or the Shares pursuant to Section 10
hereof, the Company agrees to indemnify and hold harmless the Warrantholder or
any holder of such Shares and each person, if any, who controls the
Warrantholder or any holder of any Shares within the meaning of the Act,
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all reasonable attorneys' fees), to
which the Warrantholder or any holder of such Shares or such controlling
person may become subject, under the Act or
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otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such
Registration Statement, or any related preliminary prospectus, final
prospectus, or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement, preliminary prospectus, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Warrantholder or the holder of such Shares specifically for use in the
preparation thereof. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) The Warrantholders and the holder of the Shares agree
that they will indemnify and hold harmless the Company, each other person
referred to in subparts (1), (2) and (3) of Section 11(a) of the Act in
respect of the Registration Statement and each person, if any, who controls
the Company within the meaning of the Act, against any losses, claims, damages
or liabilities (which shall, for all purposes of this Agreement, include but
not be limited to, all costs of defense and investigation and all attorneys'
fees) to which the Company or any such director, officer or controlling person
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in such Registration Statement, or any related preliminary
prospectus, final prospectus or amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made, but in each case only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
Registration Statement, preliminary prospectus, final prospectus or amendment
or supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Warrantholder or such holder of
Shares specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Warrantholder or such
holder of Shares may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 11 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 11, notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve the indemnifying party from any liability which it may have
to any indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 11. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, reasonably
assume the defense thereof, subject to the provisions herein stated, and upon
a notice from the indemnifying party to such indemnified party of its election
to assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 11 for any legal or other expenses,
subsequently incurred by such indemnified party in
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connection with the defense thereof, other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to
its final conclusion. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party shall have been advised by its counsel that
there may be one or more legal defenses available to the indemnifying party
which differ from those available to the indemnified party the indemnifying
party shall be liable for reasonable legal and other expense incurred by the
indemnified party in connection with the defense of the action (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of more than one separate firm of attorneys
for the indemnified party, which firm shall be designated in writing by a
majority in interest of such holders and controlling persons based upon the
value of the securities included in the Registration Statement. No settlement
of any action against an indemnified party shall be made without the consent
of the indemnified and the indemnifying parties, which shall not be
unreasonably withheld in light of all factors of importance to such parties.
Section 12. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 11 hereof
provide for indemnification in such case or (ii) contribution under the Act
may be required on the part of any Warrantholder or any holder of the Shares
or controlling person, then the Company and any Warrantholder or any such
holder of Shares, or controlling person shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such
case (after contribution from others) on the basis of relative fault as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact related to information supplied by the Company on the
one hand or a Warrantholder or holder of Shares or controlling person on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
such holders of such securities and such controlling persons agree that it
would not be just and equitable if contribution pursuant to this Section 12
were determined by pro rata allocation or by any other method which does not
take account of the equitable considerations referred to in this Section 12.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this Section 12 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 1l(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
-12-
<PAGE>
Section 13. Notices. Any notice pursuant to this Agreement by the
Company or by a Warrantholder or to a holder of Shares shall be in writing and
shall be deemed to have been duly given if delivered or mailed by certified
mail, return receipt requested:
(a) If to a Warrantholder or a holder of Shares, addressed to H.J.
MEYERS & CO., INC., 1895 Mt. Hope Street, Rochester, New York 14620;
Attention: Corporate Finance Department.
(b) If to the Company addressed to it at 600 C Ward Drive, Santa
Barbara, California 93111, Attention: Chief Executive Officer.
Each party may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Section 14. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholders, or the
holders of the Shares shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 15. Merger or Consolidation of the Company. The Company shall
not merge or consolidate with or any other corporation or sell all or
substantially all of its property to another corporation, unless the
provisions of Section 7.4 are complied with.
Section 16. Survival of Representations and Warranties. All statements
contained in any schedule, exhibit, certificate or other instrument delivered
by or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf
of the parties to this Agreement, all representations, warranties and
agreements made by the parties to this Agreement or pursuant hereto shall
survive.
Section 17. Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State.
Section 18. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company, the Warrantholders and the holders of Shares any legal or equitable
right, remedy or claim under this Agreement. This Agreement shall be for the
sole and exclusive benefit of the Company, the Warrantholders and the holders
of Shares.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the date and year first above written.
ASHA CORPORATION
By:_______________________________
Alain J-M Clenet,
Chief Executive Officer
H.J. MEYERS & CO., INC.
