<PAGE>
As filed with the Securities and Exchange Commission on November 6, 1996
File No. 333-
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
IFS INTERNATIONAL, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5045 13-3393646
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
Rensselaer Technology Park
185 Jordan Road
Troy, New York 12180
(518) 283-7900
(Address and telephone number of principal executive offices)
Rensselaer Technology Park
185 Jordan Road
Troy, New York 12180
(Address of principal place of business or intended
principal place of business)
FRANK A. PASCUITO, Chief Executive Officer
IFS International, Inc.
Rensselaer Technology Park
185 Jordan Road
Troy, New York 12180
(518) 283-7900
(Name, address and telephone number of agent for service)
Copies to:
MICHAEL D. DIGIOVANNA, Esq. JAMES MARTIN KAPLAN, Esq.
PARKER DURYEE ROSOFF & HAFT ZIMET, HAINES, FRIEDMAN & KAPLAN
529 Fifth Avenue 460 Park Avenue
New York, New York 10017 New York, New York 10022
(212) 599-0500 (212) 486-1700
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box . |_|
<PAGE>
===============================================================================
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to offering price per aggregate offering Amount of
registered be registered unit (1) price (1) registration fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Convertible
Preferred Stock, $.001
par value(2).............. 1,380,000shs. $5.00 $ 6,900,000 $2,090.91
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemable Series A
Convertible Preferred
Stock Purchase
Warrants(3)............... 1,955,000wts. $0.10 $ 195,500 $ 59.24
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriter's
Warrants.................. 290,000wts. $0.001 $ 290 (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Series A Convertible
Preferred Stock, $.001
par value(5).............. 120,000shs. $5.50 $ 660,000 $ 200.00
- -----------------------------------------------------------------------------------------------------------------------------------
Redeemable Series A
Convertible Preferred
Stock Purchase
Warrants(5)............... 170,000wts. $0.11 $ 18,700 $ 5.67
- -----------------------------------------------------------------------------------------------------------------------------------
Series A Convertible
Preferred Stock, $.001
par value(6).............. 2,125,000shs. $6.25 $13,281,250 $4,024.62
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001
par value(7).............. 3,625,000shs. ----- ----- (8)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001
par value(9).............. 100,000shs. $2.50 $ 250,000 $ 75.76
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL..................................................................................................................$6,456.20
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Includes 180,000 shares of Series A Convertible Preferred Stock issuable
pursuant to the Underwriter's over allotment option.
(3) Includes 255,000 Redeemable Series A Convertible Preferred Stock Purchase
Warrants issuable pursuant to the Underwriter's over allotment option.
(4) Pursuant to Rule 457(g), no fee is paid for the registration of such
securities.
(5) Issuable upon exercise of the Underwriter's Warrants.
(6) Represents Series A Convertible Preferred Stock reserved for issuance upon
the exercise of the Redeemable Series A Convertible Preferred Stock Purchase
Warrants.
(7) Represents the aggregate shares of Common Stock into which the Series A
Convertible Preferred Stock, including the Series A Convertible Preferred
Stock issuable upon exercise of the Redeemable Series A Convertible Stock
Purchase Warrants, is convertible.
(8) Pursuant to Rule 457(i), no fee is paid for the registration of such
securities.
(9) Represents shares of Common Stock being sold by the Selling Stockholders
named herein upon exercise of outstanding 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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 6, 1996
PROSPECTUS
1,200,000 Shares of Series A Convertible Preferred Stock
1,700,000 Redeemable Series A Convertible Preferred Stock Purchase Warrants
IFS INTERNATIONAL, INC.
--------------------
IFS International, Inc. (the "Company") is offering hereby 1,200,000
shares of its Series A Convertible Preferred Stock (the "Preferred Stock") and
1,700,000 Redeemable Series A Convertible Preferred Stock Purchase Warrants (the
"Warrants"). The Preferred Stock and Warrants will be separately transferable
immediately upon issuance. Each share of Preferred Stock is convertible, at the
option of the holder, into one share of Common Stock, subject to adjustment, for
a period of five years commencing on the date hereof; provided that the
Preferred Stock must be converted into Common Stock upon the earlier of the
fifth anniversary of the date hereof or the occurrence of certain events. Each
Warrant entitles the registered holder thereof to purchase one share of
Preferred Stock at a price of $6.25 per share, subject to adjustment, for a
period of three years commencing on _______________, 1998 [two years from the
date of this Prospectus]; except that if the Warrants are called for redemption,
or the Preferred Stock is required to be converted, prior to _________, 1998
[two years from the date of this Prospectus], the Warrants will be exercisable
from the date on which notice of such redemption or mandatory conversion is
given by the Company. The Warrants are redeemable, with the prior consent of
Duke & Co., Inc. (the "Underwriter"), at any time commencing on _______________,
1997 [one year from the date of this Prospectus], upon notice of not less than
30 days, at a price of $0.10 per Warrant, provided that the last sale price of
the Preferred Stock has been equal to or greater than $8.00 per share, subject
to adjustment, for a period of 20 consecutive days of trading of the Preferred
Stock prior to the mailing of the notice of redemption. See "Description of
Securities."
Prior to this offering, there has been no public market for the
Preferred Stock or the Warrants. It is currently estimated that the initial
public offering price of the Preferred Stock will be approximately $5.00 per
share and that the initial public offering price of the Warrants will be
approximately $0.10 per Warrant. For factors considered in determining the
initial public offering prices of the Preferred Stock and the Warrants and the
exercise price of the Warrants, see "Underwriting." The Common Stock is quoted
on the OTC Bulletin Board and on ____________, 1996, the high bid and low asked
prices of the Common Stock were $______ and $_______, respectively. The Company
has applied to have the Preferred Stock, Warrants and Common Stock approved for
quotation on The Nasdaq SmallCap Market under the symbols "EFTAP", "EFTAW" and
"EFTA," respectively. The Company also intends to apply to the Philadelphia
Stock Exchange to list the Preferred Stock and Warrants for trading thereon.
Concurrently with this offering, the Company also has registered on
behalf of certain of its stockholders (the "Selling Stockholders") 100,000
shares of Common Stock (the "Selling Stockholders' Shares"). The Selling
Stockholders' Shares are not part of this underwritten offering, however, and
may not be sold prior to 12 months after the closing of this offering. The
Company will not receive any proceeds from the sale of the Selling Stockholders'
Shares.
-------------------
This offering involves a high degree of risk.
See "Risk Factors" commencing on page _ hereof.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
==============================================================================
Price to Underwriting Proceeds to
Public Discounts(1) Company (2)
- ------------------------------------------------------------------------------
Per Share.............. $ $ $
- ------------------------------------------------------------------------------
Per Warrant............ $ $ $
- ------------------------------------------------------------------------------
Total (3).............. $ $ $
==============================================================================
(1) Does not include additional compensation to the Underwriter in the form of
a nonaccountable expense allowance of 3% of the gross proceeds of this
offering. The Company has also agreed to sell to the Underwriter warrants
to purchase up to 120,000 shares of Preferred Stock at $_______ per share
and up to 170,000 Warrants at $________ per Warrant, exercisable over a
period of four years commencing one year from the date hereof (the
"Underwriter's Warrants") and to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses, including the Underwriter's nonaccountable
expense allowance of $_________ ($_________ if the Underwriter's
over-allotment option is exercised in full), estimated at $_________
($___________ if the Underwriter's over-allotment option is exercised in
full), payable by the Company.
(3) The Company has granted the Underwriter a 45-day option to purchase up to
180,000 shares of Preferred Stock and up to 255,000 Warrants upon the same
terms and conditions as set forth above, solely to cover over-allotments,
if any. If such over-allotment option is exercised in full, the total Price
to Public, Underwriting Discounts and Proceeds to Company will be
$________, $____________ and $_____________, respectively. See
"Underwriting." ------------------------
The Preferred Stock and Warrants are being offered, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the Preferred Stock and Warrants will be
made against payment therefor on or about ________________, 1996, at the offices
of the Underwriter, 909 Third Avenue, New York, New York 10022.
Duke & Co., Inc.
The date of this Prospectus is , 1996
[The following statement will appear on the left-hand margin of the outside
cover page of the preliminary prospectus]
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 buy 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.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, the Company files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information that have been or will be filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices
of the Commission at 7 World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60621.
Copies of such material may be obtained from the Public Reference Section of the
Commission at prescribed rates by writing to the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site
on the Internet at http://www.sec.gov that contains reports and other
information of issuers that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act with respect to the securities being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, copies of which can be obtained from the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
STABILIZATION
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
PREFERRED STOCK OR WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ SMALLCAP MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, such
information has been adjusted to reflect a 1-for-10 reverse split of the
Company's common stock (the "Common Stock") completed on November __, 1996 and
assumes no exercise of outstanding options and warrants, the Underwriter's
Warrants and the Underwriter's over-allotment option. Unless the context
requires otherwise, as used in this Prospectus, the "Company" means IFS
International, Inc. and its wholly-owned subsidiaries.
Certain terms used in the Prospectus are defined in the Glossary on
page 44.
The Company
The Company is engaged in the business of developing, marketing and
supporting software products for the electronic funds transfer ("EFT") market.
The Company's family of software products, marketed under the name TechNique
Plus II ("TPII"), serves as a UNIX-based manager for EFT systems. TPII
software products are designed to operate with computers utilizing the UNIX
operating system, are written in C programming language and incorporate Oracle
relational database technology and object oriented design concepts. As a
result, TPII software products are compatible with a significant portion of
the industry standard computer platforms.
An EFT system ("EFT System") of a bank or other financial institution
permits the processing of transactions involving credit cards and debit cards
(e.g., ATM cards). An EFT System generally consists of one or more of the
following in various configurations: automatic teller machines ("ATMs"), point
of sale ("POS") terminals, a host computer of the financial institution and
regional, national and international networks ("Networks"), such as CIRRUS,
NYCE, MAC or PLUS. TPII software products primarily route and authorize the
processing of transactions through an EFT System. TPII software can be sold in
separate modules which perform different functions, including (i) interfacing
with ATMs, POS terminals, a financial institution's host computer and Network
computers, (ii) updating credit and debit card information, (iii) providing
stand-in authorization for transactions when the financial institution's host
computer is not operating, (iv) computing fees for transactions processed and
(v) generating of reports. The TPII software products are installed generally at
the financial institution's main processing facility.
The Company's primary business objective is to become a leading
world-wide supplier of UNIX-based managers for EFT Systems. To date, the
Company's TPII software products have been primarily installed in EFT Systems
of banks and other financial institutions located in emerging countries and
former Eastern Bloc nations. As of October 31, 1996, thirteen financial
institutions and two Networks were utilizing TPII software products. Certain
of such financial institutions serve up to 200 ATMs and 1,000 POS terminals
and the two Networks serve 22 and 5 financial institutions, respectively. In
addition, agreements have been executed for the installation of TPII software
products in EFT Systems of three additional financial institutions. A
substantial portion of the Company's revenues are generated by the licensing
of TPII software products through or to computer manufacturers, which
incorporate the TPII software products into a turnkey system installed at a
financial institution. The preparation of functional specifications,
customization and installation of TPII software products and the training by
the Company of the financial institution's personnel in the use of the TPII
software products take an average of six to twelve months, depending upon the
timing of installation and final acceptance of the EFT System by the customer.
The Company generally receives payment of a substantial portion of the license
fee prior to the final acceptance by the customer. The Company provides its
customers with
- 1 -
<PAGE>
maintenance services for its TPII software for a separate fee. The Company also
offers other support services, such as additional training of customer personnel
and consulting, for additional consideration.
The Company recently has adapted its TPII software to manage EFT
Systems that process transactions involving the "loading" of value on smart
cards. A smart card is a plastic card with an electronic chip that acts as a
small computer. These cards can include a stored value feature, which enables
the holder to "load" a fixed amount of purchasing power or cash equivalent on
the card as authorized. As a result, the holder can purchase items or services
without the necessity of carrying cash or entering into a credit card
transaction. The Company has developed software for Visa International Service
Association ("Visa") to manage an EFT System that facilitates the "loading" of
value on a smart card through a bank's terminals. As a result of a successful
test of the Company's TPII smart card software, Visa entered into an agreement
with the Company in July 1996 for the licensing and installation of this
software in connection with the operation of up to seven pilot programs for
the purposes of evaluating the TPII smart card software and other aspects of
the smart card system. The license for each pilot program is for a term of 24
months commencing on the date such pilot program goes on-line. As of the date
hereof, Visa has selected financial institutions in the following countries to
conduct five of the pilot programs: the United States, the United Kingdom,
Japan, Germany and Italy. Although there can be no assurance, the Company
anticipates that revenues from its agreement with Visa will have a material
impact on its financial position during the next 9-12 months.
The Company was incorporated in Delaware in 1986 under the name
"Wellsway Ventures, Inc." and changed its name to "IFS International, Inc." in
1989. The Company's principal offices are located at Rensselaer Technology Park,
185 Jordan Road, Troy, New York 12180 and its telephone number is (518)
283-7900.
The Offering
Securities offered by
the Company...................... 1,200,000 shares of Preferred Stock
1,700,000 Warrants
Common Stock to be
outstanding after this
offering......................... 1,059,730 shares (1)
Preferred Stock:
To be outstanding after
this offering.................... 1,200,000 shares
Conversion Rate.................. One share of Common Stock for each share
of Preferred Stock, subject to adjustment
to prevent dilution in certain
circumstances. See "Description of
Securities."
Conversion Period................ Commencing on the date hereof and
terminating on ____________, 2001 [five
years from the date of this Prospectus];
provided that the Preferred Stock must be
converted ("Mandatory Conversion") on the
earlier of (i) _____________, 2001 [five
years from the date of this Prospectus]
or (ii) the consummation date of a merger
or acquisition of the Company in which
the then outstanding securities of the
Company are surrendered or exchanged for
cash, property or securities of another
entity if the consideration received in
any such transaction is not less than
$5.00 per share on a fully-diluted basis.
See "Description of Securities."
- 2 -
<PAGE>
Voting Rights.................... One vote for each share held of record on
all matters submitted to a vote of
stockholders, voting separately as a
class, except that with respect to the
election of directors, the Preferred
Stock and the Common Stock vote together
as one class. See "Description of
Securities."
Liquidation Preference........... $5.00 per share
Warrants:
To be outstanding after this
offering......................... 1,700,000 Warrants
Exercise Price................... $6.25 per share of Preferred Stock,
subject to adjustment. See "Description
of Securities."
Exercise Period.................. Commencing on __________, 1998 [two years
from the date of this Prospectus], and
terminating on _______, 2001 [five years
from the date of this Prospectus]; except
that (i) in the event the Company gives
notice of redemption of the Warrants
prior to ________, 1998 [two years from
the date of this Prospectus], the
exercise period of the Warrants will
commence on the date of the notice of
redemption and terminate on the day prior
to the date fixed for redemption or (ii)
if the Preferred Stock is subject to
Mandatory Conversion prior to __________,
1998 [two years from the date of this
Prospectus], the exercise period of the
Warrants will commence on the date of
notice of the Mandatory Conversion. See
"Description of Securities."
Redemption....................... The Warrants are redeemable, with the
prior consent of the Underwriter, at any
time commencing on __________, 1997 [one
year from the date of this Prospectus],
upon notice of not less than 30 days, at
a price of $.10 per Warrant, provided
that the last sale price of the Preferred
Stock has been equal to or greater
than $8.00 per share, subject to
adjustment, for 20 consecutive trading
days prior to the notice of redemption.
See "Description of Securities."
- 3 -
<PAGE>
Use of Proceeds...................... Expand contract capabilities by
increasing personnel and computer-related
equipment, expand foreign marketing and
licensing activities, research and
development for new and existing
products, purchase or lease new office
space, repayment of debt and interest and
working capital. See "Use of Proceeds."
Risk Factors......................... This offering involves a high degree of
risk. Prospective investors should
carefully consider the risk factors set
forth under "Risk Factors."
Proposed Nasdaq Symbols(2)
Preferred Stock................... EFTAP
Warrants.......................... EFTAW
Common Stock...................... EFTA
- ------------
(1) Assumes no conversion of the Preferred Stock or certain outstanding
convertible debt (which debt is convertible into a maximum of 59,524
shares of Common Stock) or exercise of outstanding options to purchase
250,648 shares of Common Stock and outstanding warrants to purchase
100,000 shares of Common Stock.
(2) Quotation on The Nasdaq SmallCap Market does not imply that a meaningful
sustained market for the Preferred Stock and the Warrants will develop.
Selected Consolidated Financial Data
(In thousands, except per share amounts)
Statement of Operations Data:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended April 30, Quarter Ended July 31,
-------------------- ----------------------------
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Total revenues $2,441 $2,041 $609 $285
- -----------------------------------------------------------------------------------------------------------------
Cost of revenues and services 505 346 127 63
- -----------------------------------------------------------------------------------------------------------------
Operating expenses 1,934 1,857 451 460
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from operations 2 (162) 31 (238)
- -----------------------------------------------------------------------------------------------------------------
Other income (expense) (50) (44) (11) (14)
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item (48) (206) 20 (252)
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary
item (48) (206) 20 (252)
- -----------------------------------------------------------------------------------------------------------------
Extraordinary item - gain on debt
restructuring and extinguishments ---- 378 ---- ----
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) (48) 172 20 (252)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $(.05) $.18 $.02 $(.24)
- -----------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 1,002 953 1,035 993
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- 4 -
<PAGE>
Balance Sheet Data:
July 31, 1996
--------------------------------
(Unaudited)
- -------------------------------------------------------------------------------
Actual As Adjusted(1)
---------- -----------------
- -------------------------------------------------------------------------------
Working capital (deficit) $(757) $4,301
- -------------------------------------------------------------------------------
Total assets 1,278 5,759
- -------------------------------------------------------------------------------
Total long-term debt 444 444
- -------------------------------------------------------------------------------
Total stockholders' equity (deficit) (671) 4,387
- -------------------------------------------------------------------------------
(1) As adjusted to effect to the sale of 1,200,000 shares of Preferred Stock
and 1,700,000 Warrants offered hereby and the application of the net
proceeds therefrom (assuming initial public offering prices of $5.00 per
share of Preferred Stock and $.10 per Warrant), including the repayment of
$500,000 in indebtedness incurred in September 1996 (the "Bridge
Financing"). See "Use of Proceeds," "Capitalization" and "Certain
Transactions."
- 5 -
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative and should be purchased
only by persons who can afford to lose their entire investment in the Company.
Each prospective investor should carefully consider the following risk factors,
as well as all other information set forth elsewhere in this Prospectus.
This Prospectus contains certain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the factors set forth below and elsewhere in this
Prospectus, including, but not limited to, the success of the Visa pilot
programs, the development of the capacity to accommodate additional and larger
contracts, establishing the ability of TPII software products to process
transactions for larger EFT Systems, acceptance of TPII software products by a
significant number of new customers and the Company's continued relationship
with computer manufacturers.
Operating Losses; Going Concern Uncertainty
Although the Company had net income of approximately $20,100 for
its fiscal quarter ended July 31, 1996, the Company incurred a net loss of
$48,380 for its fiscal year ended April 30, 1996 and a loss before
extraordinary item of $205,472 for its fiscal year ended April 30, 1995. As of
July 31, 1996, the Company had a shareholder's deficit of $670,648 and a
working capital deficit of $756,975. The Company's auditors, in their report
regarding the Company's financial statements as of April 30, 1996, indicated
that, since the Company had a working capital deficiency and a shareholders'
deficit as of April 30, 1996, substantial doubt exists as to the Company's
ability to continue as a going concern. There can be no assurance as to the
future profitability of the Company. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Reliance on TPII Family of Software Products
The Company derived approximately 90%, 96% and 97% of its total
revenues for the fiscal years ended April 30, 1995 and 1996, and the fiscal
quarter ended July 31, 1996, respectively, from the licensing of its TPII
family of software products and services related to those products. The TPII
software products and related services are expected to provide the substantial
majority of the Company's revenues in the forseeable future. The Company's
results will depend upon continued market acceptance of its TPII software
products and related services as well as the Company's ability to continue to
adapt and configure its TPII software products to meet the changing needs of
its customers. Any reduction in demand for TPII software products would have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
- 6 -
<PAGE>
Dependence on Revenues From Foreign Sources
The Company derived approximately 91%, 82% and 63% of its total
revenues for the fiscal years ended April 30, 1995 and 1996, and the fiscal
quarter ended July 31, l996, respectively, from the licensing of TPII software
products to customers outside the United States. Foreign revenues generally
are subject to certain risks, including collection of accounts receivable,
compliance with foreign regulatory requirements, variability of foreign
economic conditions and changing restrictions imposed by United States export
laws. To date, all foreign customers have paid the Company in United States
currency, but if future customers pay in foreign currencies, the Company would
be subject to fluctuations in exchange rates. There can be no assurance that
the Company will be able to manage the risks related to licensing its TPII
software products and selling its services in foreign markets. See "Business -
Marketing and Customers."
Dependence on EFT Market
The TPII software products are solely for installation in the EFT
market, making the Company susceptible to adverse events in that market. For
example, a decrease in the number of EFT transactions by the general public or
in spending by financial institutions for software and related services could
result in a smaller overall market for EFT software. These factors, as well as
others negatively affecting the EFT market, could have a material adverse effect
on the Company's financial condition and results of operations. See "Business -
The EFT Market."
Possible Need for Additional Financing
The Company believes that the proceeds of this offering, together
with anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 24 months
following the completion of this offering. However, since a portion of the
license fee for TPII software products is not paid until acceptance by the
customer and, as a result, the Company is required to fund a portion of the
costs of configuration and installation of such products from available
capital, any substantial increase in the number of installations or delay in
payment could create a need for additional financing. In such event, there can
be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Underwriter's consent is required
before the Company may complete certain types of financing. The obligation to
obtain such consent may limit the Company's ability to complete such
financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Underwriting."
Dependence on Relationships With Computer Manufacturers
In 1994, the Company entered into a strategic alliance with Digital
Equipment International BV ("DEC"), pursuant to which such computer
manufacturer agreed to market on a nonexclusive basis TPII software products
in connection with DEC's world-wide sale of its computers for EFT Systems. In
connection with DEC's sale of computers for EFT Systems, DEC, rather than the
financial institutions, is generally the licensee of the Company's TPII
software products. For the fiscal years ended April 30, 1995 and 1996 and the
fiscal quarter ended July 31, 1996, approximately 19%, 14% and 31%,
respectively, of the Company's total revenues were derived pursuant to this
relationship. The Company is, therefore, dependent upon this relationship and
would be adversely affected by the loss of such relationship. The Company has
a similar agreement with Unisys World Trade, Inc. ("Unisys") for Europe and
Africa, but as of the date hereof, the Company has not derived any revenues
pursuant to its relationship with Unisys. In addition, pursuant to an informal
arrangement with IBM Thailand Company Limited ("IBM Thailand"), the Company
licensed its TPII software products, through IBM Thailand, to two Asian
financial institutions utilizing International Business Machine Corporation
("IBM") computers for their EFT Systems. Revenues from such licenses
represented approximately 19% of the Company's total revenues during the
fiscal year ended April 30, 1996. The Company is currently seeking to enter
into alliances with additional computer manufacturers. See "Business -
Marketing and Customers."
- 7 -
<PAGE>
Growth Dependent on Expanding Customer Base
Approximately 72% of the Company's software revenues for the fiscal
year ended April 30, 1996 were derived from the licensing of its TPII software
products to new customers at a fixed price. Although the Company will receive
additional revenues from such licenses as a result of providing ongoing
maintenance services in support of its licensed TPII software and may receive
additional revenues for enhancements of the TPII software products, the
Company generally will not receive significant license revenues in a
subsequent period from these customers. Since the Company does not usually
generate repeat business from its customers, the Company will be required to
continually attract new customers in order to increase revenues in the future.
As a result, the Company will incur the higher marketing expenses generally
associated with attracting new customers as compared to marketing expenses
associated with attracting additional business from existing customers.
Moreover, the Company's inability to generate additional business upon
completion of its existing contracts would also have a material adverse effect
on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business -- Marketing and Customers."
Fluctuations in Quarterly Revenues and Operating Results
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. The Company can experience long
delays (i.e., between three to twelve months) before a customer executes a
software licensing agreement. These delays are primarily due to extended
periods of software evaluation, contract review and the selection of the
computer system. In addition, following execution of the agreement, the
preparation of functional specifications, customization and installation of
TPII software products and the training by the Company of the financial
institution's personnel in the use of the TPII software products take an
average of six to twelve months, depending upon the timing of installation and
final acceptance of the EFT System by the customer. Accordingly, the Company's
revenues may fluctuate dramatically from one quarter to another, making
quarterly comparisons extremely difficult and not necessarily indicative of
any trend or pattern for the year as a whole. Additional factors effecting
quarterly results include the timing of revenue recognition of advance
payments of license fees, the timing of the hiring or loss of personnel,
capital expenditures, operating expenses and other costs relating to the
expansion of operations, general economic conditions and acceptance and use of
EFT. See "Selected Financial Data" and "Management's Discussion and Analysis
of Results of Operations and Financial Conditions."
Attraction and Retention of Key Personnel
The Company's success depends on Frank Pascuito and Charles
Caserta, its Chief Executive Officer and President, respectively, the loss of
either of whom could have a material adverse effect on the Company's financial
condition and results of operations. Each of these officers will be insured
under key person term life policies in the amount of $1,000,000 upon the
completion of this offering. Although these officers will be parties to
employment agreements, upon the completion of this offering, the loss of
either of these individuals will have an adverse effect upon the Company. The
Company believes that its future success also depends on its ability to
attract and retain highly-skilled technical, managerial and marketing
personnel, including, in particular, additional personnel in the areas of
research and development, technical support and project management.
Competition for personnel is intense. There can be no assurance that the
Company will be successful in attracting and retaining the personnel it
requires. See "Management."
- 8 -
<PAGE>
Competition
The market for EFT software is highly competitive. The Company's
TPII software products face strong competition from proprietary (legacy) and
UNIX-based software. In the international EFT market, well established
worldwide competition includes Transaction Systems Architects, Inc., Deluxe
Data Systems, Inc., SDM International, Inc., S2 Systems, Inc., a subsidiary of
Stratus Computer, Inc. ("Stratus"), SLM Software, Inc., Consolidated Software
and Oasis Systems, whose products run on Tandem Computers Incorporated
("Tandem") or Stratus fault-tolerant computers with proprietary operating
systems or on IBM host or industry standard computers with UNIX operating
systems. In addition, third party companies provide services for processing
EFT transactions, which eliminate the need for a financial institution to
purchase the Company's software products. Most of the Company's current and
potential competitors have significantly greater financial, marketing,
technical and other competitive resources than the Company. However, the
Company believes its TPII software products will continue to be competitive
based on cost and technology. See "Business - Competition."
Technological Change
The market for software in general is characterized by rapid
changes in computer and software technology and is highly competitive with
respect to the need for timely product innovation and new product
introductions. If, for example, the UNIX operating system were no longer a
significant operating system, the Company would be adversely affected if it
could not adapt its TPII software products to whatever operating system
becomes dominant. The Company believes that its future success, of which there
can be no assurance, depends upon its success in enhancing the performance of
its current TPII software products, such as the ability to handle higher
volumes of card transactions and the adaptation of its software products to
smart card technology, and develop new software products that address the
increasingly complex needs of customers. See "Business-Software Development
and Future Products."
Dependence on Proprietary Technology
The Company relies on a combination of trade secret and copyright
laws, nondisclosure and other contractual and technical measures to protect its
proprietary rights in its software products. There can be no assurance that
these provisions will be adequate to protect its proprietary rights. In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States. Although
the Company believes that its intellectual property rights do not infringe upon
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company. See "Business -
Proprietary Rights."
Broad Discretion in Use of Proceeds
Approximately 32% of the net proceeds of this offering will be
applied to working capital. In addition, the application of the balance of the
proceeds may differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business
operations or unanticipated complications, delays and expenses. According,
management of the Company will have broad discretion over the use of proceeds.
Lack of Market; Arbitrary Determination of Offering Price; Possible
Volatility of Stock Price
Prior to this offering, there has been no public market for the
Preferred Stock or Warrants, and only a very limited market for the Common
Stock. The Company intends to apply for listing of the Preferred Stock, Warrants
and Common Stock on The Nasdaq SmallCap Market effective upon commencement of
this offering. Nevertheless, there can be no assurance that an active market in
any securities of the Company will develop or be sustained after this offering.
In the absence of an active public trading market, an investor may be unable to
liquidate his or her investment. The initial public offering prices and other
terms of the Preferred Stock and Warrants were determined by negotiations
between the Company and the Underwriter and are not necessarily related to the
Company's assets, earnings, book value per share, its results of operations or
any other generally accepted criteria of value and should not be construed as
indicative of their value. See "Underwriting."
- 9 -
<PAGE>
There has been volatility in the market price of securities of
technology companies. Future announcements concerning the Company or its
competitors, including variations in financial results, changes in general
market conditions, governmental regulations or other developments may have a
significant impact on the market price of each of the Company's securities and
could cause the market price of each of the Company's securities to fluctuate
significantly. In addition, broad market fluctuations and general economic or
political conditions may adversely affect the market price of each of the
Company's securities, regardless of the Company's actual performance.
Shares Eligible for Future Sale
Upon completion of this offering, the Company will have
outstanding an aggregate of 1,200,000 shares of Preferred Stock and 1,059,730
shares of Common Stock. All of the shares of Preferred Stock and 583,318
shares of Common Stock will be freely tradable without restriction or further
registration under the Securities Act. Of the remaining 476,412 shares of
Common Stock outstanding as of September 30, 1996, 385,936 shares were
"restricted" shares that were owned by "affiliates" of the Company as such
terms are defined under the Securities Act and 87,476 shares were "restricted"
shares that were` owned by nonaffiliates of the Company. Absent registration
under the Securities Act, the sale of such shares of Common Stock is subject
to Rule 144, as promulgated under the Securities Act. In general, under Rule
144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
shares of Common Stock for at least two years is entitled to sell in brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on The Nasdaq Stock Market or a stock
exchange, the average weekly trading volume during the four calendar weeks
preceding the sale. No prediction can be made as to the effect, if any, that
sales of shares of Common Stock or the availability of such shares for sale
will have on the market prices of the Company's securities prevailing from
time to time. The possibility that substantial amounts of Common Stock may be
sold under Rule 144 into the public market may adversely affect prevailing
market prices for the Preferred Stock and the Warrants and could impair the
Company's ability to raise capital in the future through the sale of equity
securities. See "Shares Eligible for Future Sale."
Dilutive Effect of Options, Warrants and Convertible Securities
Upon completion of this offering, the Company will sell to the
Underwriter warrants to purchase up to 120,000 shares of Preferred Stock and
up to 170,000 Warrants. The Underwriter's Warrants will be exercisable at any
time during the four-year period commencing one year from the date of this
Prospectus. In addition, as of September 30, 1996, there were (i) options and
warrants outstanding to purchase an aggregate of 350,648 shares of Common
Stock, with exercise prices ranging from $.66 to $2.50 per share and which
will expire on various dates through 2003 and (ii) certain outstanding debt
convertible into a maximum of 59,524 shares of Common Stock. If the
Underwriter's Warrants and the outstanding options and warrants are exercised
and the outstanding debt is converted, the percentage of capital stock then
held by the existing stockholders will be reduced. Furthermore, the
Underwriter's Warrants and the outstanding options and warrants can be
expected to be exercised at a time when the Company would be able to obtain
funds from the sale of Preferred Stock, Common Stock or other securities at a
price higher than the exercise prices thereof. See "Description of Securities"
and "Underwriting."
- 10 -
<PAGE>
The Nasdaq SmallCap Market Eligibility and Maintenance Requirements; Possible
Delisting of Securities from The Nasdaq SmallCap Market; Risks of
Low-Priced Stocks
The Company intends to apply for listing of the Preferred Stock,
Warrants and Common Stock on The Nasdaq SmallCap Market. The Commission has
approved rules imposing criteria for listing of securities on The Nasdaq
SmallCap Market, including standards for maintenance of such listing. For
continued listing, a company, among other things, must have at least $2,000,000
in total assets and $1,000,000 in capital and surplus, and the listed security
must have a minimum bid price of $1.00 per share.
In the event that the Company is unable to satisfy the maintenance
requirements and its securities are subsequently delisted from The Nasdaq
SmallCap Market, trading of the Preferred Stock, Warrants and Common Stock would
be conducted on the NASD's OTC Bulletin Board or in the "pink sheets." In the
absence of the Preferred Stock or Common Stock being quoted on The Nasdaq
SmallCap Market, or the Company having at least $2,000,000 in stockholders'
equity, trading in the Preferred Stock, Warrants and Common Stock would be
covered by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), for non-Nasdaq and non-exchange listed securities.
Under such rule, broker-dealers who recommend "penny stocks" to persons other
than established customers and institutional accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. The Commission
defines a "penny stock" to be any equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such exceptions
include an equity security listed on The Nasdaq Stock Market, or an equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average revenue of at
least $6,000,000 for the preceding three years.
If the Company's securities were to become subject to the
regulations applicable to penny stocks, the market liquidity for the securities
would be severely affected, limiting the ability of broker-dealers to sell the
securities and the ability of purchasers in this offering to sell their
securities in the secondary market. There is no assurance that trading in the
Company's securities will not be subject to these or other regulations that
would adversely affect the market for such securities.
Need for Current Prospectus; Non-Registration in Certain Jurisdictions of
Shares Underlying the Warrants
The Warrants are being registered pursuant to a Registration
Statement filed with the Commission under the Securities Act, of which this
Prospectus is a part. The Warrants may be exercised and their underlying
shares of Preferred Stock may be sold in any public market that may develop
for the securities commencing two years after the date hereof or earlier upon
the occurrence of certain events, but only during the period in which a
current prospectus covering such shares is in effect. Accordingly, unless the
Registration Statement is kept current by the Company and measures to qualify
or keep qualified such securities in certain states are taken, investors
holding the Warrants will not be able to exercise the Warrants or sell the
underlying shares of Preferred Stock issuable upon exercise of the Warrants in
the public market. The Company has agreed to use its reasonable best efforts
to qualify and maintain a current registration statement covering such shares
of Preferred Stock during the term of the Warrants. There can be no assurance,
however, that the Company will be able to maintain a current registration
statement.
- 11 -
<PAGE>
Furthermore, although the Warrants will not knowingly be sold to purchasers in
jurisdictions in which they are not registered or otherwise qualified for sale,
purchasers may buy Warrants in the aftermarket or may move to jurisdictions in
which the shares of Preferred Stock issuable upon exercise of the Warrants are
not so registered or qualified during the period that the Warrants are
exercisable. In such event, the Company would be unable to issue shares to those
persons desiring to exercise their Warrants unless and until the shares could be
registered or qualified for sale in the jurisdiction in which such purchasers
reside, or an exemption to such qualification exists or is granted in such
jurisdiction. No assurance can be given as to the ability of the Company to
effect any required registration or qualification of the Preferred Stock in any
jurisdiction in which registration or qualification has not already been
completed. If the Company is unable to register or qualify the shares in a
particular state and no exemption to such registration or qualification was
available in such jurisdiction, in order to realize any economic benefit from
the purchase of the Warrants, a holder might have to sell the Warrants rather
than exercising them. See "Description of Securities - Warrants."
Potential Adverse Effect of Redemption of Warrants
The Warrants offered hereby are redeemable, in whole or in part, at
a price of $.10 per Warrant, commencing one year after the date of this
Prospectus and prior to their expiration; provided that (i) prior notice of not
less than 30 days is given to the warrantholders; (ii) the last sale price of
the Preferred Stock on each of the 20 consecutive days of trading of the
Preferred Stock ending on the third business day prior to the date on which the
Company gives notice of redemption has been at least $8.00 per share; and (iii)
warrantholders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. Notice of redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for them to do so, or to sell the Warrants
at the current market price when they might otherwise wish to hold them, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act
covering the underlying shares of Preferred Stock is current and such shares
have been qualified for sale, or there is an exemption from applicable
qualification requirements, under the securities laws of the of the state of
residence of the holder of the Warrants. Although the Company does not presently
intend to do so, the Company reserves the right to call the Warrants for
redemption whether or not a current prospectus is in effect or such underlying
shares are not, or cannot be, registered in the applicable states. Such
restrictions could have the effect of preventing certain warrantholders from
liquidating their Warrants. See "Description of Securities - Warrants."
Underwriter's Influence on the Market
A significant number of shares of Preferred Stock and Warrants
offered hereby may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although it has no obligation to do
so, the Underwriter intends to engage in market-making activities or solicited
brokers activities with respect to the purchase or sale of Preferred Stock and
Warrants in The Nasdaq SmallCap Market or other over-the-counter market where
such securities will trade. However, no assurance can be given that the
Underwriter will continue to participate as a market maker in the securities of
the Company or that other broker/dealers will make a market in such securities.
The Underwriter also has the right to act as the Company's exclusive agent in
connection with any future solicitation of warrantholders to exercise their
- 12 -
<PAGE>
Warrants. Unless granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Underwriter will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during a period prior to the commencement of any such
solicitation and ending on the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Underwriter may have to receive a fee for the exercise of the Warrants following
such solicitation. As a result, the Underwriter and soliciting broker/dealers
may be unable to continue to make a market in the Company's securities during
certain periods while the exercise of the Warrants is being solicited. Such a
limitation, while in effect, could impair the liquidity and market price of the
Company's securities. See "Underwriting."
Underwriter's Limited Underwriting Experience; Pending Investigation
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only three public offerings.
Accordingly, there can be no assurance that the Underwriter's limited public
offering experience will not affect the Company's offering of the Preferred
Stock and Warrants and subsequent development of a trading market, if any, in
such securities. In addition, the Underwriter is aware that the Commission is
investigating certain of the Underwriter's trading practices and mark-ups in
connection with the securities of an issuer whose 1995 public offering was
underwritten by the Underwriter. There can be no assurance that this
investigation will not adversely and materially affect this offering or
subsequent trading in the Preferred Stock, Warrants and/or Common Stock of the
Company. See "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Preferred
Stock and Warrants in this offering (assuming initial public offering prices
of $5.00 per share of Preferred Stock and $.10 per Warrant) are estimated to
be approximately $5,053,000 ($5,858,185 if the over-allotment option is
exercised in full), after deducting the estimated underwriting discounts and
offering expenses payable by the Company. The Company intends to use the
proceeds as follows:
Purpose Amount Percentage of Net Proceeds
------- ------ --------------------------
Expand contract capabilities by
increasing personnel and computer-
related equipment $900,000 18%
Expand foreign marketing and
licensing activities, including
hiring of personnel and increasing
advertising and public relations 750,000 15%
Research and development for new
and existing products 600,000 12%
Purchase or lease new office space 600,000 12%
Repayment of debt and interest(1) 572,000 11%
Working capital (2) 1,631,000 32%
--------- ---
TOTAL 5,053,000 100%
========= ===========
- 13 -
<PAGE>
- ----------
(1) Represents repayment of (i) approximately $47,000 of deferred principal and
interest payable to the North Greenbush Industrial Development Agency
(the "NG Loan"), (ii) approximately $12,000 of deferred interest payable
to the New York State Science and Technology Foundation (the "Technology
Loan") and (iii) $500,000 principal amount and approximately $13,000 of
accrued interest payable to unrelated third parties (the "Notes"). The NG
Loan, the principal amount of which is $220,000, was originally made in
January 1989, bears interest at 7 1/2% per annum and is payable in
monthly installments of approximately $3,800 between May 1996 and April
2002. The Technology Loan, the principal amount of which is $250,000, was
originally made in July 1989, bears interest at 7 1/2% and is payable in
installments of $80,000, $80,000 and $90,000 in April 1998, April 1999
and April 2000, respectively. The Notes were issued in September 1996,
bear interest at 12% per annum and are due on the earlier of (i) the
closing of this offering or (ii) March 24, 1998. The proceeds of the
Notes were used by the Company for working capital and general corporate
purposes. See "Certain Transactions."
(2) If all or any portion of the over-allotment option is exercised, the net
proceeds therefrom will be used for working capital.
The foregoing represents the Company's estimate of the allocation
of the net proceeds of this offering, based upon the current status of its
operations and anticipated business plans. It is possible, however, that the
application of funds will differ considerably from the estimates set forth
herein due to changes in the economic climate and/or the Company's planned
business operations or unanticipated complications, delays and expenses. Any
reallocation of the net proceeds will be at the discretion of the Board of
Directors of the Company.
Pending the foregoing uses, a portion of the net proceeds of this
offering may be invested in certificates of deposit, United States government
obligations, prime commercial paper, money market funds or similar short-term
investments.
The Company believes that the proceeds of this offering, together
with anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 24 months
following the completion of this offering. However, since a portion of the
license fee for TPII software products is not paid until acceptance by the
customer and, as a result, the Company is required to fund a portion of the
costs of configuration and installation of such products from available
capital, any substantial increase in the number of installations or delay in
payment could create a need for additional financing. In such event, there can
be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Underwriter's consent is required
before the Company may complete certain types of financing. The obligation to
obtain such consent may limit the Company's ability to complete such
financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Underwriting."