By:_______________________________
-13-
<PAGE> EXHIBIT A
Warrant Certificate No. HJ-1
REPRESENTATIVE'S WARRANTS TO PURCHASE _______ SHARES
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON _______________, 2002
ASHA CORPORATION
This certifies that, for value received, H.J. MEYERS & CO., INC. the
registered holder hereof or its assigns (the "Warrantholder"), is entitled to
purchase from ASHA CORPORATION (the "Company"), at any time during the period
commencing at 9:00 a.m., Eastern Standard Time, on ____________, 1998, and
before 5:00 p.m., Eastern Standard Time, on ____________, 2002, at the
purchase price per Share of $_____ (the "Warrant Price"), the number of Shares
of the Company set forth above (the "Shares"). The number of shares of Common
Stock of the Company purchasable upon exercise of each Warrant evidenced
hereby shall be subject to adjustment from time to time as set forth in the
Representative's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached
hereto duly executed (with a signature guarantee as provided thereon) and
simultaneous payment of the Warrant Price at the principal office of the
Company. Payment of such price shall be made at the option of the
Warrantholder in cash, by check or as provided for in Section 3(c) of the
Representative's Warrant Agreement.
The Warrants evidenced hereby are one of a series representing the right
to purchase an aggregate of up to _______ Shares and are issued under and in
accordance with a Representative's Warrant Agreement, dated as of ___________
___, 1997 (the "Representative's Warrant Agreement"), between the Company and
H.J. MEYERS & CO., INC., and are subject to the terms and provisions contained
in the Representative's Warrant Agreement, to all of which the Warrantholder
by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant Certificate in respect
of the Shares as to which the Warrants evidenced hereby shall not have been
exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or more new
Warrants of the same aggregate number of Shares as are evidenced by the
Warrant or Warrants exchanged. No fractional Shares will be issued upon the
exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more Warrants. These
Warrants are transferable at the office of the Company in the manner and
subject to the limitations set forth in the Representative's Warrant
Agreement.
[balance of this page intentionally left blank]
<PAGE>
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a stockholder of the Company.
ASHA CORPORATION
By:_______________________________
Alain J-M Clenet,
Chief Executive Officer
Dated: ___________ ___, 1997
ATTEST:
________________________________
John C. McCormack, Secretary
[Corporate Seal]
<PAGE>
ASHA CORPORATION
PURCHASE FORM
ASHA CORPORATION
600 C Ward Drive
Santa Barbara, California 93111
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, __ Shares (the "Shares") provided for therein, and requests that
certificates for the Shares be issued in the name of:
________________________________________________
(Please Print or Type Name, Address and Social Security Number)
_______________________________________________
_______________________________________________
and, if said number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate for the balance of the Shares
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Warrantholder or his Assignee as below indicated and delivered
to the address stated below.
Dated: ______________
Name of Warrantholder
or Assignee:________________________________________
(Please Print)
Address:____________________________________________
____________________________________________
Signature:__________________________________________
____________________________________________
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signature Guaranteed:_______________________________________
(Signature must be guaranteed by a bank or trust company having an officer or
correspondent in the United States or by a member firm or a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
_______________________________________________
_______________________________________________
_______________________________________________
The within Warrants, hereby irrevocably constituting and appointing
_________________ Attorney to transfer said Warrants on the books of the
Company, with full power of substitution in the premises.
Dated:________ ____________________________________________
Signature or Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever
Signature Guaranteed:___________________________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association or Securities Dealers, Inc.)
KRYS BOYLE FREEDMAN
SCOTT & SAWYER, P.C.
ATTORNEYS AT LAW
Dominion Plaza, Suite 2700 South Tower
Telephone 600 Seventeenth Street Facsimile
(303) 893-2300 Denver, Colorado 80202 (303) 893-2992
March 21, 1997
ASHA Corporation
600 C Ward Drive
Santa Barbara, California 93111
Gentlemen:
We have acted as counsel to ASHA Corporation, a Delaware corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission of a Registration Statement on Form SB-2 (the
"Registration Statement"), pursuant to which the Company is registering under
the Securities Act of 1933, as amended, a total of 1,415,385 shares (the
"Shares") of its common stock, $.00001 par value (the "Common Stock") for sale
to the public and a total of 83,040 shares being offered for resale by selling
shareholders. This opinion is being rendered in connection with the filing of
the Registration Statement. All capitalized terms used herein and not
otherwise defined shall have the respective meanings given to them in the
Registration Statement.
In connection with this opinion, we have examined the Company's Articles
of Organization and Bylaws, both as currently in effect; such other records of
the corporate proceedings of the Company and certificates of the Company's
officers as we have deemed relevant; and the Registration Statement and the
exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that the 83,040 Shares being offered for resale have
been duly and validly authorized by the Company and have been duly and validly
issued and are fully paid and non-assessable.
Based upon the foregoing and in reliance thereon, it is our opinion that:
(i) the 1,415,385 shares of Common Stock and (ii) the 123,077 shares issuable
upon exercise of the Representative's Warrant will, upon the purchase, receipt
of full payment, issuance and delivery in accordance with the terms of the
offering described in such Registration Statement, be duly and validly
authorized, legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We hereby further consent to the reference to us
under the caption "Legal Matters" in the prospectus included in the
Registration Statement.