- 14 -
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently quoted on the OTC Bulletin
Board under the symbol IFSN. The Common Stock is traded, if at all, on a
sporadic basis; therefore, the prices quoted below are not necessarily
indicative of market value. The following table, which is restated to reflect a
1-for-10 reverse split of the Common Stock effectuated on November __, 1996,
sets forth the range of the high and low bid quotations of the Common Stock on
the OTC Bulletin Board for the periods indicated.
Quarter Ended High* Low*
- ------------- ---- ---
July 31, 1994 $1.50 $ .90
October 31, 1994 $1.50 $ .90
January 31, 1995 $1.50 $ .90
April 30, 1995 $1.50 $ .90
July 31, 1995 $1.50 $1.50
October 31, 1995 $1.50 $1.50
January 31, 1996 $1.90 $1.50
April 30, 1996 $6.30 $1.90
July 31, 1996 $7.50 $2.50
- -----------
* The source of such quotations is the Capital District Business Review.
On October 22, 1996, the closing bid price of the Common Stock was
$4.38. The above quotations reflect inter-dealer prices, without mark-up,
mark-down or commission, and may not represent actual transactions.
As of September 30, 1996, there were approximately 700
recordholders of the Common Stock.
DIVIDEND POLICY
The Company plans to retain any future earnings for use in its
business and, accordingly, the Company does not anticipate paying dividends on
its Common Stock and Preferred Stock in the foreseeable future. The payment of
any dividends on the Common Stock and Preferred Stock will be in the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations, financial condition, capital requirements,
contractual restrictions and other factors deemed relevant by the Board of
Directors.
- 15 -
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company
(i) at July 31, 1996 after giving retroactive effect to the sale of $500,000
principal amount of the Company's 12% Notes and warrants to purchase 100,000
shares of Common Stock in September 1996 (the "Bridge Financing") and (ii) as
adjusted to reflect the sale of the 1,200,000 shares of Preferred Stock and
1,700,000 Warrants offered hereby, and the application of the estimated net
proceeds therefrom (assuming initial public offering prices of $5.00 per
share of Preferred Stock and $.10 per Warrant). See "Use of Proceeds." This
section should be read in conjunction with the Company's Consolidated
Financial Statements and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
July 31, 1996
----------------------------------
Pro Forma As Adjusted
<S> <C> <C>
Total short-term debt, including current maturities
of long term debt....................................................... $546,004 $7,934
----------- ------------
Total long-term debt, less current maturities.............................. 444,447 444,447
----------- ------------
Shareholders' equity (deficit):
Preferred Stock, $.001 par value; 25,000,000 shares authorized;
none issued or outstanding; 1,200,000 shares of Series A Convertible
Preferred Stock issued and outstanding as adjusted(1)............... $ 0 $1,200
Common Stock, $.001 par value; 25,000,000 shares authorized; 1,059,730
shares issued and outstanding; 1,059,730 shares issued and
outstanding as adjusted(2).......................................... 1,060 1,060
Additional paid-in capital............................................. 2,219,598 7,271,398
Accumulated deficit.................................................... (2,886,306) ($2,886,306)
----------- ------------
Total shareholders' equity (deficit).................................. $ (665,648) $ 4,387,352
========== ============
</TABLE>
- ------
(1) Does not include (i) 1,700,000 shares of Preferred Stock issuable upon
exercise of the Warrants, (ii) 120,000 shares of Preferred Stock issuable
upon exercise of the Underwriter's Warrants and (iii) 170,000 shares of
Preferred Stock issuable upon exercise of the Warrants that are issuable
upon exercise of the Underwriter's Warrants.
(2) Does not include (i) 3,625,000 shares of Common Stock issuable upon
conversion of the Preferred Stock, including the Preferred Stock issuable
upon exercise of Warrants and the Underwriter's Warrants, (ii) 100,000
shares of Common Stock issuable upon exercise of the warrants sold in the
Bridge Financing, (iii) 250,648 shares of Common Stock issuable upon
exercise of outstanding stock options and (iv) a maximum of 59,524 shares
of Common Stock issuable upon conversion of certain outstanding debt.
- 16 -
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data below have been derived
from the Company's Consolidated Financial Statements. The selected
consolidated financial data as of April 30, 1996 and for the fiscal years
ended April 30, 1996 and 1995 have been derived from the audited consolidated
financial statements included herein. Selected consolidated financial data as
of April 30, 1995 have been derived from other audited consolidated financial
statements. The selected historical financial data for the fiscal quarter
ended July 31, 1996 and 1995 and as of July 31, 1996 are derived from the
Company's unaudited consolidated financial statements included elsewhere
herein and, in the opinion of management, include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation. The
results of operations for the fiscal quarter ended July 31, 1996 are not
necessarily indicative of the Company's results of operations to be expected
for the full year. This financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and notes thereto
appearing elsewhere herein.
Selected Consolidated Financial Data
(In thousands, except per share amounts)
Statement of Operations Data:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended April 30, Quarter Ended July 31,
-------------------- ----------------------
(unaudited)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Total revenues $2,441 $2,041 $609 $285
- ------------------------------------------------------------------------------------------------------------------
Cost of
revenues and services 505 346 127 63
- ------------------------------------------------------------------------------------------------------------------
Operating expenses 1,934 1,857 451 460
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from
operations 2 (162) 31 (238)
- ------------------------------------------------------------------------------------------------------------------
Other income (expense) (50) (44) (11) (14)
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes and
extraordinary item (48) (206) 20 (252)
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (48) (206) 20 (252)
- ------------------------------------------------------------------------------------------------------------------
Extraordinary item -
gain on debt
restructuring and
extinguishments ---- 378 ---- ----
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) (48) 172 20 (252)
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per
common share $(.05) $.18 $.02 $(.24)
- ------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding 1,002 953 1,035 993
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- 17 -
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
April 30,
----------------------------------------
1995 1996 July 31, 1996
-------- --------- ----------------------
(unaudited)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Working capital (deficit) (700) (798) (757)
- -------------------------------------------------------------------------------------------------------------------
Total assets 1,222 1,307 1,278
- -------------------------------------------------------------------------------------------------------------------
Total long-term debt 635 452 444
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (832) (728) (671)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- 18 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company is engaged in the business of developing, marketing,
and supporting software for the EFT market. Substantially all of the Company's
revenues have resulted from the licensing of its family of TPII software
products. The preparation of functional specifications, customization and
installation of TPII software products and the training by the Company of the
financial institution's personnel in the use of the TPII software products
take an average of six to twelve months, depending upon the timing of
installation and final acceptance of the EFT System by the customer. The
customer pays 30% to 50% of the licensing fees upon execution of the licensing
agreement and also makes progress payments prior to acceptance. The Company
recognizes revenue under the percentage of completion method for software
installation contracts. The percentage of completion method is measured by
estimates of the progress towards completion as determined by costs incurred.
The Company also derives recurrent revenues from furnishing certain
maintenance services to its customers for the TPII software and may also
receive additional revenues for additional training of customer personnel and
consulting services (collectively "service revenues"). With respect to
revenues for maintenance services, the Company generally receives annual
payments at the beginning of the contract year. Such payments are reflected as
deferred revenues and are recognized ratably during such year.
The Company entered into an agreement with Visa in July
1996 for the licensing and installation of its TPII smart card software in
connection with the operation of up to seven pilot programs. The license for
each pilot program is for a term of 24 months commencing on the date such
pilot program goes on-line. As of the date hereof, Visa has selected financial
institutions in various countries to conduct five of the pilot programs.
Revenues from the licensing of the TPII smart card software will be recognized
in the same manner as revenues from the licensing of the other TPII software
products.
Results of Operations
Fiscal Quarter Ended July 31, 1996 Compared
with Fiscal Quarter Ended July 31, 1995
Total revenues of $609,252 for the fiscal quarter ended July 31,
1996 represent an increase of $324,236, or 113.8%, over total revenues of
$285,016 for the fiscal quarter ended July 31, 1995. This increase in total
revenues resulted primarily from a substantial increase in licensing of TPII
software products. Revenues from the licensing of TPII software products were
$483,876 for the fiscal quarter ended July 31, 1996, as compared to $198,228
for the fiscal quarter ended July 31, 1995. Service revenues for the fiscal
quarter ended July 31, 1996 increased by $39,298, or 49.0%, over service
revenues for the fiscal quarter ended July 31, 1995. As of July 31, 1996, the
Company had approximately $199,000 of deferred maintenance service revenues.
Service revenue growth is expected to continue as long as the number of
licenses for TPII software products increases and the customers continue to
utilize such software products.
Revenues from licensing of TPII software products in countries
outside the United States accounted for 63% of total revenues for the fiscal
quarter ended July 31, 1996 as compared to 87% for fiscal quarter ended July
31, 1995. The decline as a percentage of total revenues resulted primarily
from an increase in domestic software revenues. The Company expects total
revenues from foreign countries to continue to be a significant portion of its
revenues in the future.
- 19 -
<PAGE>
Gross profit, as expressed as a percentage of total revenues,
increased to 79.2% for the fiscal quarter ended July 31, 1996, as compared to
78.0% for the fiscal quarter ended July 31, 1995. This increase is primarily
associated with decreased development costs related to TPII software licensing
agreements.
Operating expenses of $451,611 for the fiscal quarter ended July
31, 1996 represent a slight decrease of $8,839, or 1.9%, from operating
expenses of $460,450 for the fiscal quarter ended July 31, 1995. This decrease
in operating expenses resulted primarily from the reduction in foreign
marketing costs. However, the Company expects that operating expenses will
increase following completion of this offering as a result of the planned
addition of new personnel in anticipation of new business relating to the
licensing of TPII software products, including the TPII smart card software.
Capitalized software costs for the fiscal quarter ended July 31, 1996
were $68,563, as compared to $49,088 for the fiscal quarter ended July 31, 1995.
Such capitalized costs are being amortized on a straight line basis over the
estimated five year marketing lives of the software.
Net income was $20,092 for the fiscal quarter ended July 31, 1996, as
compared to a net loss of $251,613 for the fiscal quarter ended July 31, 1995
primarily as a result of substantially increased licensing of TPII software
products and increased service revenues.
Fiscal Year Ended April 30, 1996 Compared
to Fiscal Year Ended April 30, 1995
Total revenues of $2,440,783 for the fiscal year ended April 30, 1996
represent an increase of $399,526, or 19.6%, over total revenues of $2,041,257
for the fiscal year ended April 30, 1995. This increase in total revenues
resulted primarily from increased licensing of TPII software products. Revenues
from the licensing of TPII software products were $1,955,657 for the fiscal year
ended April 30, 1996, as compared to $1,638,004 for the fiscal year ended April
30, 1995, representing an increase of $317,653, or 19.4%.
Revenues from licensing of software in countries outside the United
States accounted for 82% of total revenues for the fiscal year ended April 30,
1996 as compared to 91% for the fiscal year ended April 30, 1995 primarily
because of an increase in software revenues resulting from licensing
agreements with Standard Federal Bank and Lockheed Federal Credit Union, each
a United States financial institution. However, the Company expects total
revenues from foreign countries to continue to be a significant portion of its
revenues in the future.
Service revenues were $412,743 for the fiscal year ended April 30,
1996, as compared to $280,080 for the fiscal year ended April 30, 1995,
representing an increase of $132,663. The increased service revenues in fiscal
1996 reflects an increase in licensed TPII software products. As of April 30,
1996, the Company had $217,876 in deferred maintenance service revenues.
Operating expenses of $1,933,652 for the fiscal year ended April 30,
1996 represent an increase of $77,023, or 4.1%, over operating expenses of
$1,856,629 for the fiscal year ended April 30, 1995. This increase resulted
primarily from an increase in technical personnel hired in anticipation of
- 20 -
<PAGE>
projected licenses of TPII software products for the fiscal year ended April
30, 1996 (although the actual number of licenses for the year ended April 30,
1996 ultimately proved to be lower than projected). Upon completion of this
offering, the Company intends to increase its technical and marketing
personnel.
The Company incurred a net loss of $48,380 for the fiscal year
ended April 30, 1996 as compared to net income of $172,215 for the fiscal year
ended April 30, 1995. Net income resulted from an extraordinary gain
recognized in connection with debt restructuring and extinguishments (i.e.
debt forgiveness). Without giving effect to the extraordinary gain, the
Company incurred an operating loss of $205,472 for the fiscal year ended April
30, 1995.
The Company had net operating loss carryforwards of approximately
$2,400,000 as of April 30, 1996. As a result of this offering, the use of such
net operating loss carryforwards as an offset against future taxable income
in any particular year will be significantly limited.
Liquidity and Capital Resources
The Company's primary source of funds has been operating revenue.
Although total revenues increased for the fiscal year ended April 30, 1996 by
approximately 19.6%, the Company's working capital deficit increased to
$798,225 as of April 30, 1996 from $700,196 as of April 30, 1995. As a result,
the Company was not able to meet scheduled interest payments on its
outstanding debt during fiscal 1996 nor pay its trade creditors on a current
basis. However, as a result of increased software and service revenues for the
fiscal quarter ended July 31, 1996, the Company's net working capital deficit
as of July 31, 1996 decreased to $756,975. In addition, the Company obtained
approximately $500,000 from the Bridge Financing. The Company believes that
anticipated revenues from operations for the fiscal year ending April 30,
1997, as well as proceeds from the Bridge Financing, will be sufficient to
meet current debt service requirements and operating costs of the Company
through April 30, 1997. Nevertheless, the Company will require additional
working capital in order to implement its plans to solicit and perform new
business. The Company also believes an improved working capital position also
is necessary to attract potential customers who are reluctant to do business
with firms they perceive to be undercapitalized.
The Company believes that the proceeds of this offering, together
with anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 24 months
following the completion of this offering. However, since a portion of the
license fee for TPII software products is not paid until acceptance by the
customer and, as a result, the Company is required to fund a portion of the
costs of configuration and installation of such products from available
capital, any substantial increase in the number of installations or delay in
payment could create a need for additional financing. In such event, there can
be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Underwriter's consent is required
before the Company may complete certain types of financing. The obligation to
obtain such consent may limit the Company's ability to complete such
financing.
A portion of the net proceeds will be used to satisfy past due
amounts under the NG Loan and the Technology Loan and also to repay the Notes.
Quarter to Quarter Sales and Earning Volatility
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. The Company can experience long
delays (i.e., between three to twelve months) before a customer executes a
software licensing agreement. These delays are primarily due to extended
periods of software evaluation, contract review and the selection of the
computer system. In addition following execution of the agreement, the
preparation of functional specifications, customization and installation of
- 21 -
<PAGE>
software products and the training by the Company of the financial
institution's personnel in the use of the TPII software products take an
average of six to twelve months, depending upon the timing of installation and
final acceptance of the EFT System by the customer. Accordingly, the Company's
revenues may fluctuate dramatically from one quarter to another, making
quarterly comparisons extremely difficult and not necessarily indicative of
any trend or pattern for the year as a whole. Additional factors effecting
quarterly results include the timing of revenue recognition of advance payments
of license fees, the timing of the hiring or loss of personnel,
capital expenditures, operating expenses and other costs relating to the
expansion of operations, general economic conditions and acceptance and use of
EFT.
Inflation
The Company has not experienced any meaningful impact on its sales or
costs as the result of inflation.
- 22 -
<PAGE>
BUSINESS
Introduction
The Company is engaged in the business of developing, marketing and
supporting software products for the EFT market. The Company's family of
products, marketed under the name TechNique Plus II ("TPII"), serves as a
UNIX-based manager for EFT Systems. TPII software products are designed to
operate with computers utilizing the UNIX operating system, are written in C
programming language and incorporate Oracle relational database technology and
object oriented design concepts. As a result, TPII software products are
compatible with a significant portion of the industry standard computer
platforms.
An EFT System of a bank or other financial institution processes
transactions involving credit cards and debit cards (e.g., ATM cards). An EFT
System generally consists of one or more of the following in various
configurations: automatic teller machines ("ATMs"), point of sale ("POS")
terminals, a host computer of the financial institution and regional, national
and international Networks, such as CIRRUS, NYCE, MAC or PLUS. TPII software
products primarily route and authorize the processing of transactions through an
EFT System. TPII software can be sold in separate modules which perform
different functions, including (i) interfacing with ATMs, POS terminals, a
financial institution's host computer and Network computers, (ii) updating
credit and debit card information, (iii) providing stand-in authorization for
transactions when the financial institution's host computer is not operating,
(iv) computing fees for transactions processed and (v) generating reports. The
TPII software products are installed generally at the financial institution's
main processing facility.
The Company's primary business objective is to become a leading
world-wide supplier of UNIX-based managers for EFT Systems. To date, the
Company's TPII software products have been primarily installed in EFT Systems
of banks and other financial institutions located in emerging countries and
former Eastern Bloc nations. As of October 31, 1996, thirteen financial
institutions and two Networks were utilizing TPII software products. Certain
of such financial institutions serve up to 200 ATMs and 1,000 POS terminals
and the two Networks serve 22 and 5 financial institutions, respectively. In
addition, agreements have been executed for the installation of TPII software
products in EFT Systems of three additional financial institutions.
EFT Systems
Typically, the completion of a debit card or credit card
transaction or the "loading" of value to a smart card involves several steps
through an EFT System. First, the bank customer or a retailer inserts the
customer's debit, credit or smart card issued by the bank into an ATM, POS
terminal or smart card "load" device thereby requiring authorization of a
transaction. The request is routed to a Network or bank computer for
authorization; the authorization message is then returned to the terminal at
which the transaction was originated and the transaction then is completed.
The whole process is generally accomplished within thirty seconds or less.
Most EFT Systems operate twenty-four hours a day, seven days a week.
The routing and authorization of EFT transactions is a complex
activity due to the large number of locations and variety of devices through
which transactions can be generated, the large number of card issuers in the
market, the high transaction volumes, the geographic dispersion of the
Networks, the differing types of authorization and the varied reporting
requirements. In addition, there are many variations to an EFT System. For
example, ATMs, POS terminals or smart card "load devices" may be connected to
one or several Network computers, in which case transaction authorization can
be processed by the Network computer, with authorization and record
- 23 -
<PAGE>
information transmitted to the bank computer, if appropriate. Many smaller banks
utilize processing firms for all or portion of their transactions or several
banks establish a joint venture to process credit and debit card transactions.
The EFT Market
The EFT market has expanded considerably both domestically and
internationally. In the United States, growth has occurred in all sectors of
the market, including ATMs and POS terminals. For example, as of September
1995, there were approximately 122,700 ATMs and 554,300 POS terminals in the
United States, an increase of 12.5% and 47.6%, respectively, from 1994 (Bank
Network News - EFT Network Data Book - 1995 Edition). These ATMs and POS
terminals generated in the aggregate approximately 807.4 million and 64.6
million transactions per month, an increase of 14.6% and 36.9%, respectively,
from 1994 (Bank Network News - EFT Network Data Book - 1995 Edition). The
number of ATMs in the United States is expected to increase to 135,000 by 1997
(Investors Business Daily - 11/21/94). As of March 1995, there were
approximately 540,000 ATMs deployed in the world, with predictions of growth
to approximately 937,000 by the year 2000 (Nilson Report - 9/94 and 3/95).
(Statistics and industry estimates referred to herein are based on certain
industry publications, which the Company relies upon in the conduct of its
business and believes are generally relied upon by other industry
participants.)
The Company expects increases in EFT transaction volume and more
complex payment systems to be major trends in the marketplace for the reasons
set forth below:
o Many regions of the world are experiencing economic growth. Moreover,
credit and debit cards are being issued to a larger portion of the
world's population, and consumer use of credit and debit technology
is increasing. Demographic factors should also contribute to EFT
transaction growth, as generations of consumers who are comfortable
with technology gain more wealth.
o Lower technology costs make it more economical to deploy devices
and create the networks necessary to implement EFT systems and move
away from traditional paper-based payment processes.
o Banks find EFT based transactions attractive since they provide
fee-based revenue.
o The current trend in bank consolidation may result in nationwide
expansion in ATMs and POS terminals.
o Alternatives to banking at the financial institution's facilities
(such as the Internet) will offer consumers additional ways to access
banking services. This is consistent with efforts of financial
institutions to move transactions from branches to less expensive,
unmanned electronic points of delivery such as "self-service banking"
and home banking. The emergence of smart cards with the stored value
option should further increase the volume of electronic transactions,
including the ability to load value to a card from devices in the
home, as well as at the existing ATM base.
- 24 -
<PAGE>
TPII Software Products
The TPII software products are EFT Systems managers. Such software
products primarily route and authorize the processing of transactions through
an EFT System, thereby enabling the system to interface or communicate with
other systems and Networks, as well as to provide other functions. TPII
software products generally can be configured to (i) act as a front-end to a
financial institution's host computer, (ii) perform as a switch connected to
multiple financial institutions' host computers and Networks or (iii) act as
an authorization-only system for financial transactions.
As a front-end system, TPII software products can intercept
transactions from a financial institution's terminals and route them to the
institution's host computer. This eliminates expenses that may be charged by
data processing facilities or Networks. For example, a transaction initiated
by the customer of a bank at the bank's ATM that is part of a larger shared
Network generally is initially routed to the Network computer for a fee before
it is routed back to the bank's host computer, typically referred to as an
"on-us" transaction. The TPII front-end system, however, routes the "on-us"
transaction directly to the bank for processing, thereby bypassing the
Network.
As a switch, TPII software products can route transactions between
multiple host computers of financial institutions for authorization of
transactions. In this environment, ATMs, POS terminals and smart card
"loading" devices of a financial institution are on-line to such financial
institution's host computer and such host computer is on-line to the TPII
software. If such financial institution's host computer receives a transaction
request from an ATM, POS terminal or smart card "loading" device requiring an
authorization from another financial institution which is part of the Network,
then the request is transmitted to the Network utilizing the TPII software
and the TPII software routes the request to the proper financial institution's
host computer for authorization, which then transmits the authorization
response back to the Network. The TPII system then routes the authorization
response to the original requesting financial institution. In this
environment, the TPII system can also authorize the transaction if the
financial institution from which the authorization is requested is
unavailable.
As an authorization-only system, TPII software products receive
authorization requests from various Network switches. In this environment, the
TPII software is installed at the financial institution's main office, but is
not interfaced with any of that institution's ATMs, POS terminals or smart
card load devices. Instead, it will authorize transactions initiated by credit
cards, debit cards and/or smart cards issued by the institution to its
customers when the customers utilize terminals and devices owned by other
financial institutions. In this environment, a transaction request originating
at another financial institution's ATM, POS terminal or smart card "loading"
device by the customer is transmitted to a Network switch and the Network
switch will route the transaction request to the TPII software. The TPII
software will then route the transaction to the host computer of the financial
institution utilizing TPII software for authorization. If such institution's
host computer is unavailable, then the TPII software will authorize the
transaction and transmit the response back to the proper Network switch.
TPII software products can be installed at the financial
institution's main office, a branch or at a data processing facility. TPII
software products permit 7-day, 24-hour remote banking by storing customer
balance files and communicating with the customers' in-house computer(s)
- 25 -
<PAGE>
or data center(s) on a continuous (real time) or batch (delayed) basis with no
changes required to existing host application software. TPII software products
are capable of sending or receiving messages from ATMs, POS terminals, Networks
and host computers. It may authorize transactions without the necessity of
interfacing with the host computer and can periodically input the transactions
into the host computer.
TPII software is offered in separate modules depending on the
function to be performed. Set forth below is a description of the various
modules of the Company's TPII software products:
ATM, POS, Smart Card, Host and Network Interfaces each provide for
the access to and messages between a financial institution's or
Network's EFT System and its associated terminals or processors.
The Card Management Module is responsible for the updating and
maintenance of a relational database of card data. This module is
capable of maintaining the day-to-day history of the existing card
base and is used for both the ordering of new cards and the
replacement of lost or damaged cards.
The Stand-In Module is primarily responsible for the logging of
transactions whenever communications are not available between the
EFT System and the host due to host failure or scheduled host
downtime. When communications are re-established the Stand-In Module
is responsible for sending stand-in transactions to the host.
The Settlement Processing Module is responsible for the computation
of fees for both the Network and issuer transactions processed on an
EFT System and is responsible for generating operational and
statistical reports in industry standard format for terminals, banks
and Networks.
The Authorization Module provides, if required, transaction
authorization using various methods.
The Software Distribution Module is responsible for the down-line
loading of various configuration parameters to the ATM terminals and
to encrypt and decrypt the personal identical number (PIN) portion of
the message to or from ATMs. The encryption and decryption processes
are performed by the connected Host Security Module on behalf of the
Software Distribution program.
The Device Monitor Module is responsible for supplying the ATM
Network manager with real time device status monitoring. When the
device monitor module determines the need to inform the manager of a
particular condition, it will send a warning message indicating the
problem.
Visa Contract
The Company has adapted its TPII software to manage EFT Systems that
process transactions involving the "loading" of value on smart cards. A smart
card is a plastic card with an electronic chip that acts as a small computer.
These cards can include a stored value feature, which enables the holder to
"load" a fixed amount of purchasing power or cash equivalent on the card as
authorized. As a result, the holder can purchase items or services without the
necessity of carrying cash or entering into a credit card transaction. For
example, the smart card may be activated with $60.00 of purchasing power by
- 26 -
<PAGE>
inserting the smart card into a smart card terminal (i.e. a "loading" device).
The card holder then uses the smart card to purchase a product for $12.00, which
reduces the purchasing power of the smart card to $48.00. The stored value on
the card can be changed at a participating ATM or other terminal. This system is
not yet operational.
The Company has developed software for Visa to manage an EFT System
that facilitates the "loading" of value on a smart card through a bank's
terminals. As a result of a successful test of the Company's TPII smart card
software, Visa entered into an agreement with the Company in July 1996 for the
licensing and installation of this software in connection with the operation
of up to seven pilot programs for the purposes of evaluating the TPII smart
card software and other aspects of the smart card system. The license for each
pilot program is for a term of 24 months commencing on the date such pilot
program goes on-line. As of the date hereof, Visa has selected financial
institutions in the following countries to conduct five of the pilot programs:
the United States, the United Kingdom, Japan, Germany and Italy. Although
there can be no assurance, the Company anticipates that revenues from its
agreement with Visa will have a material impact on its financial position
during the next 9-12 months.
The Company is also negotiating with a financial institution to
implement the "loading" of value to a smart card adapted for use with that
institution's MasterCard. There can be no assurance that the Company and the
financial institution will enter into an agreement.
Licensing, Services and Training
The Company licenses its TPII software products pursuant to a
non-exclusive perpetual licensing agreement. Under these agreements, the
customer receives the non-exclusive right to use one copy of the software
product on designated equipment upon payment of a one-time fixed license fee.
Each financial institution's computer requires a separate copy of the TPII
software and the license portion of the fee is incurred for each copy of the
software installed. The Company trains the financial institution's personnel
in the use of the TPII software products.
The TPII software products generally involve customization to
enable the TPII software to interface with a customer's unique host software
and to meet the particular needs of the customer. For example, each financial
institution has different software operating various ATMs or POS terminals, as
well as bank and Network computers, requiring modification to configure with
the Company's TPII software. Licenses for TPII software products generally
begin at $180,000 and average approximately $300,000 per contract depending
upon the modules selected. Payments under these types of contracts are usually
in several stages commencing with signing of the license agreement and then as
certain milestones are completed. Following this offering, the Company intends
to evaluate the feasibility of licensing its TPII software products on a
fee-per-transaction basis in addition to, or in lieu of, the one-time licensing
fee structure currently used.
The Company generally warrants its TPII software products for 90
days. Subsequent to the warranty period of the TPII software products, the
Company provides maintenance services with respect to such software products.
Yearly service fees are typically 15% of the original TPII software license
fee, subject to annual increases based on changes in the Consumer Price Index
in the United States, and are generally payable annually in advance. During the
period of service, the customer receives copies of the Company's latest
standard releases and any software enhancements that the Company considers to
be logical improvements. These releases and enhancements are accompanied by
documentation updates as necessary.
- 27 -
<PAGE>
For an additional fee, the Company will provide additional training
of customer personnel. Depending on the complexity of the customer's system,
training can take from 2-4 days to 2-4 weeks.
Special Development Contracts
The Company performs specialized software modifications or
enhancements to its TPII software for its customers, such as enhancing the
TPII software to issue postage stamps at an ATM terminal. The Company
generally receives a fee for the modification and has all proprietary rights
to the software developed and may then include the modification in its
standard TPII software products. The Company finds these contracts to be
beneficial because of the resulting enhancements to its base software
products.
Marketing and Customers
TPII software products generally have been primarily installed in
EFT Systems of banks and other financial institutions located in third world
countries and former Eastern Bloc nations which operate or are members of
geographically-distributed EFT Systems or Networks servicing large volumes of
transactions through many types of devices. They include the following:
Budapest Bank, Budapest, Hungary; Ceska Sporitelna, Prague, Czech Republic;
Slovak State Savings Bank, Bratislava, Slovak Republic; and Trustee's Saving
Bank, Cork, Ireland. Certain of such financial institutions serve up to 200
ATMs and 1,000 POS terminals. In addition, the Company has recently licensed
its TPII software products to two United States financial institutions,
Standard Federal Bank, Detroit, Michigan and Lockheed Federal Credit Union,
Burbank, California.
In 1994, the Company entered into a strategic alliance with DEC,
pursuant to which such computer manufacturer agreed to market on a
nonexclusive basis TPII software products in connection with DEC's world-wide
sale of its computers for EFT Systems. In connection with DEC's sale of
computers for EFT Systems, DEC, rather than the financial institutions, is
generally the licensee of the Company's TPII software products. For the fiscal
years ended April 30, 1995 and 1996 and the fiscal quarter ended July 31,
1996, approximately 19%, 14% and 31%, respectively, of the Company's total
revenues were derived pursuant to this relationship. The Company is,
therefore, dependent upon this relationship and would be adversely affected by
the loss of such relationship. The Company has a similar agreement with Unisys
for Europe and Africa, but as of the date hereof, the Company has not derived
any revenues pursuant to its relationship with Unisys. In addition, pursuant
to an informal arrangement with IBM Thailand, the Company licensed its TPII
software products, through IBM Thailand, to two Asian financial institutions
utilizing IBM computers for their EFT Systems. Revenues from such licenses
represented approximately 19% of the Company's total revenues during the
fiscal year ended April 30, 1996. The Company is currently seeking to enter
into alliances with additional computer manufacturers.
The Company also markets its products directly through Charles J.
Caserta, President of the Company, and Simon J. Theobald, Director of the Sales
and Marketing Division in the Company's European office based in London. The
Company intends to hire additional sales personnel after this offering.
The Company's software product information is disseminated internally
within DEC through in-house newsletters and other promotional tools. Products
are also advertised, to a limited extent, in user publications and at various
trade shows. Upon completion of the offering, the Company intends to engage an
advertising agency to implement a marketing campaign, including advertising in
publications targeted for financial institutions.
- 28 -
<PAGE>
Backlog and Deferred Maintenance Service Revenues
Backlog
As of July 31, 1996 and 1995, the Company had backlog of
approximately $538,000 and $1,361,000, respectively, in software license fees.
The reason that backlog was higher as of July 31, 1995 was that the Company
entered into more license agreements during the fiscal quarter ended July 31,
1995 than during the fiscal quarter ended July 31, 1996. The Company includes
in its backlog all license fees not included as revenues under the percentage
of completion method to the extent that the Company contemplates recognition
of the related revenues within one year. Between July 31, 1996 and September
30, 1996, the Company entered into agreements for an additional $982,000 in
software license fees, $530,000 of which relates to the Visa pilot programs
and $452,000 of which relates to a new license agreement with a financial
institution. There can be no assurance that the contracts included in backlog
will actually generate the specified revenues or that the actual revenues will
be generated within the one year period.
Deferred Maintenance Service Revenues
As of July 31, 1996 and 1995, the Company had deferred maintenance
service revenues of approximately $199,000 and $141,000, respectively. As more
TPII software products are installed, maintenance service revenues are expected
to increase.
Competition
The development and marketing of software for financial institutions
is highly competitive. The Company encounters both direct and indirect
competition from several different sources which vary depending on the
particular product or services involved and the size of the customer served.
Many of these competitors have greater financial resources than the Company. In
addition, many of the larger financial institutions have developed their own
systems internally. However, the Company believes its TPII software products
will continue to be competitive based on cost and technology.
The Company's TPII software products face strong competition from
proprietary (legacy) and UNIX-based software. In the international EFT market,
well established worldwide competition includes Transaction Systems
Architects, Inc., Deluxe Data Systems, Inc., SDM International, Inc., S2
Systems, Inc., a subsidiary of Stratus, SLM Software, Inc., Consolidated
Software and Oasis Systems, whose products run on Tandem or Stratus
fault-tolerant computers with proprietary operating systems or on IBM host or
industry standard computers with UNIX operating systems.
The Company also encounters competition from original equipment
manufacturers such as: NCR, Interbold, Fujitsu and Omron as well as EFT
software system integrators Kirchman Corporation, Hogan Systems, Inc., ARKSYS
(formerly known as Arkansas Systems), Jack Henry, Diebold, Incorporated and
EFT shared regional networks such as: NYCE, MAC and HONOR. Price competition
is considerable with discounting from list used as an inducement to buy
software and mainframes or to become members of the Networks.
The Company is aware of only a limited number of companies primarily
marketing UNIX-based products for EFT Systems. The Company is also aware that
- 29 -
<PAGE>
S2 Systems, Inc. has developed its own UNIX-based transaction processing
package and Transaction Systems Architects, Inc. has begun to market a
UNIX-based product, TRANS 24.
There are numerous companies which offer EFT outsourcing services.
These third party providers primarily drive ATMs belonging to financial
institutions. A significant portion of all of ATM transactions are processed
by these third party providers. The principal companies in this area are:
Electric Data Systems (EDS), Deluxe Data Corporation, Affiliated Computer
Services, Inc., Fiserv, Inc., Money Access Services (MAC), Information Services
and First Data Corporation.
The retail POS market is rapidly growing and numerous participants
are positioning themselves to capture various segments of the market. Most of
these companies are well established, have greater financial resources and an
established customer base. There can be no assurance that the Company can make
any inroads in this highly competitive marketplace or that its efforts will be
successful.
In the smart card market, the Company is aware of other financial
institutions attempting to develop their own smart card technology and is
unable to predict which technology, if any, will become the industry standard.
Software Development and Future Products
In an effort to license TPII software products to larger financial
institutions, the Company will test its software for use in managing EFT
Systems with a greater number of ATMs and POS terminals than in the EFT
Systems currently installed by the Company. Establishing this capability will
permit the Company to market TPII software products to financial institutions
with larger EFT Systems which may be reluctant to use the Company's TPII
software without proof of its capabilities in that environment.
Competition, technological advances, changes in customer
requirements, deregulation and other regulatory changes affecting financial
institutions necessitates an ongoing enhancement and development effort to
meet the comprehensive processing needs of banks and other financial
institutions. As a result, the Company will continue ongoing expenditures for
enhancement of the Company's existing software products that take advantage of
technological advances and respond to the increasingly sophisticated
requirements of its customers. Enhancements to existing customers are
delivered as add-ons to the licensing agreements for additional license fees.
The Company believes that its TPII software products can be adapted
for telephone and internet/computer banking. The Company intends to evaluate the
potential for these markets upon the completion of this offering.
The Company will also attempt to market additional services to the
EFT industry. Such services will include custom services, as well as
facilities management services. Facilities management services entail the
operation on a fee-basis of an EFT System by the Company's personnel at the
customer's facility.
Proprietary Rights
The Company does not own any patents or copyrights. The Company
relies on a combination of trade secret and copyright laws, nondisclosure and
other contractual provisions and technical measures to protect its proprietary
rights. The Company distributes its TPII software products under software
license agreements which typically grant customers nonexclusive licenses to use
the products. Use of the software products is usually restricted to designated
- 30 -
<PAGE>
computers at specified locations and is subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the software products. The
Company also seeks to protect the source code of its software products as a
trade secret. The Company also obtains confidentiality agreements from its
employees, customers and others who have access to its software products.
Despite these precautions, there can be no assurance that misappropriation of
the Company's software products and technology will not occur.
Although the Company believes that its intellectual property rights
do not infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company. Further, there can be no assurance that intellectual property
protection will be available for the Company's products in certain foreign
countries.
Regulation
The Company's applications are utilized primarily by financial
institutions. Such institutions are subject to state, federal or foreign
regulation. Hence, it is possible that banking regulations may have a material
effect on the Company's operations. In addition, the TPII software products
are subject to export regulations, including regulations relating to encrypted
software, which require prior approval of the licensing of the software to
foreign countries. To date, however, the Company has not experienced problems
complying with these regulations.
Employees
As of July 31, 1996, the Company had thirty-three employees,
thirty-two of which were full time. Two employees comprise the direct sales
force; twenty-five employees are involved in product development, technical
support and services and six employees are involved in office administration.
Additionally, the Company engages various consultants from time to time to
assist with product development and enhancements to existing products.
The Company believes it can continue to attract skilled personnel for
all areas and has been able to keep turnover to a minimum. However, the
competition to employ skillful professionals is intense. None of the employees
are covered by a collective bargaining agreement and there have been no work
stoppages. Management believes that relations with its employees are good.
Properties
The Company's headquarters, which consist of approximately 8,500
square feet of leased office space, is located at 185 Jordan Road, Rensselaer
Technology Park, Troy, New York. The term of this lease expires on July 31,
1999. The Company has the option to renew the lease at a mutually agreeable
rental at least 30 days prior to expiration. The current annual base rental
amount is $82,476. In addition to base rent, the Company pays a pro-rata share
of operating costs. Upon the completion of this offering, the Company intends
to use a portion of the net proceeds to lease or acquire additional space in
Rensselaer Technology Park for its projected expanded operations. See "Use of
Proceeds."
The Company's European Sales and Marketing office is also leased
and is located at Salamander Quay (West), Park Lane, Harefield, Uxbridge,
Middlesex, UB9 6NZ, England. This office consists of approximately 890 square
feet. The term of this lease expires on June 1999. The current annual base
rental amount is approximately $23,000.
- 31 -
<PAGE>
Legal Proceedings
On June 15, 1989 the Company commenced an action against SLM
Software, Inc. ("SLM"), a competitor of the Company, in the Supreme Court of the
State of New York (the "NY Action"). The action seeks money damages from SLM for
fraud and breach of contract, and further seeks rescission of a certain contract
between the parties. Thereafter, SLM commenced a separate action against the
Company in the civil trial courts of the province of Ontario, Canada (the
"Canadian Action"). Subsequently, the NY Action was dismissed on the ground that
New York State is an inconvenient forum. Accordingly, both the Company's and
SLM's claims will be litigated in Ontario, Canada. SLM is seeking $5,000,000 in
general damages for breach of contract, and $300,000 in special damages for
breach of contract and negligence. The Company vigorously contests the merits of
SLM's claims. Although there can be no assurance as to the outcome, SLM and the
Company are currently negotiating the settlement of this case.
The Company is not aware of any other legal proceedings.
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position
Frank A. Pascuito 40 Chairman of the Board,
Chief Executive Officer
and Director
Charles J. Caserta 40 President and Director
Simon J. Theobald 33 Director of Sales and Marketing
for the London office and Director
Jerald Tishkoff 59 Director
Arnold Wells 78 Director
Frank A. Pascuito has been the Chief Executive Officer and Chairman
of the Board of the Company since 1989. Mr. Pascuito co-founded the Company's
predecessor company, IFS International, Inc. (formerly named Avant-Garde
Computer Systems, Inc.), a New York corporation engaged in the development and
marketing of software (the "Predecessor"), in 1981 and served as its President
until November 1987 and as its Vice President of Product Planning until 1989.
Prior to 1981, he was employed by NCR Corporation's ATM software development
- 32 -
<PAGE>
team for their 1700 series ATMs. As a consultant to NCR in 1979, he assisted in
the development and performed the installation of the first on-line/off-line ATM
system for NCR in the United States. Mr. Pascuito has over ten years of
operating and marketing experience in EFT system designs, sales and service.
Mr. Pascuito is a graduate of the State University of New York at Potsdam with
a B.S. degree in Computer Science. He is active in several area organizations
dealing with technology, software, and
world trade.
Charles J. Caserta has been the President and a director of the
Company since 1989. Mr. Caserta co-founded the Predecessor in 1981 and served
as its Chairman until November 1987 and as its Vice President of Sales until
1989. Mr. Caserta has over ten years of consulting and marketing experience in
EFT system designs, sales and service. Mr. Caserta is a graduate of Villanova
University with a B.A. degree in English.
Simon J. Theobald has been a director of the Company since December
1994 and has been the Director of Sales and Marketing of the European Division
based in London since 1992. From 1986 to April 1992, he was employed by
Applied Communications Inc., a subsidiary of Transaction Systems Architects,
Inc. Mr. Theobald has more than fifteen years experience in the electronic
funds transfer industry. Mr. Theobald is a graduate of De-Havilland College
with a degree in computer studies and technology.
Jerald Tishkoff has been a director of the Company since May 1994.
Since 1991, Mr. Tishkoff has been Director of Marketing and a member of the
Board of Directors of Allen Technologies, Inc., a private company that provides
interactive television networks to schools and hospitals. Between 1967 and
1991, he was Director of Marketing of Wells National Services, a provider of
interactive television networks to hospitals. He serves on the Advisory Board
of the Jewish Federation, a charitable organization. He is a graduate of
Western Reserve University of Cleveland with a B.B.A. degree and attended
Western Reserve University Law School.