Very truly yours,
KRYS BOYLE FREEDMAN SCOTT & SAWYER, P.C.
By:/s/ Jon D. Sawyer
Jon D. Sawyer
EMPLOYMENT AGREEMENT
This Agreement made and entered into this first day of March 1997 by and
between ASHA Corporation, a Corporation duly organized and existing under and
pursuant to the laws of the State of Delaware (hereinafter referred to as
"ASHA") and John C. McCormack, an individual residing in the city of Saint
Ynez, State of California (hereinafter referred to as McCormack).
Witnesseth:
Whereas, ASHA is engaged in the development, marketing and sale of
intellectual properties and has employed McCormack since February 1, 1995, in
the position of President and Chief Operating Officer.
Whereas, both ASHA and McCormack wish to formalize this relationship in
contractual form it hereby is agreed that ASHA will employ McCormack and
McCormack will accept employment by AHSA, as its President and Chief Operating
Officer, pursuant to the terms hereof;
Now, Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. ASHA agrees to employ McCormack and McCormack agrees to work for
ASHA for a term of two years (2) with a two year (2) automatic renewal as more
fully defined herein under the Term clause of this agreement.
2. SCOPE OF EMPLOYMENT. McCormack will manage and direct ASHA and will
have full authority for the proper execution of his responsibilities as
provided by the laws of the State of Delaware, subject to the appropriate
review and direction of the Chief Executive Officer and the Board of Directors
of ASHA. McCormack will also continue to serve as Secretary/Treasurer of ASHA
and will attend and record all Board of Directors' meetings and be expected to
attend to any other matters generally falling within the scope of the
President and Chief Operating Officer.
3. TERM. The initial term of McCormack's employment shall be from the
first day of March 1997 to the twenty eighth day of February 1999. Thereafter
McCormack's employment shall be automatically renewed for an additional two
(2) year term unless either party gives to the other no less than six (6)
months or more than nine (9) months notice that the employment or this
agreement in its then current form will not be renewed at the end of the term.
4. COMPENSATION. (a) ASHA shall pay to McCormack as compensation for
the services to be rendered by McCormack hereunder an annual base salary of
Ninety Thousand dollars ($90,000.00), payable in 24 equal consecutive
installments of Three Thousand Seven Hundred and Fifty Dollars ($3,750) each
on the sixteenth (16) and last day of the month. Such installments to be
subject to all legally required Federal and State withholding amounts.
As part of McCormack's base salary McCormack shall receive 25,000
options to purchase common stock in ASHA annually. These options shall be in
addition to any other options or shares of ASHA's common stock that McCormack
may otherwise be entitled. Thereafter McCormack's base salary shall be
adjusted annually as of the anniversary date hereof to fully reflect any
percentage increase in the cost-of-living index published by the United States
Government for the Greater Los Angeles-Long Beach area. ASHA's Chief
Executive Officer and the ASHA Board of Directors shall review McCormack's
base salary at least annually and may adjust it, depending on ASHA's size and
profitability and the
general level of compensation in similar companies; provided that McCormack's
base salary shall not be reduced during the initial two years of this
agreement.
(b) In addition to the compensation hereinabove set forth, McCormack
shall be entitled to participate in such other fringe benefit programs from
ASHA as may be made available to other executives of ASHA, including, but not
limited to, bonuses, stock options, profit sharing, merit increases, medical
and health insurance programs and vacation and other such programs as may be
determined by ASHA's Chief Executive Officer and/or its Board of Directors,
and shall have, in addition, a reasonable expense account.
(c) McCormack shall participate in an ISOP program established for
senior management of ASHA. The initial number of Options that McCormack shall
receive under this plan is 100,000 at a price of $4.00 per share.
5. ARBITRATION. Any controversy or claim arising out of or relating to
this agreement, or a breach thereof, shall be settled by arbitration in Santa
Barbara, California before a panel of Arbitrators selected as follows: within
ten (10) days of demand by either party for arbitration, each party will
select one arbitrator and those two will select a third arbitrator, and those
three shall constitute the panel. The arbitrator's decision will be by a
majority vote. The arbitration shall not be appealable de novo by either
party.
6. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement
between the parties and no modification of any of the provisions hereof shall
be binding upon either McCormack or ASHA unless in writing signed by the party
against whom such modification is sought to be enforced.
7. INTERPRETATION. This agreement has been submitted to the scrutiny
of all parties hereto and of counsel. This agreement shall be controlled by
the laws of the State of California.