Arnold Wells has been a director of the Company since 1986. Since
1976, Mr. Wells has been a private investor and consultant in the health and
communications fields. Mr. Wells organized Wells Television (subsequently named
Wells National Services). In 1978, Mr. Wells formed WellsArt Limited, a company
which is engaged in the publishing and licensing work of prominent artists. Mr.
Wells is a graduate from Western Reserve University with a B.A. degree.
Executive Compensation
The following table sets forth information concerning compensation paid
or accrued by the Company or its subsidiary for services rendered during the
fiscal years ended April 30, 1996, 1995 and 1994 to the Company's Chief
Executive Officer. No executive officer had total annual compensation which
exceeded $100,000 during such fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------
Other All
Annual Restricted Securities Other
Name and Fiscal Compen- Stock Underlying LTIP Compen-
Principal Position Year Salary(1) Bonus sation Award(s) Option(s) Payouts sation
------------------ ---- --------- ----- ------ -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank Pascuito 1996 $88,000 $-0- $-0- $-0- -0- -0- $-0-
Chairman of the Board, 1995 $88,000 $-0- $-0- $-0- -0- -0- $-0-
Chief Executive Officer,
Secretary and Director 1994 $78,454(2) $-0- $-0- $-0- -0- -0- $-0-
</TABLE>
(1) Does not include accrued interest of $5,706, $5,336 and $4,669 for the
fiscal years ended April 30, 1996, 1995 and 1994, respectively, for
salaries earned but deferred. The interest rate on such deferred salaries
is 12% per annum. See "Certain Transactions."
(2) Includes deferred salary in the amount of $6,769.
- 33 -
<PAGE>
Set forth below with respect to Frank Pascuito is further
information concerning options to purchase Common Stock under the Company's
Stock Option Plan.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Number of Number of Securities
Shares of Underlying Unexercised Value of Unexercised In-the-Money
Common Stock Options as of April 30, 1996 Options as of April 30, 1996(1)
Name Acquired on ---------------------------- ---------------------------------
Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ----------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank Pascuito,
Chief Executive 0 0 50,773 0 $116,933 $0
Officer
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a market price of $2.50 per share at April 30, 1996.
Employment Agreements
Upon the completion of this offering, Frank A. Pascuito and Charles
J. Caserta will each enter into a three year employment agreement with the
Company which will commence on January 1, 1997 and which will provide for
thier employment as Chairman of the Board and President, respectively. Under
each agreement, Messrs. Pascuito and Caserta will each receive a base salary
of $110,000 per year for each of the first two years and an amount to be
determined by the Board of Directors for the third year. The Board of
Directors may in their discretion grant bonuses to Messrs. Pascuito and
Caserta. Each agreement contains a restrictive covenant requiring the
executives not-to-compete with the Company for the term of the agreement and
for two years following termination of service. Each agreement provides for a
car allowance.
Stock Option Plan
The Company's stock option plan provides for issuance of options to
purchase Common Stock to key employees, officers, directors and consultants.
As of September 30, 1996 there were options outstanding to purchase 250,648
shares of Common Stock under the plan. All options are exercisable at prices
ranging from $.66 to $2.50 per share and expire in various years between 1997
- - 2003. As of September 30, 1996, options to purchase 10,530 shares of Common
Stock were available for grant.
Some options were not fully vested as of September 30, 1996. All
options not vested expire after termination of services to the Company by the
optionee. The options that are vested, and exercisable, expire thirty days
after termination of service.
- 34 -
<PAGE>
Prior to the commencement of this offering, the Company expects to
adopt a new stock option plan that authorizes the granting of stock options to
purchase an aggregate of not more than 300,000 shares of Common Stock.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Common Stock as of September 30, 1996 by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company and (ii) all
directors and executive officers as a group. No director, executive officer or
5% or greater stockholder is the beneficial owner of any shares of Preferred
Stock. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Name and Address of Number Of Shares Percentage
Beneficial Owner Beneficially Owned of Class
------------------- ------------------ ---------
<S> <C> <C>
Frank Pascuito 229,981(1) 20.7%
Rensselaer Technology Park
185 Jordan Road
Troy, NY 12180
Charles J. Caserta 225,003(2) 20.4%
Rensselaer Technology Park
185 Jordan Road
Troy, NY 12180
Simon J. Theobald 37,737(3) 3.4%
Little Elms, 12 Green Lane,
Croxley Green, Rickmansworth,
Hertfordshire, WD3 3HR England
Jerald Tishkoff 33,111(4) 3.1%
2620 S. Glen
University Heights Ohio 44122
Arnold Wells 5,500(5) .5%
1100 Madison Avenue
New York, NY 10028
All directors and executive 531,331(6) 44.1%
officers as a group (5 persons)
</TABLE>
(1) Includes 50,773 shares issuable upon exercise of stock options.
(2) Includes 45,795 shares issuable upon exercise of stock options.
(3) Includes 37,717 shares issuable upon exercise of stock options.
(4) Includes 6,111 shares issuable upon exercise of stock options.
(5) Includes 5,000 shares issuable upon exercise of stock options.
(6) Includes 145,395 shares issuable upon exercise of stock options.
- 35 -
<PAGE>
CERTAIN TRANSACTIONS
Frank Pascuito deferred salaries for the fiscal years ended April
30, 1991, 1992, 1993 and 1994 in the amounts of $6,588, $27,108, $12,600 and
$6,769, respectively. Such deferred salaries have not been repaid and bear
interest at the rate of 12% per annum. Such interest for the fiscal years
ended April 30, 1996, 1995 and 1994 was $5,706, $5,336 and $4,669,
respectively; these amounts have also been deferred. The Company anticipates
that the deferred salaries and interest will be paid prior to the commencement
of this offering.
Charles Caserta deferred salaries for the fiscal years ended April
30, 1991, 1992, 1993 and 1994 in the amounts of $6,588, $27,108, $13,775 and
$10,154, respectively. Such deferred salaries have not been repaid and bear
interest at the rate of 12% per annum. Such interest for the fiscal years
ended April 30, 1996, 1995 and 1994 was $6,934, $6,915 and $6,915,
respectively; these amounts have also been deferred. The Company anticipates
that the deferred salaries and interest will be paid prior to the commencement
of this offering.
In September 1996, the Company as part of the Bridge Financing sold
to unrelated third parties $500,000 principal amount of the Company's Notes
for $500,000 and warrants to purchase 100,000 shares of Common Stock for
$5,000. The Notes bear interest at 12% per annum and are due on the earlier of
March 24, 1998 or closing of this offering. The warrants are exercisable at
$2.50 per share, subject to adjustments, at any time until September 24, 2001.
The Company believing that all transactions with officers were made
on terms no less favorable to the Company than those available from
unaffiliated parties. All future transactions between the Company and its
officers, directors and 5% shareholders will be on terms no less favorable
than could be obtained by independent third parties and will be approved by a
majority of the independent disinterested directors of the Company.
DESCRIPTION OF SECURITIES
The following descriptions of the Company's securities are
qualified in all respects by reference to the Certificate of Incorporation and
By-laws of the Company, the Certificate of Designation of the Preferred Stock
and the warrant agreement (the "Warrant Agreement"), dated as of _________,
1996, by and between the Company and American Stock Transfer & Trust Company
(the "Warrant Agent"), copies of which are filed as Exhibits to the Registration
Statement of which this Prospectus is a part. The Certificate of Incorporation
of the Company authorizes the Company to issue up to 25,000,000 shares of
Common Stock, par value $.001 per share, and 25,000,000 shares of preferred
stock, par value $.001 per share.
- 36 -
<PAGE>
Common Stock
As of September 30, 1996, there were 1,059,730 shares of Common
Stock outstanding. Subject to the voting rights of holders of preferred stock,
the holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to future outstanding preferred stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no rights to
convert their Common Stock into any other securities. All shares of Common Stock
have equal, non-cumulative voting rights, and have no preference, exchange,
preemptive or redemption rights.
Preferred Stock
Prior to the date hereof, there were no shares of preferred stock
outstanding. The Company's Certificate of Incorporation authorizes the
issuance of the preferred stock with designations, rights and preferences
determined from time to time by its Board of Directors. The Board of Directors
has adopted a resolution that 20,000,000 shares of the preferred stock be
designated as Series A Convertible Preferred Stock (the "Preferred Stock").
The holders of Preferred Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. All such
matters require approval of the Preferred Stock, voting separately as a class,
except that with respect to the election of directors, the Preferred Stock and
Common Stock vote together as one class. No dividends will be paid on the
Preferred Stock, except that holders of Preferred Stock will be entitled to
receive dividends if dividends are declared with respect to Common Stock and,
in such event, ratably with the holders of Common Stock.
Each share of Preferred Stock is convertible at the option of the
holder into one share of Common Stock, subject to adjustment, during the
five-year period commencing on the date hereof; provided that the Preferred
Stock must be converted on the earlier of (i) _____________, 2001 or (ii) the
consummation date of a merger or acquisition of the Company in which the then
outstanding securities of the Company are surrendered or exchanged for cash,
property or securities of another entity if the consideration received in any
such transaction is not less than $5.00 per share on a fully-diluted basis. The
number of shares of Common Stock into which the Preferred Stock is convertible
is subject to adjustment in certain circumstances, including a stock dividend on
or a stock split, subdivision, combination or recapitalization of the Common
Stock or the issuance or sale of Common Stock or securities convertible or
exchangable into Common Stock at less than $5.00 per share, except in certain
circumstances.
In the event of liquidation, dissolution or winding up of the
Company, holders of Preferred Stock are entitled, after payment of liabilities
and satisfaction of any then existing preferential rights of any holders of
capital stock, to receive up to $5.00 per share of the remaining assets of the
Company before payment is made to the Common Stock. After payment of $5.00 per
share to the holders of the Preferred Stock, the holders of the Preferred
Stock are entitled to share with the holders of the Common Stock in the
remaining assets of the Company available for distribution to its
stockholders.
- 37 -
<PAGE>
All shares of Preferred Stock have equal, non-cumulative voting
rights and have no preemptive or redemption rights.
Warrants
Each Warrant entitles the registered holder thereof to purchase one
share of Preferred Stock at a price of $6.25 per share, subject to adjustment as
set forth below, for a period of three years commencing on ________, 1998,
except that if the Warrants are called for redemption, or the Preferred Stock is
required to be converted prior to ________, 1998, the Warrants will be
exercisable from the date on which notice of such redemption or mandatory
conversion is given by the Company.
The Warrants are redeemable by the Company, with the prior consent
of the Underwriter, at any time commencing on __________, 1997, at a price of
$.10 per Warrant, provided that the last sale price of the Preferred Stock, for
a period of 20 consecutive days of trading of the Preferred Stock ending not
more than three days prior to the date of any redemption notice equals or
exceeds at least $8.00 per share, subject to adjustment. The Warrants shall be
exercisable until the close of the business day preceding the date fixed for
redemption. Such notice of redemption will be mailed at least 30 days, but not
more than 45 days, prior to the date fixed for redemption.
The Warrants will be issued pursuant to the Warrant Agreement and
will be evidenced by warrant certificates in registered form.
The exercise price of the Warrants and the number of shares of
Preferred Stock or other securities and property issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances, including a stock
split of, stock dividend on, or a subdivision, combination or recapitalization
of the Common Stock, and will also be subject to adjustment upon the sale or
issuance of Common Stock or securities convertible or exchangeable into Common
Stock at less than $6.25 per share, except in certain circumstances. However,
the Warrants are not subject to adjustment for issuances of Preferred Stock at a
price below the exercise price of the Warrants. Additionally, an adjustment will
be made upon the sale of all or substantially all of the assets of the Company
in order to enable holders of Warrants to purchase the kind and number of shares
of stock or other securities or property (including cash) receivable in such
event by a holder of the number of shares of Preferred Stock that might
otherwise have been purchased upon exercise of the Warrant.
The Warrants do not confer upon the holder any voting or any other
rights of a stockholder of the Company.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants at the offices of the Warrant Agent with the
form of "Election to Purchase" on the reverse side of the warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price (by certified check payable to the order of the Warrant Agent)
for the number of Warrants being exercised.
No Warrant will be exercisable or redeemable unless at the time of
exercise the prospectus covering the shares of Preferred Stock issuable upon
exercise of the Warrant is current and the issuance of shares has been
registered or qualified or is deemed to be exempt from registration or
- 38 -
<PAGE>
qualification under the securities laws of the state of residence of the holder
of the Warrant. The Company has undertaken to use its best efforts to maintain a
current prospectus relating to the issuance of shares of Preferred Stock upon
the exercise of the Warrants until the expiration of the Warrants, subject to
the terms of the Warrant Agreement. While it is the Company's intention to
maintain a current prospectus, there is no assurance that it will be able to do
so. The Company anticipates that the Registration Statement, of which this
Prospectus forms a part, will remain effective for nine months following the
Effective Date. See "Risk Factors - Need for Current Prospectus;
Non-Registration in Certain Jurisdictions of Shares Underlying Warrants."
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrantholder exercises all Warrants then owned of record by him
or her, the Company will pay to that Warrantholder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on the
market value of the Preferred Stock on the last trading day prior to the
exercise date.
Delaware Law and Certain Charter Provisions
The Company will be subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in a wide
range of specified transactions with any interested stockholder, defined to
include, among others, any person or entity who in the previous three years
obtained 15% or more of any class or series of stock entitled to vote in the
election of directors, unless, among other exceptions, the transaction is
approved by (i) the Board of Directors prior to the date the interested
stockholder obtained such status or (ii) the holders of two-thirds of the
outstanding shares of each class or series owned by the interested stockholder.
The Company's Certificate of Incorporation and By-laws contain certain
additional provisions which may have the effect of delaying or preventing a
change in control of the Company. Such provisions include blank check preferred
stock (the terms of which may be fixed by the Board of Directors without
stockholder approval). Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. In the event of
issuance, the preferred stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company.
Transfer and Warrant Agent
The transfer agent for the Preferred Stock and Common Stock and the
warrant agent for the Warrants is American Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have
outstanding an aggregate of 1,200,000 shares of Preferred Stock and 1,059,730
shares of Common Stock. All of the shares of Preferred Stock and 583,318
shares of Common Stock will be freely tradable without restriction or further
registration under the Securities Act. Of the remaining 476,412 shares of
Common Stock outstanding as of September 30, 1996, 385,936 shares were
"restricted" shares that were owned by "affiliates" of the Company as such
terms are defined under the Securities Act and 87,476 shares were "restricted"
shares that were owned by nonaffiliates of the Company.
- 39 -
<PAGE>
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the
meaning of Rule 144 ("Restricted Shares") for at least two years, including
the holding period of any securities which converted into the Restricted
Shares and including the holding period of any prior owner except an affiliate
of the Company, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock reported during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about
the Company. Any person (or persons whose shares are aggregated with such
person) who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned shares for
at least three years (including any period of ownership of preceding
non-affiliated holders), would be entitled to sell such shares under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
The Company has filed a registration statement under the Securities
Act to register shares of Common Stock to be issued upon exercise of the
Bridge Financing warrants, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act. The Company also has granted registration rights to the Underwriter with
respect to the Underwriter's Warrant and the securities issuable upon exercise
thereof and to the holder of the Technology Loan with respect to the shares of
Common Stock issuable upon the conversion thereof.
UNDERWRITING
Duke & Co., Inc. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
1,200,000 shares of Preferred Stock and 1,700,000 Warrants to purchase shares of
Preferred Stock from the Company. The Underwriter is committed to purchase and
pay for all of the Preferred Stock and Warrants offered hereby if any of such
securities are purchased. The shares of Preferred Stock and Warrants are being
offered by the Underwriter subject to prior sale, when, as and if delivered to
and accepted by the Underwriter and subject to approval of certain legal matters
by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer
the Preferred Stock and Warrants to the public at the public offering prices set
forth on the cover page of this Prospectus. The Underwriter may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
concessions not in excess of $_____ per share of Preferred Stock and $______ per
Warrant.
The Company has granted to the Underwriter an option exercisable
for 45 days from the date of this Prospectus, to purchase up to 180,000
additional shares of Preferred Stock and 255,000 additional Warrants at the
public offering prices set forth on the cover page of this Prospectus, less the
underwriting discounts. The Underwriter may exercise this option in whole or,
from time to time, in part solely for the purpose of covering overallotments, if
any, made in connection with the sale of the shares of Preferred Stock and
Warrants offered hereby. The Company has also agreed to pay all expenses in
connection with qualifying the shares of Preferred Stock and Warrants offered
hereby for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purposes by the Underwriter.
- 40 -
<PAGE>
The Company has agreed to pay the Underwriter a non-accountable
expense allowance of 3% of the gross proceeds of this offering, including the
proceeds of the over-allotment option, if and to the extent exercised.
The Company has agreed to sell to the Underwriter and its
designees, for an aggregate of $290, warrants (the "Underwriters Warrants") to
purchase up to 120,000 shares of Preferred Stock at an exercise price of
$_______ per share (110% of the initial public offering price per share)
and/or up to 170,000 Warrants at an exercise price of $____ per Warrant (110%
of the initial public offering price per Warrant). The Underwriter's Warrants
may not be sold, transferred, assigned or hypothecated for one year from the
effective date of the Registration Statement of which this Prospectus forms a
part, except to the officers and partners of the Underwriter, co-underwriters,
selling group members and their officers or partners, and are exercisable
during the four-year period commencing one year from the effective date of the
Registration Statement of which this prospectus forms a part (the "Warrant
Exercise Term"). During the Warrant Exercise Term, the holders of the
Underwriter's Warrants are given, at nominal cost, the opportunity to profit
from a rise in the market price of the Preferred Stock. To the extent that the
Underwriter's Warrants are exercised, dilution to the interests of the
Company's shareholders will occur. Further, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected
since the holders of the Underwriter's Warrants can be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided
in the Underwriter's Warrants. Any profit realized by the Underwriter on the
sale of the Underwriter's Warrants, the underlying shares of Preferred Stock
or the underlying Warrants, or the shares of Preferred Stock issuable upon the
exercise of such underlying Warrants may be deemed additional underwriting
compensation. The exercise price and number of shares of Preferred Stock or
the other securities issuable on exercise of the Underwriter's Warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, subdivision, reclassification, reorganization, merger or
recapitalization. An adjustment will also be made in the case of a
distribution to holders of Preferred Stock of evidence of the Company's
indebtedness or assets or subscription rights or warrants. Subject to certain
limitations and exclusions, the Company has agreed, at the request of the
holders of a majority of the Underwriter's Warrants, at the Company's expense,
to register under the Securities Act the Underwriter's Warrants, the shares of
Preferred Stock and warrants underlying the Underwriter's Warrants, and the
shares of Preferred Stock issuable upon exercise of the underlying Warrants on
one occasion during the four-year period commencing one year from the
effective date of the Registration Statement of which this Prospectus forms a
part, and to include, on one occasion, such Underwriter's Warrants and such
underlying securities in an appropriate registration statement which is filed
by the Company during the Warrant Exercise Term.
The Company has agreed, in connection with the exercise of the
Warrants pursuant to solicitation by the Underwriter (commencing one year from
the date of this Prospectus), to pay to the Underwriter a fee of 5% of the
exercise price for each Warrant exercised; provided, however, that the
Underwriter will not be entitled to receive such compensation in Warrant
exercise transactions in which (i) the market price of Preferred Stock at the
time of exercise is lower than the exercise price of the Warrants; (ii) the
Warrants are held in any discretionary account; (iii) disclosure of compensation
arrangements is not made, in addition to disclosure provided in this Prospectus,
in documents provided to holders of the Warrants at the time of exercise; (iv)
the exercise of Warrants is unsolicited by the Underwriter; or (v) the
solicitation of exercise of the Warrants was in violation of Rule 10b-6
promulgated under the Exchange Act.
- 41 -
<PAGE>
The Company has agreed, for a period of five years from the
consummation of this offering, to engage the designee of the Underwriter as a
non-voting advisor to the Company's Board of Directors or, at the Underwriter's
request, to nominate and use its best efforts to elect a reasonably acceptable
designee of the Underwriter as a director of the Company. The Underwriter has
not yet exercised its right to designate such person.
The Company has also agreed that it will not, during a period of 24
months following this offering, issue or sell any securities of the Company
without the prior consent of the Underwriter, except in certain circumstances.
In addition, the Company has agreed to enter into a consulting
agreement to retain the Underwriter as a financial consultant for a period of
two years following the consummation of this offering at a fee of $50,000 per
year, the entire $100,000 payable in full immediately upon the consummation of
this Offering. The consulting agreement will not require the Underwriter to
devote a specific amount of time to the performance of its duties thereunder.