ASHA CORPORATION "McCormack"
By: /s/ Alain J-M Clenet /s/ John C. McCormack
Alain J-M Clenet John C. McCormack
Chief Executive Officer
EMPLOYMENT AGREEMENT
This Agreement made and entered into this first day of March 1997 by and
between ASHA Corporation, a Corporation duly organized and existing under and
pursuant to the laws of the State of Delaware (hereinafter referred to as
"ASHA") and Kenneth R. Black, an individual residing in the city of Plymouth,
State of Michigan (hereinafter referred to as Black).
Witnesseth:
Whereas, ASHA is engaged in the development, marketing and sale of
intellectual properties and has employed Black since December 17, 1990, first
as Sales Director and since May 1, 1992, as Vice President of Sales and
Marketing.
Whereas, both ASHA and Black wish to formalize this relationship in
contractual form it hereby is agreed that ASHA will employ Black and Black
will accept employment by AHSA, as its Vice President of Sales and Marketing,
pursuant to the terms hereof;
Now, Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. ASHA agrees to employ Black and Black agrees to work for ASHA for a
term of two years (2) with a two year (2) automatic renewal as more fully
defined herein under the Term clause of this agreement.
2. SCOPE OF EMPLOYMENT. Black will manage and direct the marketing and
sales efforts of ASHA and will have full authority for the proper execution of
his responsibilities as provided by the laws of the State of Delaware, subject
to the appropriate review and direction of the President and Chief Operating
Officer of ASHA and if applicable, to participate in decisions regarding long-
term product development and planning as well as in plans, policies and
practices relating to the Marketing and Sales activities of ASHA or any other
matters generally falling within the scope of the Vice President of Sales and
Marketing.
3. TERM. The initial term of Black's employment shall be from the
first day of March 1997 to the twenty eighth day of February 1999. Thereafter
Black's employment shall be automatically renewed for an additional two (2)
year term unless either party gives to the other no less than six (6) months
or more than nine (9) months notice that the employment or this agreement in
its then current form will not be renewed at the end of the term.
4. COMPENSATION. (a) ASHA shall pay to Black as compensation for the
services to be rendered by Black hereunder an annual base salary of Ninety
Thousand dollars ($90,000.00), payable in 24 equal consecutive installments of
Three Thousand Seven Hundred and Fifty Dollars ($3,750) each on the sixteenth
(16) and last day of the month. Such installments to be subject to all
legally required Federal and State withholding amounts. Thereafter the base
salary shall be adjusted annually as of the anniversary date hereof to fully
reflect any percentage increase in the cost-of-living index published by the
United States Government for the Greater Detroit Metropolitan area, "all
items," during the prior year. ASHA's President and Chief Operating Officer
shall review Black's base salary at least annually and may adjust it,
depending on ASHA's size and profitability and the general level of
compensation in similar companies; provided that Black's base salary shall not
be reduced during the initial two years of this agreement.
(b) In addition to the compensation hereinabove set forth, Black shall
be entitled to participate in such other fringe benefit programs from ASHA as
may be made available to other executives of ASHA, including, but not limited
to, bonuses, stock options, profit sharing, merit increases, medical and
health insurance programs and vacation and other such programs as may be
determined by ASHA's management and/or its Board of Directors, and shall have,
in addition, a reasonable expense account and a vehicle supplied by the
Company.
(c) Black shall participate in an ISOP program established for ASHA
senior management personnel. Black's initial participation, commencing in
January of 1997, was for 100,000 options to purchase ASHA common stock at an
exercise price of $4.00 per share. Such options are fully vested and
exercisable for a period of five (5) years from the date of issue.
5. ARBITRATION. Any controversy or claim arising out of or relating to
this agreement, or a breach thereof, shall be settled by arbitration in Santa
Barbara, California before a panel of Arbitrators selected as follows: within
ten (10) days of demand by either party for arbitration, each party will
select one arbitrator and those two will select a third arbitrator, and those
three shall constitute the panel. The arbitrator's decision will be by a
majority vote. The arbitration shall not be appealable de novo by either
party.
6. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement
between the parties and no modification of any of the provisions hereof shall
be binding upon either Black or ASHA unless in writing signed by the party
against whom such modification is sought to be enforced.
7. INTERPRETATION. This agreement has been submitted to the scrutiny
of all parties hereto and of counsel. This agreement shall be controlled by
the laws of the State of California.
ASHA CORPORATION "Black"
By: /s/ John C. McCormack /s/ Kenneth R. Black
President and Chief Kenneth R. Black
Operating Officer
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
March 19, 1997
MCDIRMID, MIKKELSEN & SECREST, P.S.
Certified Public Accountants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement of ASHA Corporation on form SB-2 of our report dated January 11,
1996, appearing in the Annual Report on Form 10-K of ASHA Corporation for
fiscal year ended September 30, 1995.
/s/ McDirmid, Mikkelsen & Secrest, P.S.
MCDIRMID, MIKKELSEN & SECREST, P.S.
Spokane, Washington
March 20, 1997