It is anticipated that these consulting services will be provided by
principals of the Underwriter and/or members of the Underwriter's corporate
finance department who, however, have not been designated as of the date
hereof. In the event that the Underwriter originates a financing or a merger,
acquisition, joint venture or other transaction to which the Company is a
party, the Underwriter will be entitled to receive a finder's fee in
consideration for origination of such transaction.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public trading market for
the Preferred Stock or Warrants, and only a very limited market for the Common
Stock. Consequently, the initial public offering prices of the Preferred Stock
and Warrants and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in determining the initial public offering prices and other terms
of the securities were the Company's financial condition and prospects,
management, 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 the general condition of the
securities markets.
Although it has no obligation to do so, the Underwriter intends to
engage in market-making activities or solicited brokerage activities with
respect to the purchase or sale of the Preferred Stock and Warrants in The
Nasdaq SmallCap Market or other over-the-counter market where such securities
may trade. However, no assurance can be given that the Underwriter will continue
to participate as a market maker for the securities of the Company or that other
broker/dealers will make a market in such securities. The Underwriter has the
right to act as the Company's exclusive agent in connection with any future
solicitation of holders of the Warrants to exercise their Warrants. Unless
granted an exemption by the Securities and Exchange Commission from Rule 10b-6
under the Exchange Act, the Underwriter will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during a period prescribed by Rule 10b-6 before the
solicitation of the exercise of any Warrant until the later of the termination
- 42 -
<PAGE>
of such solicitation activity or the termination by waiver or otherwise of any
right the Underwriter may have to receive a fee for the exercise of the Warrants
following such solicitation. As a result, the Underwriter and soliciting
broker/dealers may be unable to continue to make a market for the Company's
securities during certain periods while the Warrants are exercisable. Such a
limitation, while in effect, could impair the liquidity and market prices of the
Company's securities.
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only three public offerings.
Accordingly, there can be no assurance that the Underwriter's limited public
offering experience will not affect the Company's offering of the Preferred
Stock and Warrants and subsequent development of a trading market, if any.
The Underwriter has become aware that there is a formal order of
investigation by the Commission relating to the Underwriter's trading
practices and mark-ups in connection with securities of a corporation whose
January 1995 public offering was underwritten by the Underwriter. Since the
issuance of the formal order in June 1996, no charges have been brought. The
Underwriter believes that it has violated no laws or regulations in connection
with this matter. The Underwriter intends to vigorously defend itself against
any claims which may be asserted by the Commission, but there can be no
assurance that the pendency of the investigation or any proceeding which may
thereafter be instituted or any remedies granted in connection therewith would
not adversely and materially affect this offering or subsequent trading in the
Preferred Stock, the Warrants and/or the Common Stock of the Company.
LEGAL MATTERS
Certain legal matters in connection with the securities being
offered hereby will be passed upon for the Company by Parker Duryee Rosoff &
Haft, New York, New York. Zimet, Haines, Friedman & Kaplan, New York, New York,
has served as counsel for the Underwriter in connection with this offering.
EXPERTS
The consolidated financial statements of the Company as of April
30, 1996 and for each of the years in the two-year period then ended included in
this Prospectus, have been audited by Urbach Kahn & Werlin PC, independent
certified public accountants, and are included herein and in the Registration
Statement in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.
- 43 -
<PAGE>
GLOSSARY
ATM - Abbreviation for automated teller machine. Computers that perform banking
transactions without human intervention.
C Programming language - One of several computer languages that tells a computer
what functions to perform.
Cirrus - National ATM Network owned by Mastercard
Configuration - The process of entering data specific to the customers needs and
requests.
Credit Card - A card issued by a financial institution or credit provider. A sum
corresponding to a purchase is charged to the cardholder's account. The customer
may elect to pay in full each month or revolve the balance with a rate of
interest fixed by a bank or credit provider.
Debit Card - Generally any payment card, issued by a financial institution, the
use of which results in a debit to the cardholder's account often within a few
seconds of the purchase (online).
Fault Tolerance - When duplicate computer hardware and/or software are used to
provide computer processing.
Interface - The communication between two systems that allow them to exchange
information.
Issuer - An issuer is a financial institution that provides cards to its
customers.
- 44 -
<PAGE>
MAC - An EFT Network of United States banks, primarily located in the
mid-Atlantic region.
Module - A group of software commands that perform a specific function.
Network - Generally owned by a group of banks or non-bank entities.
Generates revenue by charging fees for use of the Network for transaction
processing.
NYCE - An EFT Network of United States banks, primarily located in the
Northeast.
Object Oriented design concepts - Advanced software development technique for
developing software applications.
Open System - Computers that can run on various operating systems as well as
utilize several different types of software programs.
Oracle relational database - Software, developed and distributed by Oracle
Corporation, that permits access to data from multiple sources and then
transforms such data into information that can be used for a specific purpose.
Oracle 7 is the current release which runs with TPII software products.
PLUS - A national ATM Network owned by VISA.
POS - Abbreviation for point of sale. POS terminals are generally used in retail
outlets to process debit and credit card transactions.
Proprietary (legacy) system - Systems that are vendor specific and do not
conform to software and hardware industry standards.
Smart Cards - A smart card is a plastic card which contains an electronic chip.
This can be a memory chip with a programmable logic array, or a microprocessor
chip. There are two types of smart card, rechargeable or non-rechargeable.
Rechargeable smart cards are normally microprocessor smart cards which may also
serve as traditional credit or debit cards, except instead of a magnetic stripe
they have a microprocessor chip embedded in the card. A non-rechargeable or
disposable smart card is typically a memory smart card with a logical security
mechanism or a programmable logical array; the most popular use for this card is
by public telephone networks.
Switch - EFT Systems designed to link together multiple hosts of financial
institutions and multiple Network systems.
UNIX operating system - Software, originally developed by AT&T's Bell
Laboratories in 1969, that acts as the primary interface to the physical
components of a computer by controlling the operation of such components.
- 45 -
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets F-2
Statements of operations F-3
Statements of shareholders' equity (deficit) F-4
Statements of cash flows F-5 - F-6
Notes to consolidated financial statements F-7 - F-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
IFS International, Inc.
We have audited the accompanying consolidated balance sheet of IFS
International, Inc. and subsidiary as of April 30, 1996, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for each of the two years in the period ended April 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IFS International,
Inc. and subsidiary at April 30, 1996, and the results of their operations and
their cash flows for each of the two years in the period ended April 30, 1996,
in conformity with generally accepted accounting principles.
The consolidated financial statements referred to above have been prepared
assuming that IFS International, Inc. and subsidiary will continue as a going
concern. As discussed in Note 14 to the consolidated financial statements, the
Company has a working capital deficiency and a shareholders' deficit at April
30, 1996, that raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 14. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
URBACH KAHN & WERLIN PC
Albany, New York
July 17, 1996, except for the second paragraph of
Note 14, for which the date is August 6, 1996 and
Note 15, for which the date is November 1, 1996.
F-1
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 30, 1996 and July 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
April 30, July 31, 1996
ASSETS 1996 (Unaudited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 137,462 $ 176,797
Trade accounts receivable, net of allowance for doubtful accounts of $7,900 144,669 113,894
Other receivables 42,519 27,497
Costs and estimated earnings in excess of billings on uncompleted contracts 432,173 384,466
Prepaid expenses and other current assets 27,549 44,272
----------- -----------
Total current assets 784,372 746,926
----------- -----------
PROPERTY, EQUIPMENT, AND IMPROVEMENTS, net 136,231 141,142
----------- -----------
OTHER ASSETS
Software license 9,082 8,150
Capitalized software costs, net 377,482 381,482
----------- -----------
Total other assets 386,564 389,632
----------- -----------
$ 1,307,167 $ 1,277,700
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 38,329 $ 44,898
Current portion of capital lease obligations 2,733 1,106
Accounts payable and other liabilities 587,170 340,766
Accrued salary, commissions, and other expenses 702,515 722,578
Billings in excess of costs and estimated earnings on
uncompleted contracts 32,524 40,215
Deferred revenue and customer deposits 219,326 354,338
----------- -----------
Total current liabilities 1,582,597 1,503,901
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, less current maturities 439,831 431,930
Other 12,515 12,517
----------- -----------
Total long-term liabilities 452,346 444,447
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 25,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock $.001 par value; 25,000,000 shares authorized,
1,009,361 and 1,059,370 shares issued and outstanding 1,010 1,060
Additional paid-in capital 2,177,611 2,214,598
Accumulated deficit (2,906,397) (2,886,306)
----------- -----------
Total shareholders' equity (deficit) (727,776) (670,648)
----------- -----------
$ 1,307,167 $ 1,277,700
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended April 30, 1996 and 1995 and
Quarters Ended July 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
Year Ended July 31
April 30 (Unaudited)
-------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software license and installation contract fees $ 1,982,192 $ 1,729,284 $ 489,731 $ 202,793
Hardware sales 45,848 31,893 -- 2,000
Service and maintenance revenue 412,743 280,080 119,521 80,223
----------- ----------- ----------- -----------
2,440,783 2,041,257 609,252 285,016
----------- ----------- ----------- -----------
Cost of software license and installation contract
fees 238,130 213,885 56,707 28,690
Cost of hardware sales 16,611 23,232 -- --
Cost of service and maintenance revenue 250,020 108,659 69,918 33,930
----------- ----------- ----------- -----------
504,761 345,776 126,625 62,620
----------- ----------- ----------- -----------
Gross profit 1,936,022 1,695,481 482,627 222,396
----------- ----------- ----------- -----------
Operating expenses:
Research and development 397,976 276,026 143,194 119,675
Salaries 679,271 770,352 137,025 158,622
Other 22,727 19,854 6,113 5,439
Rent 88,405 109,041 31,350 21,279
Selling, general, and administrative 745,273 681,356 133,929 155,435
----------- ----------- ----------- -----------
1,933,652 1,856,629 451,611 460,450
----------- ----------- ----------- -----------
Income (loss) from operations 2,370 (161,148) 31,016 (238,054)
Other income (expense):
Interest expense (52,453) (53,608) (12,661) (13,910)
Other income 1,703 9,284 1,736 351
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (48,380) (205,472) 20,091 (251,613)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (48,380) (205,472) 20,091 (251,613)
Extraordinary item - gain on debt restructuring
and extinguishments -- 377,687 -- --
----------- ----------- ----------- -----------
Net income (loss) $ (48,380) $ 172,215 $ 20,091 $ (251,613)
=========== =========== =========== ===========
Attributable to common shares:
Income (loss) before extraordinary item $ (0.05) $ (0.21) $ 0.02 $ (0.24)
Extraordinary item 0.00 0.39 0.00 0.00
----------- ----------- ----------- -----------
Net income (loss) per common share $ (0.05) $ 0.18 $ 0.02 $ (0.24)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended April 30, 1996 and 1995 and
Quarter Ended July 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional
Shares Par Paid-in Accumulated
Outstanding Value Capital Deficit Total
----------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balances at April 30, 1994 921,287 $ 922 $ 1,887,110 $(3,030,232) $(1,142,200)
Issuance of common stock 71,388 71 137,469 -- 137,540
Net income -- -- -- 172,215 172,215
--------- ----------- ----------- ----------- -----------
Balances at April 30, 1995 992,675 993 2,024,579 (2,858,017) (832,445)
Issuance of common stock 16,686 17 153,032 -- 153,049
Net loss -- -- -- (48,380) (48,380)
--------- ----------- ----------- ----------- -----------
Balances at April 30, 1996 1,009,361 1,010 2,177,611 (2,906,397) (727,776)
Issuance of common stock
(unaudited) 50,369 50 36,987 -- 37,037
Net income (unaudited) -- -- -- 20,091 20,091
--------- ----------- ----------- ----------- -----------
Balances at July 31, 1996
(unaudited) 1,059,730 $ 1,060 $ 2,214,598 $(2,886,306) $ (670,648)
========= =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30, 1996 and 1995 and
Quarters Ended July 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
Year Ended July 31
April 30 (Unaudited)
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (48,380) $ 172,215 $ 20,091 $(251,613)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 205,015 164,969 78,460 48,557
Extraordinary gain on debt restructuring
and extinguishments -- (377,687) -- --
Changes in:
Trade accounts receivable, net 202,530 (105,169) 30,775 165,733
Other receivables (7,226) (27,553) 15,022 14,306
Costs, estimated earnings and billings
on uncompleted contracts (179,770) 17,973 55,398 127,881
Other current assets (5,876) 1,057 (16,720) 1,918
Accounts payable and other liabilities 143,790 64,497 (246,404) 38,124
Accrued salary, commissions, and
expenses 112,475 199,342 20,063 44,476
Deferred revenue and customer
deposits 47,288 58,078 135,011 (30,433)
Other liabilities -- (4,210) -- --
--------- --------- --------- ---------
Net cash provided by operating
activities 469,846 163,512 91,696 158,949
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (62,537) (42,534) (17,875) (11,173)
Capitalized license costs (2,157) (2,635) -- --
Capitalized software costs (160,117) (151,662) (68,563) (49,088)
--------- --------- --------- ---------
Net cash used in investing activities (224,811) (196,831) (86,438) (60,261)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (15,081) (14,056) (1,627) (2,268)
Payments on long-term debt (103,624) (63,228) (1,332) (92,128)
Proceeds from issuance of stock 3,049 65,666 37,036 --
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities (115,656) (11,618) 34,077 (94,396)
--------- --------- --------- ---------
Increase/(decrease) in cash 129,379 (44,937) 39,335 4,292
Cash:
Beginning of year 8,083 53,020 137,462 8,083
--------- --------- --------- ---------
End of period $ 137,462 $ 8,083 $ 176,797 $ 12,375
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Years Ended April 30, 1996 and 1995 and
Quarters Ended July 31, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
Year Ended July 31
April 30 (Unaudited)
---------------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 29,042 $ 50,167 $ -- $ --
========== ========= ======= =======
Income taxes $ 7,476 $ -- $ -- $ --
========== ========= ======= =======
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING TRANSACTIONS
Notes payable, salary obligations, and
accounts payable restructured and/or
extinguished $ -- $ 377,687 $ -- $ --
========== ========= ======= =======
Long-term debt converted to common stock
(150,000 shares in 1996, 259,673 in
1995) $ 150,000 $ 71,875 $ -- $ --
========== ========= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
IFS International, Inc. was incorporated in Delaware in September
1986 under the name Wellsway Ventures, Inc. The Company was formed
with limited assets as a blind pool to obtain proceeds from a public
offering and then to acquire an existing business entity. The
Company utilized proceeds from the blind pool to acquire its
operating subsidiary, IFS International, Inc., a New York
corporation.
IFS International, Inc. is engaged in the design and development of
computer software for use with automatic teller machines (ATMs),
electronic fund transfers (EFTs), and point of sale (POS) systems
used by financial institutions and retailers. The Company also
provides its customers with support and maintenance services for
such systems.
Commencing in 1993, a significant portion of the Company's sales and
revenues were derived from financial institutions and other
customers located outside of the United States (see Note 12). The
Company extends credit to its customers and generally requires
deposits upon execution of software development contracts. With
respect to foreign customers, collection may be more difficult upon
default.
Summary of Significant Accounting Policies
Principles of consolidation:
The consolidated financial statements include the accounts of IFS
International, Inc. (formerly Wellsway Ventures, Inc.) and its
wholly-owned subsidiary, IFS International, Inc. (formerly
Avant-Garde Computer Systems, Inc.). All significant intercompany
accounts and transactions have been eliminated.
Presentation of interim financial statements:
The accompanying unaudited consolidated financial statements
include all adjustments which management believes necessary for a
fair presentation of the Company's financial position at July 31,
1996, and the results of its operations and its cash flows for
the three months ended July 31, 1996 and 1995. All adjustments
are of a normal recurring nature.
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 reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue recognition:
Revenue from software installation contracts is recognized on the
percentage-of-completion method, measured by the ratio of costs
incurred to date to management's estimates of total anticipated
costs. This method is used because management considers costs
incurred to be the best available measure of progress on software
installation
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Revenue recognition, continued:
contracts. Because of the inherent uncertainties in estimating
contracts, it is at least reasonably possible that the Company's
estimates of costs and revenues will change in the near term.
Uncertainty inherent in initial estimates is reduced
progressively as work on the contract nears completion. Deposits
received in advance for hardware sales are deferred and
recognized as revenue upon installation and acceptance of the
system. Amounts received on service contracts are initially
deferred and recognized ratably over the life of the contract,
generally one year. All revenues derived outside of the United
States are denominated in U.S. dollars.
Allowance for doubtful accounts:
Bad debts are provided for on the allowance method based upon
historical experience and management's estimation of collection
losses on outstanding accounts receivable.
Property, equipment and improvements:
Property, equipment and improvements are stated at cost, with
related depreciation provided by the declining-balance and
straight-line methods over the estimated useful lives of the
related assets, generally five years. For income tax purposes,
the accelerated cost recovery system and the modified accelerated
cost recovery system are utilized. Assets recorded under capital
leases are depreciated over the terms of the lease under methods
which are consistent with the Company's depreciation policy for
owned assets.
Capitalized software costs:
The cost of adding new functions and features (i.e.,
enhancements) to existing systems and the cost of development of
new systems, for which technological feasibility has been
established and which are not covered by outside funding, are
capitalized. Costs incurred in the establishment of technological
feasibility of new systems are expensed as incurred.
Capitalized software costs are reported at the lower of
unamortized cost or net realizable value. Amortization is
recorded over the estimated five-year marketing lives of the
software and is computed on the greater of the percent-of-revenue
method, based on the total estimated future revenues expected to
be derived from sales of the software, or the straight-line
method.
Income taxes:
Current or deferred tax liabilities are recognized for the tax
consequences of all events recognized in the financial
statements. Deferred taxes are computed on the differences
between the financial reporting and the tax reporting basis of
assets and liabilities. The Company has not recognized the
benefit of any net operating loss carryforwards due to the
uncertainty of the realizability of such carryforwards.
Net income (loss) attributable to common shares:
Net income (loss) attributable to common shares is based on the
weighted average number of shares, as adjusted to reflect a 1 for
10 reverse split (Note 15), outstanding during the respective
years (approximately 1,002,000 in 1996 and 953,000 in 1995). The
effect of the assumed exercise of options and warrants
outstanding is anti-dilutive or not material.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are
summarized as follows:
Expenditures on uncompleted contracts $ 245,285
Estimated earnings thereon 1,546,947
---------
1,792,232
Less billings to date 1,392,583
---------
$ 399,649
==========
Included in the accompanying balance sheet under the following
captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $432,173
Billings in excess of costs and estimated earnings on
uncompleted contracts (32,524)
-------
$399,649
========
NOTE 3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
Machinery and equipment $391,827
Equipment under capital leases 54,103
Furniture and fixtures 74,780
Leasehold improvements 17,046
--------
537,756
Less accumulated depreciation 401,525
--------
Property, equipment and improvements, net $136,231
========
Amortization related to equipment under capital leases was
$10,821 for the years ended April 30, 1996 and 1995,
respectively.
Depreciation related to property, equipment, and
improvements was $36,917 and $28,528 for the years ended
April 30, 1996 and 1995, respectively.
NOTE 4. CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following:
Capitalized software costs $ 848,878
Less accumulated amortization (471,396)
---------
$ 377,482
=========
Amortization expense approximated $154,000 and $123,000
for the years ended April 30, 1996 and 1995, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
Restructured note payable, government agency, interest
only payments of $1,375 per month through April 1996
and principal and interest payments of $3,804 per
month, thereafter, including interest at 7.5%, due
April 2002. This note is unsecured and subordinated to
all other debt. $220,000
Restructured convertible subordinated debentures
payable to a governmental agency due in installments of
$80,000, $80,000, and $90,000 in April 1998, 1999, and
2000, respectively. The debentures are convertible into
shares of common stock at rates ranging from $4.20 per
share to $5.70 per share through July, 1997. At April
30, 1996, approximately 59,000 shares of common stock
were issuable under this conversion feature. 250,000
Other 8,160
--------
478,160
Less current portion 38,329
--------
$439,831
========
Certain of the Company's long-term debt obligations
require compliance with financial and non-financial
covenants. As of April 30, 1996, the Company was not in
compliance with several of these requirements, however,
covenant violation waivers have been received.
Aggregate maturities of long-term debt are as follows:
Year Ending April 30
--------------------
1997 $ 38,329
1998 112,511
1999 115,035
2000 127,755
Thereafter 84,530
--------
$478,160
========
NOTE 6. CAPITAL LEASE OBLIGATIONS
The Company is the lessee of computer equipment and a telephone
system under capital leases expiring in various years through 1997.
The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payment or the fair
value of the asset. The assets are depreciated/amortized over the
lesser of their related lease terms or their estimated productive
lives.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. CAPITAL LEASE OBLIGATIONS, CONTINUED
Assets recorded under capital leases include the following:
Computer and telephone equipment $54,103
Accumulated depreciation 43,589
-------
Net capitalized computer and telephone equipment $10,514
=======
Minimum future lease payments under capital leases as of April 30,
1996, are not material.
NOTE 7. OPERATING LEASE COMMITMENTS
The Company has operating lease agreements, which begin to expire
October 1997, for the rental of its operating facilities and an
automobile. Future minimum lease payments on these noncancellable
operating lease arrangements with terms in excess of one year are as
follows:
Year Ending April 30
--------------------
1997 $138,403
1998 90,180
1999 85,935
2000 21,548
--------
$336,066
========
NOTE 8. INCOME TAXES
The provision for income taxes for the years ended April 30, 1996
and 1995 differs from the amount obtained by applying the U.S.
federal income tax to pretax income due to the following:
1996 1995
---- ----
Federal income tax benefit at statutory rates $(23,000) $(80,100)
State income tax benefit, net of federal benefits (3,400) (10,200)
Change in valuation allowance for net operating
losses 26,400 90,300
-------- --------
Provision for income taxes $ -- $ --
======== ========
At April 30, 1996, the Company has net operating loss carryforwards
of approximately $2,400,000, which begin to expire in 2004 to
offset future federal taxable income.
Because of the uncertainty as to realizability, the deferred tax
benefit attributable to net operating loss carryforwards at April
30, 1996 and 1995 of approximately $816,000 and $790,000,
respectively, has been offset by an equivalent valuation allowance.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTION PLAN
The Company has a stock option plan which provides for the granting
of either options intended to qualify as "incentive stock options"
under the Internal Revenue Code or "supplemental stock options" not
intended to qualify. An aggregate of 332,779 shares of common stock
have been reserved in this connection. The Board of Directors
determines the exercise and expiration dates of the options which
may not be later than 10 years from the date of the grant. The
purchase prices of the shares under option must be at least equal
to the fair market value of the common stock at the date of grant.
Options outstanding at April 30, 1996, may be exercised at prices
ranging from $.66 to $2.50 per share. At April 30, 1996, options to
acquire 50,896 common shares were available for future issuance.
The following table summarizes option activity during 1996 and
1995:
Shares Under Option
Year Ended April 30
-----------------------
1996 1995
---- ----
Outstanding beginning of year 269,212 260,115
Granted 18,000 23,500
Exercised ($1.00 to $2.50 per share) (1,686) (5,421)
Canceled (3,742) (8,983)
-------- --------
Outstanding end of year 281,884 269,212
======== ========
Exercisable 257,077 246,128
======== ========
NOTE 10. CONTINGENCIES
In June 1989, the Company commenced an action against a software
manufacturer, seeking various remedies in connection with an
agreement which gave the Company certain rights to produce and
market an application software package developed by the
manufacturer. In July 1989, subsequent to the commencement of the
action, the Company was named defendant in a lawsuit filed by the
manufacturer alleging breach of contract and claiming approximately
$5,000,000 in damages, interest, and costs and a permanent
injunction, which, if granted, would restrain the Company from
marketing certain computer applications. The Company vigorously
contests the merits of the claim.
(See Note 15)
NOTE 11. RELATED PARTY TRANSACTIONS
Included in accrued salary, commissions and other expenses is
approximately $197,000 due to officers/directors for accrued
salary and commissions, including amounts earned in prior years,
and related interest, calculated at 12%. Other long-term
liabilities represent amounts due to officers/directors under a
previous compensation plan. These balances earn interest at 12%
which is included in accrued expenses. Included in accounts
payable is approximately $73,000 due to officers/directors.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. EXPORT SALES AND MAJOR CUSTOMERS
One foreign customer accounted for approximately 12% of total
revenues for the year ended April 30, 1996. There were no
outstanding amounts due from this customer at April 30, 1996.
Another foreign customer accounted for approximately 12% of total
revenues for the year ended April 30, 1995.
Total revenues considered export sales approximated $2,008,000 and
$1,862,000, or 82% and 91%, for the years ended April 30, 1996 and
1995, respectively. Such revenues were derived primarily from
customers located in eastern Europe and the Far East.
Approximately 14% amd 19% of the Company's total revenues for the
years ended April 30, 1996 and 1995, respectively, were derived
pursuant to a relationship with one computer manufacturer.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting
principally of accounts receivable, long-term debt, accounts
payable and accrued expenses has been estimated to approximate
their carrying amounts.
NOTE 14. MANAGEMENT PLANS
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern and do not
include any adjustments relating to the recoverability and
classification of reported asset amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. A substantial
portion of the accumulated deficit at April 30, 1996 is
attributable to losses from operations in several consecutive
fiscal years prior to 1993. These losses were principally
attributable to the Company's then existing products becoming
antiquated, the write off ($1,040,000) of software development
costs in fiscal year 1991, and incurring the research and
development costs associated with its latest software product,
TPII.
Management believes that cash flows from operations will be
sufficient to meet debt service requirements and to maintain a
current status with its trade creditors during 1997. Operating cash
flows for fiscal year 1997 are expected to be principally
attributable to the anticipated revenues to be derived from sales
of TPII and similar products. Further, in August 1996 the Company
signed a letter of intent with an underwriter to effect a firm
commitment equity offering with minimum gross proceeds of $5
million. There can be no assurances that the proposed offering will
be successful. (See Note 15)
In September 1995, the Company fully converted a note payable to
common stock. Terms of other notes have been modified to delay or
extend the repayment periods and in some cases forgive accrued
interest.
As a result of the Company's efforts to enter joint marketing
relationships, the Company signed a prime contracting agreement
with Digital Equipment Corporation in 1994. This agreement has
led to several sales for TPII. The Company has and will continue
to market to distributors of Digital Equipment Corporation around
the world. The Company has also entered into a re-licensing
agreement with a Digital distributor, Prime Systems Plus, Inc. in
the Philippines.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUBSEQUENT EVENTS
Public offering:
The Company is preparing to file a registration statement with
the U.S. Securities and Exchange Commission in connection with a
proposed public offering of 1,200,000 shares of Series A
Convertible Preferred Stock and 1,700,000 Redeemable Series A
Convertible Preferred Stock Purchase Warrants. The preferred
stock will be convertible, at the option of the holder, into one
share of the Company's common stock for a period of five years.
Each warrant will entitle the holder to purchase one share of
preferred stock for a period of three years. If successful, net
proceeds from the offering will approximate $5,000,000.
In October and November 1996, in connection with the proposed
public offering, the Company approved a 1 for 10 reverse common
stock split, increased the number of preferred shares
authorized to 25,000,000, and designated 20,000,000 of the
preferred shares as Series A Convertible. Issued and
outstanding shares of common stock and all share related and
per share amounts have been restated to give retroactive effect
to the split.
In September 1996, the Company borrowed $500,000 in bridge
financing to fund costs associated with its proposed public
offering. This debt bears interest at 12% and is due at the
earlier of the closing of the proposed public offering or in
March 1998. The bridge financing lenders also acquired warrants
to purchase 100,000 shares of common stock at a price of $2.50
per share.
Contingencies:
In October 1996, the Company and the software manufacturer
referred to in Note 10, commenced settlement discussions.
F-14
<PAGE>
IFS INTERNATIONAL, INC.
1,200,000 Series A Convertible
Preferred Stock
1,700,000 Warrants
------------------------
PROSPECTUS
------------------------
Duke & Co., Inc.
, 1996
<PAGE>
No dealer, salesperson or other person has been authorized to give
any information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Underwriter. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities, to any person in any jurisdiction where such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary.................................................... 1
Risk Factors.......................................................... 6
Use of Proceeds....................................................... 13
Price Range of Common Stock........................................... 15
Dividend Policy....................................................... 15
Capitalization........................................................ 16
Selected Financial Data............................................... 17
Management's Discussion and Analysis of
Financial Condition and Results of Operation........................ 19
Business.............................................................. 23
Management............................................................ 32
Principal Stockholders................................................ 35
Certain Transactions.................................................. 36
Description of Securities............................................. 36
Shares Eligible for Future Sale....................................... 39
Underwriting.......................................................... 40
Legal Matters......................................................... 43
Experts............................................................... 43
Glossary ............................................................. 44
Index to Financial Statements......................................... F-1
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Company's securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their unsold allotments or subscriptions.
<PAGE>
[Alternate Page for Selling Stockholder Prospectus]
SUBJECT TO COMPLETION, DATE ____________________, 1996
PROSPECTUS
IFS INTERNATIONAL, INC.
100,000 Shares of Common Stock
This Prospectus relates to 100,000 shares (the "Selling
Stockholders' Shares") of Common Stock, $.001 par value per share (the "Common
Stock"), of IFS International, Inc. (the "Company"), which are being offered for
sale by certain selling stockholders (the "Selling Stockholders"). The Selling
Stockholders may not sell or otherwise dispose of any of such securities for a
period of 12 months. See "Selling Stockholders and Plan of Distribution."
The Company will not receive any of the proceeds from the sales of
the Selling Stockholders' Shares by the Selling Stockholders. The Selling
Stockholders' Shares may be offered from time to time by the Selling
Stockholders, their pledgees and/or their donees, through ordinary brokerage
transactions in the over-the-counter market, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale at negotiated prices.
The Selling Stockholders, their pledgees and/or their donees, may
be deemed to be "underwriters" as defined in the Securities Act of 1933, as
amended (the "Securities Act"). If any broker-dealers are used by the Selling
Stockholders, their pledgees and/or their donees, any commissions paid to
broker-dealers and, if broker-dealers purchase any Selling Stockholders' Shares
as principals, any profits received by such broker-dealers on the resale of the
Selling Stockholders' Shares may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any profits realized by the
Selling Stockholders, their pledgees and/or their donees, may be deemed to be
underwriting commissions. All costs, expenses and fees in connection with the
registration of the Selling Stockholders' Shares will be borne by the Company
except for any commission paid to broker-dealers.
The Selling Stockholders' Shares offered by the Prospectus may be
sold from time to time by the Selling Stockholders, their pledgees and/or their
donees. No underwriting arrangements have been entered into by the Selling
Stockholders. The distribution of the Selling Stockholders' Shares by the
Selling Stockholders, their pledgees and/or their donees, may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately- negotiated transactions or
through sales to one or more dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders, their pledgees and/or their donees, in connection with sales of
the Selling Stockholders' Shares.
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering of 1,200,000
shares of Series A Convertible Preferred Stock (the "Preferred Stock") and
1,700,000 Redeemable Series A Convertible Preferred Stock Purchase Warrants
Alt-1
<PAGE>
(the "Warrants") was declared effective by the Securities and Exchange
Commission. In connection with the offering of the Preferred Stock and Warrants,
the Company granted Duke & Co., Inc., the underwriter of the public offering
(the "Underwriter"), a warrant (the "Underwriter's Warrant") to purchase up to
120,000 shares of Preferred Stock and up to 170,000 Warrants.
-----------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE ___ HEREOF.
-----------------
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 OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Alt-2
<PAGE>
[Alternate Page for Selling Stockholder Prospectus]
The Offering
Securities Registered (1) ............. 100,000 shares of Common Stock. See
"Description of Securities" and "Selling
Stockholders and Plan of Distribution."
Risk Factors .......................... This offering involves a high degree of
risk. See "Risk Factors."
- --------------------------
(1) The 100,000 shares of Common Stock are issuable upon exercise of warrants
sold to the Selling Stockholders in a private offering.
Alt-3
<PAGE>
[Alternate Page for Selling Stockholder Prospectus]
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
Upon the exercise of warrants sold to the Selling Stockholders in a
private offering, the Selling Stockholders may resell up to 100,000 shares of
Common Stock issuable upon exercise of such warrants pursuant to this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." The Selling
Stockholders have advised the Company that sales of the shares of Common Stock
may be effected from time-to-time by themselves, their pledgees and/or their
donees, in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Common Stock, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders, their pledgees and/or their
donees, may effect such transactions by selling Common Stock directly to
purchasers or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholder and/or the purchasers of shares of
Common Stock for whom such broker-dealers may acts as agents or to whom they
sell as principals, or both.
The Selling Stockholders, their pledgees and/or their donees, any
broker-dealers that act in connection with the sale of the shares of Common
Stock and Class A Warrants as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the shares of Common Stock as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act. The Selling Stockholders' Shares being registered on behalf
of the Selling Stockholders are restricted securities while held by the Selling
Stockholders and the resale of such securities by the Selling Stockholders is
subject to prospectus delivery and other requirements of the Act. The Selling
Stockholders, their pledgees and/or their donees, may agree to indemnify any
agent, dealer or broker-dealer who participates in transactions involving sales
of the shares of Common Stock against certain liabilities, including liabilities
arising under the Securities Act. The Company will not receive any proceeds from
the sales of the Selling Stockholders' Shares by the Selling Stockholders. Sales
of the Selling Stockholders' shares by the Selling Stockholders, or even the
potential of such sales, would likely have an adverse effect on the market price
of the Company's securities.
At the time a particular offer of the securities is made by or on
behalf of the Selling Stockholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
shares purchased from the selling stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations thereto, any person engaged in
distribution of Company securities offered by this prospectus may not
simultaneously engage in market-making activities with respect to Company
securities during the applicable "cooling off" period prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including
without limitation, Rules 10b-6 and
Alt-4
<PAGE>
10-b-7, in connection with transactions in the shares, which provisions may
limit the timing of purchases and sales of the Company securities by the Selling
Stockholders.
The following table sets forth certain information with respect to
persons for whom the Company is registering the Selling Stockholders' Shares for
resale to the public. The Company will not receive any of the proceeds from the
sale of the Selling Stockholders' Shares. Beneficial ownership of the Selling
Stockholders' Shares by such Selling Stockholders after this offering will
depend on the number of Selling Stockholders' Shares sold by each Selling
Stockholder. The securities held by the Selling Stockholders are restricted
securities while held by such Selling Stockholders and the resale of such
securities by the Selling Stockholders is subject to prospectus delivery and
other requirements of the Act. The Selling Stockholders' Shares offered by the
Selling Stockholders are not being underwritten by the Underwriter.
<TABLE>
<CAPTION>
Beneficial
Beneficial Total Number Ownership After this
Ownership Prior to of Shares Offering if all Shares
Selling Stockholder(1) this Offering Being Registered are Sold
- ----------------------- ------------------ ---------------- ----------------------
<S> <C> <C> <C>
Twinvalley, Inc. 65,000 65,000 0
Phil Lifschitz 20,000 20,000 0
Roseann Wexler 10,000 10,000 0
Wei Ying Wong 5,000 5,000 0
------- ------- -----
Total 100,000 100,000 0
======= ======= =====
</TABLE>
- --------------
(1) None of such Selling Stockholders has had any material relationship
with the Company.
Alt-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article NINTH of the Certificate of Incorporation of IFS International,
Inc. ("Registrant") provides that no director shall have any personal liability
to Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, except with respect to (1) a breach of the director's duty
of loyalty to Registrant or its stockholders, (2) acts or omissions not in good
faith which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit.
Article TENTH of the Certificate of Incorporation of Registrant provides that
Registrant shall indemnify, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as amended from time to time, any and all
persons whom it shall have power to indemnify under such section.
Reference is made to Section 6 of the Underwriting Agreement, which
provides for indemnification of the officers and directors of Registrant under
certain circumstances.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth various expenses, other than
underwriting discounts, which will be incurred in connection with this offering.
Other than the SEC registration fee, NASD filing fee and the non-accountable
expense allowance of Duke & Co., Inc. (the "Underwriter"), amounts set forth
below are estimates:
SEC registration fee........................................ $ 6,456
NASD filing fee ............................................ 2,631
Underwriter's nonaccountable expense allowance ............. 185,100*
Nasdaq Stock Market listing fee............................. 10,000
Philadelphia Stock Exchange listing fee .................... 10,000
Blue sky legal fees ........................................ 35,000
Printing and engraving expenses............................. 75,000
Legal fees.................................................. 125,000
Accounting fees............................................. 25,000
Transfer and Warrant Agent fees............................. 3,500
Miscellaneous expenses...................................... 22,313
--------
$500,000
========
II-1
<PAGE>
- -----------
* Assumes no exercise of the Underwriter's over-allotment option.
Item 26. Recent Sales of Unregistered Securities
The following sets forth information relating to all securities of
Registrant sold within the past three years without registering the securities
under the Securities Act of 1933, as amended (the "Securities Act"):
On October 7, 1994, Registrant issued an aggregate of 30,000 shares of
Common Stock to two non-affiliated persons and 10,000 shares of Common Stock to
Jerald Tishkoff, a director of Registrant, for an aggregate consideration
$60,000, or $1.50 per share.
On June 15, 1994, Registrant issued 350 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $1.50 per share, or
an aggregate of $525.
On July 12, 1994, Registrant issued 71 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.00 per share, or
an aggregate of $142.
On January 13, 1995, Registrant issued 5,000 shares of Common Stock to
a non-affiliate person pursuant to the exercise of options at $1.00 per share,
or an aggregate of $5,000.
In June 1995, New York State Science and Technology Foundation
converted $71,875 prinicpal amount of debentures into 25,967 shares of Common
Stock.
On November 13, 1995, Registrant issued 15,000 shares of Common Stock
to a non-affiliate upon conversion of a note payable in the amount of $150,000.
On January 8, 1996, Registrant issued 778 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $1.00 per share, or
an aggregate of $778.
On March 11, 1996, Registrant issued 909 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.50 per share, or
an aggregate of $2,272.
On June 20, 1996, Registrant issued 1,562 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.00 per share, or
an aggregate of $3,124.
On July 19, 1996, Registrant issued 22,401 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $.66 per share, or
an aggregate of $14,785.
On July 19, 1996, Registrant issued 26,405 shares of Common Stock to
Seymour Pearlman, a former director of Registrant, pursuant to the exercise of
options at $.66 per share, or an aggregate of $17,428.
On September 25, 1996, Registrant issued warrants to purchase an
aggregate of 100,000 shares of Common Stock at $2.50 per share, subject to
adjustments, to four non-affiliated persons for an aggregate consideration of
$5,000, or $.05 per warrant.
Exemption from registration under the Securities Act is claimed for the
sales of Common Stock referred to above in reliance upon the exemption afforded
by Section 4(2) of the Securities Act for transactions not involving a public
offering. Each certificate evidencing such shares of Common Stock bears an
appropriate restrictive legend. None of these sales involved participation by an
underwriter or a broker-dealer.
II-2
<PAGE>
Item 27. Exhibits
1.1 Form of Underwriting Agreement between Registrant and the
Underwriter
3.1 Certificate of Incorporation and amendments thereto of
Registrant
3.2 By-laws, as amended, of Registrant (1)
4.1* Certificate of Designation of the Series A Convertible
Preferred Stock
4.2* Form of certificate evidencing shares of Preferred Stock
4.3* Form of certificate evidencing Warrants
4.4* Form of certificate evidencing shares of Common Stock
4.5* Form of Warrant Agreement between Registrant and the
Underwriter
4.6* Form of Warrant Agreement between Registrant and American
Stock Transfer and Trust Company, as Warrant agent
4.7* Debenture Investment Agreement, dated July 6, 1989, between
Registrant and New York State Science and Technology
Foundation, and amendments thereto
4.8* Loan Agreement, dated January 11, 1989, between Registrant
and North Greenbush Industrial Development Agency and
amendments thereto
5.1* Opinion of Parker Duryee Rosoff & Haft A Professional
Corporation
10.1* 1996 Stock Option Plan
10.2 Lease Agreement, dated October 1, 1986 between Registrant and
Renssalaer Polytechnic Institute and amendment thereto
10.3* Digital Prime Contracting Agreement, dated June 6, 1994,
between Registrant and Digital Equipment International BV
10.4* Software Development and License Agreement, dated July 8,
1996, between Registrant and Visa International Service
Association
II-3
<PAGE>
21.1 Subsidiaries of Registrant
23.1 Consent of Urbach Kahn & Werlin PC
23.2* Consent of Parker Duryee Rosoff & Haft (included in Exhibit
5.1)
24.1 Power of Attorney (included on the signature page of Part II
of this Registration Statement)
- -----------------
* To be filed by Amendment to this Registration Statement.
(1) Incorporated by reference to an Exhibit filed as part of Registrant's
Registration Statement on Form S-18 (File No. 33-10970-NY)
Item 28. Undertakings
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, 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 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) That for the purpose of determining any liability under the
Securities Act, 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:
(a) To include any Prospectus required by Section 10(a)(3)
of the Securities Act;
(b) 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;
(c) 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.
II-4
<PAGE>
(4) 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.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Registrant pursuant to Item 24 of this Part II to the Registration Statement,
or otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of 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, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against the public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Troy, State of New York, on the 5th day of November, 1996.
IFS INTERNATIONAL, INC.
By: /s/ Frank A. Pascuito
---------------------------
Frank A. Pascuito
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Frank A. Pascuito and Charles
J. Caserta, and each of them, with full power to act without the other, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------------------------- ----
<S> <C> <C>
/s/ Frank A. Pascuito Chairman of the Board, Chief Executive November 5, 1996
- ----------------------- Officer, Director (Principal Executive
Frank A. Pascuito Officer)
/s/ Charles J. Caserta
- ----------------------- President, Director November 5, 1996
Charles J. Caserta
/s/ Simon J. Theobald Director of Sales and Marketing for November 5, 1996
- ------------------- for the London Office, Director
Simon J. Theobald
/s/ Carmen A. Pascuito
- ------------------- Controller November 5, 1996
Carmen A. Pascuito
- ------------------- Director
Arnold Wells
/s/ Jerald Tishkoff
- ------------------- Director November 5, 1996
Jerald Tishkoff
</TABLE>
<PAGE>
EXHIBIT INDEX
Item 27. Exhibits
1.1 Form of Underwriting Agreement between Registrant and the
Underwriter
3.1 Certificate of Incorporation and amendments thereto of
Registrant
3.2 By-laws, as amended, of Registrant (1)
4.1* Certificate of Designation of the Series A Convertible
Preferred Stock
4.2* Form of certificate evidencing shares of Preferred Stock
4.3* Form of certificate evidencing Warrants
4.4* Form of certificate evidencing shares of Common Stock
4.5* Form of Warrant Agreement between Registrant and the
Underwriter
4.6* Form of Warrant Agreement between Registrant and American
Stock Transfer and Trust Company, as Warrant agent
4.7* Debenture Investment Agreement, dated July 6, 1989, between
Registrant and New York State Science and Technology
Foundation, and amendments thereto
4.8* Loan Agreement, dated January 11, 1989, between Registrant
and North Greenbush Industrial Development Agency and
amendments thereto
5.1* Opinion of Parker Duryee Rosoff & Haft A Professional
Corporation
10.1* 1996 Stock Option Plan
10.2 Lease Agreement, dated October 1, 1986 between Registrant and
Renssalaer Polytechnic Institute and amendment thereto
10.3* Digital Prime Contracting Agreement, dated June 6, 1994,
between Registrant and Digital Equipment International BV
10.4* Software Development and License Agreement, dated July 8,
1996, between Registrant and Visa International Service
Association
21.1 Subsidiaries of Registrant
23.1 Consent of Urbach Kahn & Werlin PC
23.2* Consent of Parker Duryee Rosoff & Haft (included in Exhibit
5.1)
24.1 Power of Attorney (included on the signature page of Part II
of this Registration Statement)
- -----------------
* To be filed by Amendment to this Registration Statement.
(1) Incorporated by reference to an Exhibit filed as part of Registrant's
Registration Statement on Form S-18 (File No. 33-10970-NY)
<PAGE>
Exhibit 1.1
IFS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
_____________, 1996
Duke & Company, Inc.
909 Third Avenue
New York, New York 10022
Dear Sirs:
The undersigned, IFS International, Inc., a Delaware
corporation (the "Company"), hereby confirms its agreement with Duke & Co., Inc.
(the "Underwriter" or "You"), as follows:
1. Introduction. The Company proposes to issue and sell to the
Underwriter an aggregate of 1,200,000 shares of Series A Convertible Preferred
Stock, $.001 per value (the "Preferred Stock"), of the Company and 1,700,000
redeemable Preferred Stock purchase warrants (the "Redeemable Warrants"), each
Redeemable Warrant exercisable to purchase one share of Preferred Stock. Each
share of Preferred Stock is convertible, at the option of the holder, into one
share of common stock of the Company, $.001 par value (the "Common Stock"), for
a period commencing on the date hereof and ending on the fifth anniversary of
the Effective Date (as hereinafter defined); provided that the Preferred Stock
is required to be converted into Common Stock by the holders on the earlier of
the fifth anniversary of the Effective Date or the occurrence of certain events,
as more particularly described in the Certificate of Designations relating to
the Preferred Stock filed as Exhibit __ to the Registration Statement (referred
to in Section 2(a) below). The conversion rate of the Preferred Stock is subject
to adjustment in certain circumstances to prevent dilution. Each Redeemable
Warrant shall be exercisable for a period of three (3) years, commencing two
years from the Effective Date (except that the Redeemable Warrants shall become
exercisable at such earlier time as notice of mandatory redemption of the
Preferred Stock is given or the Redeemable Warrants are called for redemption
(as described below)), and shall entitle the holder to purchase one share of
Preferred Stock at a price equal to $6.25 per share, which price is subject to
adjustment in certain circumstances to prevent dilution. The Company may call
for redemption of the Redeemable Warrants commencing one year from the Effective
Date at a redemption price of $.10 per Redeemable Warrant, provided
<PAGE>
that the closing sales price of the Preferred Stock for a period of 20
consecutive trading days, which period ends no earlier than three business days
prior to the mailing of the notice of redemption, exceeds $8.00 per Share,
subject to adjustment in certain circumstances to prevent dilution. The
Redeemable Warrants will be issued pursuant to a warrant agreement dated the
date hereof between the Company and American Stock Transfer and Trust Company
(the "Public Warrant Agreement"), a form of which has been filed as Exhibit ___
to the Registration Statement. It is contemplated that the shares of Preferred
Stock and the Redeemable Warrants will trade separately and be purchasable
separately immediately upon issuance.
The 1,200,000 shares of Preferred Stock and 1,700,000
Redeemable Warrants are hereinafter referred to as the "Firm Securities." Upon
your request, as provided in Section 3 of this Agreement, the Company shall also
issue and sell to you up to an additional 180,000 shares of Preferred Stock and
255,000 Redeemable Warrants for the purpose of covering over-allotments in the
sale of the Firm Securities. Such additional Securities are hereinafter referred
as the "Option Securities." The Firm Securities and the Option Securities are
hereinafter sometimes referred to as the "Offered Securities." The 1,380,000
shares of Preferred Stock included as part of the Offered Securities are
hereinafter referred to as the "Shares"; the 1,955,000 shares of Preferred Stock
issuable upon exercise of the Redeemable Warrants included as part of the
Offered Securities are hereinafter referred to as the "Public Warrant Shares";
the 3,335,000 shares of Common Stock issuable upon conversion of the Shares and
the Public Warrant Shares are hereinafter referred to as the "Public Conversion
Shares"; and the Offered Securities, Public Warrant Shares and Public Conversion
Shares are sometimes hereinafter referred to collectively as the "Public
Securities."
The Company also proposes to issue and sell to you, pursuant
to the terms of a warrant agreement, dated as of the First Closing Date (as
hereinafter defined), between you and the Company (the "Underwriter's Warrant
Agreement"), warrants (the "Underwriter's Warrants) to purchase up to 120,000
shares of Preferred Stock and 170,000 Redeemable Warrants. The Underwriter's
Warrants shall be exercisable during the four-year period commencing 12 months
from the Effective Date, at $5.50 per share of Preferred Stock and $.11 per
Redeemable Warrant, subject to adjustment in certain events to protect against
dilution. The 120,000 shares of Preferred Stock issuable upon exercise of the
Underwriter's Warrants are hereinafter referred to as the "Underwriter's
Shares"; the 170,000 Redeemable Warrants issuable upon exercise of the
Underwriter's Warrants are hereinafter referred to as the "Underwriter's
Redeemable Warrants"; the 170,000 shares of Preferred Stock issuable upon
exercise of the Underwriter's Redeemable Warrants are hereinafter referred to as
the "Underwriter's Warrant Shares"; the 290,000 shares of Common
-2-
<PAGE>
Stock issuable upon conversion of the Underwriter's Shares and the Underwriter's
Warrant Shares are hereinafter referred to as the "Underwriter's Conversion
Shares"; and the Underwriter's Warrants, the Underwriter's Shares, the
Underwriter's Redeemable Warrants, the Underwriter's Warrant Shares and the
Underwriter's Conversion Shares are sometimes hereinafter referred to
collectively as the "Underwriter's Securities." The Public Securities and the
Underwriter's Securities are sometimes hereinafter referred to collectively as
the "Registered Securities."
The Registered Securities are more fully described in the
Registration Statement and the Prospectus referred to below.
2. Representations and Warranties. The Company
represents and warrants to, and agrees with, the Underwriter:
(a) A registration statement on Form SB-2
(File No. 333-_____) including a preliminary form of prospectus, relating to the
registration of the Registered Securities has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") promulgated pursuant to
the Act, and said registration statement has been filed with the Commission
under the Act. One or more amendments to said registration statement has or
have, as the case may be, been similarly prepared and filed with the Commission
and the Company has prepared and proposes to file on or prior to the Effective
Date of said registration statement an additional amendment thereto which will
include the final prospectus. The Company will not, so long as any Redeemable
Warrants or Underwriter's Warrants remain outstanding and exercisable, file any
amendment thereto or any amendment or supplement to the Preliminary Prospectus
or the Prospectus (as those terms are defined below) unless the Company has
given reasonable and prior notice thereof to the Underwriter and counsel for the
Underwriter and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and unless
the context indicates otherwise, the term "Registration Statement" refers to and
means said registration statement, including any exhibit, financial statement,
schedule and prospectus included therein, as finally amended and revised on or
prior to the Effective Date (the "Effective Date") of said registration
statement. The term "Preliminary Prospectus" refers to and means any prospectus
filed with the Commission and included in said registration statement before it
becomes effective, and the term "Prospectus" refers to and means the prospectus
included in the Registration Statement, except that if the prospectus first
filed by the Company pursuant to Rule 424(b) of the Rules and Regulations shall
differ from the Prospectus, the term "Prospectus" shall refer to the prospectus
filed pursuant to Rule 424(b). If the Registration Statement or the Prospectus
-3-
<PAGE>
is amended or supplemented after the Effective Date and prior to or on the
Closing Dates (as defined in Section 3), then the terms "Registration Statement"
and "Prospectus" shall refer to such documents as so amended or supplemented.
The terms used herein shall have the same meaning as in the Prospectus unless
the context hereof otherwise requires.
(b) Neither the Commission nor any state
regulatory authority has issued an order preventing or suspending the use of the
Preliminary Prospectus nor has the Commission or any such authority instituted
or, to the knowledge of the Company, threatened to institute any proceedings
with respect to such an order; the Preliminary Prospectus conformed in all
material respects to the requirements of the Act and the Rules and Regulations,
contained all statements which were required to be stated therein by the Act and
the Rules and Regulations and did not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and the Registration Statement at the time when
it becomes effective, and the Prospectus (and any amendments or supplements
thereto) at all subsequent times up to the date set forth in the Prospectus as
required by Item 502 of Regulation S-B of the Rules and Regulations, will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations and will conform in all material
respects to the requirements of the Act and the Rules and Regulations, and at
such times neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, except that the
representations and warranties in this Section 2(b) do not apply to statements
or omissions made in the Registration Statement or Prospectus by or on behalf of
the Underwriter made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriter, expressly for use therein.
(c) The Company has been duly incorporated and
is now, and at the Closing Dates will be, validly existing and in good standing
as a corporation under the laws of Delaware, and has (i) an authorized and
outstanding capitalization and indebtedness as set forth in the Registration
Statement at the respective dates referred to therein and (ii) full power and
authority to own its properties and conduct its business as presently conducted
and as described in, or contemplated by, the Registration Statement. The Company
is duly qualified and in good standing as a foreign corporation in all
jurisdictions in which the nature of the business transacted by it or the
-4-
<PAGE>
character or location of its properties, in each case taken as a whole, makes
such qualification necessary. The Company holds, or will hold by the First
Closing Date (as hereinafter defined), all licenses, certificates and permits
from state, federal or other regulatory authorities necessary for the conduct of
its business as presently conducted and as described in or contemplated by the
Registration Statement and is in material compliance with all laws and
regulations and all orders and decrees applicable to it or to such business or
assets, and there are no proceedings pending or, to the knowledge of the
Company, threatened, seeking to cancel, terminate or limit such licenses,
approvals or permits.
(d) The Company does not own, directly or
indirectly, any capital stock or other equity interest in or of any corporation,
partnership or other legal entity whatsoever, except that the Company owns 100%
of the outstanding securities of (i) IFS International, Inc., a New York
corporation (the "U.S. Subsidiary") and (ii) _____________________, a
corporation organized under the laws of Singapore (the "Foreign Subsidiary" and,
collectively with the U.S. Subsidiary, the "Subsidiaries").
(e) The financial statements of the Company,
including the related notes included as part of the Registration Statement,
present fairly the financial condition of the Company as of the dates thereof
and the results of operations for the respective periods to which they apply.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as otherwise stated therein, and all adjustments necessary for
a fair presentation of results for such periods have been made.
(f) Urbach, Kahn & Werlin, P.C., who have
audited certain of the financial statements included as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(g) Subsequent to the dates as of which
information is given in the Registration Statement and Prospectus, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company has not incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there has not been any change in the capital stock,
funded debt (other than regular repayments of principal and interest on existing
indebtedness) or other securities of the Company, any adverse change in the
condition (financial or other), business, operations, income, net worth or
properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which
-5-
<PAGE>
could adversely affect the condition (financial or other), business, operations,
income, net worth or properties of the Company; and (iii) the Company has not
paid or declared any dividend or other distribution on its Common Stock or its
other securities or redeemed or repurchased any of its Common Stock or other
securities.
(h) This Agreement, the Public Warrant
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement (as
defined in Section 5(v) hereof), have been duly and validly authorized by the
Company, and this Agreement constitutes, and the Public Warrant Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement, when executed and
delivered pursuant to this Agreement (assuming due execution by the Underwriter
and/or the appropriate parties to such agreements), will each constitute a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its respective terms, except (i) as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification, contribution or exculpation provision may
be limited under applicable Federal and state securities laws, and (iii) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought ((i), (ii) and (iii) are
hereinafter referred to as the "Enforceability Exceptions").
(i) The Shares have been duly authorized and
when issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Redeemable Warrants have been
duly authorized and, when issued and delivered pursuant to this Agreement, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to the Enforceability Exceptions, and will
be entitled to the benefits provided by the Public Warrant Agreement. The Public
Warrant Shares have been reserved for issuance upon exercise of the Redeemable
Warrants and, when issued in accordance with the terms of the Redeemable
Warrants and Public Warrant Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Public Conversion Shares, when issued
pursuant to conversion of the Preferred Stock in accordance with the terms
thereof, will be duly authorized, validly issued, fully paid and non-assessable.
The Underwriter's Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to the Enforceability Exceptions, and will be entitled to the benefits provided
by the Underwriter's Warrant Agreement. The Underwriter's Shares and
Underwriter's Redeemable Warrants have been reserved for issuance
-6-
<PAGE>
upon exercise of the Underwriter's Warrants. The Underwriter's Shares, when
issued in accordance with the terms of the Underwriter's Warrants and
Underwriter's Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The Underwriter's Redeemable Warrants have been duly
authorized and, when issued in accordance with the terms of the Underwriter's
Warrants and Underwriter's Warrant Agreement, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Public Warrant Agreement. The Underwriter's Warrant Shares, when
issued in accordance with the terms of the Underwriter's Redeemable Warrants and
the Public Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The Underwriter's Conversion Shares, when issued
pursuant to conversion of the Preferred Stock in accordance with the terms
thereof, will be duly authorized, validly issued, fully paid and non-assessable.
Neither the issuance of any of the Public Securities or any of the Underwriter's
Securities will violate or otherwise be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company, and none of the holders of any of the Public Securities or any of
the Underwriter's Securities will be subject to personal liability by reason of
being such holders.
(j) All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully paid and
non-assessable; the issuances and sales of all such securities complied in all
material respects with applicable Federal and state securities laws; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company.
(k) Except as set forth in the Prospectus, no
material default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage, deed of
trust, note, loan or credit agreement, or any other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the property or assets of the Company are subject, which default would
reasonably be expected to have a materially adverse effect on the financial
condition or business of the Company.
(l) The Company is not in violation of any term
or provision of its Certificate of Incorporation or By-Laws. Neither the
execution and delivery of this Agreement, nor the issuance and/or sale of any of
the Public Securities or the Underwriter's Securities, nor the consummation of
-7-
<PAGE>
any of the transactions contemplated herein, nor the compliance by the Company
with the terms and provisions hereof, has materially conflicted with or will
materially conflict with, or has resulted in or will result in a material breach
of, any of the terms and provisions, or has constituted or will constitute a
material default under, or has resulted in or will result in the creation or
imposition of any material lien, charge or encumbrance upon the property or
assets of the Company pursuant to the terms of any indenture, mortgage, deed of
trust, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party, or by which the Company is or may be
bound, or to which any of the property or assets of the Company is subject; nor
will such action result in any material violation of the provisions of the
Certificate of Incorporation or the By-Laws of the Company or of any contract or
agreement, or of any statute or any order, rule or regulation applicable to the
Company or any of the Subsidiaries or of any other regulatory authority or other
governmental body having jurisdiction over the Company or any of the
Subsidiaries, except where such violation would not have a material adverse
effect on the Company.
(m) There is neither pending nor, to the
knowledge of the Company, threatened, any action, suit, or proceeding at law or
in equity or any arbitration (or circumstances that may give rise to the same)
to which the Company or any of its respective officers, directors or
shareholders is a party before or by any court, arbitration tribunal or
governmental instrumentality, agency, or body, which might result in any
materially adverse change in the condition (financial or other), business,
operations, income, net worth or properties of the Company, or which might
materially adversely affect its properties or assets, or prevent consummation of
the transactions contemplated hereby; nor are there any such actions, suits or
proceedings against the Company related to consumer protection, distribution,
rental and sales, or environmental matters or matters related to discrimination
on the basis of age, sex, religion or race; and no labor disturbance by the
employees of the Company exists or to the knowledge of the Company is imminent
which might be expected to materially adversely affect the conduct of the
business, property, operations, financial condition or earnings of the Company.
(n) There is no contract or other document
which is required by the Act or by the Rules and Regulations to be filed as an
exhibit to the Registration Statement which has not been so filed, and each
contract which is filed as an exhibit to the Registration Statement is and shall
be in full force and effect at each of the Closing Dates or shall have been
terminated in accordance with its terms or as set forth in the Registration
-8-
<PAGE>
Statement and Prospectus, and no party to any such contract has given notice to
the Company of the cancellation of or, to the knowledge of the Company, shall
have threatened to cancel, any such contract, and the Company is not or shall
not be in default thereunder.
(o) The Company has good and marketable title
to all of its property and assets, including any licenses, trademarks and
copyrights, described in the Registration Statement as owned by it, free and
clear of all liens, charges, encumbrances and restrictions other than such as
are not materially significant in relation to the business of the Company and
other than as described in the Registration Statement (including the financial
statements and notes included therein); all of the leases, subleases and
licenses under which it holds or uses any real or personal property, including
those described or referred to in the Prospectus, are in full force and effect,
and the Company is not in material default in respect of any of the terms or
provisions of any such leases, subleases and licenses, and to the Company's
knowledge no claim of any sort has been asserted by anyone adverse to the rights
of the Company under any such leases, subleases or licenses affecting or
questioning the rights of the Company to the continued use or enjoyment of the
rights and property covered thereby. The Company owns or leases all such
properties as are necessary to its operations as now conducted and as proposed
to be conducted as set forth in the Prospectus.
(p) The Company has timely (giving effect to
permitted extensions) and properly prepared and filed all necessary Federal,
state, local and foreign income and franchise tax returns and has paid all taxes
shown on such returns and all assessments received by it to the extent the same
have become due, other than those due without interest or penalty, and except to
the extent the Company is in good faith contesting any such tax or assessment in
appropriate proceedings and has established reserves in accordance with normal
accounting practices. The Company has no knowledge of any tax deficiency which
might be asserted against the Company which could materially and adversely
affect its business or properties, and has established adequate reserves for
such taxes which are not yet due and payable.
(q) The Company maintains insurance, which is
in full force and effect, of the types and in the amounts currently adequate for
its business, including but not limited to personal injury and product liability
insurance, insurance covering all personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, except that the Company does not carry
insurance for theft or destruction of its merchandise while in the possession of
its customers. The Company has not (i) failed to give notice or present any
insurance claim with respect to any matter, including but not limited to
-9-
<PAGE>
the Company's business, property or employees, under the insurance policy or
surety bond in a due and timely manner, (ii) had any disputes or claims against
any underwriter of such insurance policies or surety bonds or has failed to pay
any premiums due and payable thereunder, or (iii) failed to comply with all
conditions contained in such insurance policies and surety bonds; in each case
except where such failure or dispute would not have a material adverse effect on
the business, operations or financial condition of the Company taken as a whole.
To the best knowledge of the Company, there are no facts or circumstances under
any such insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company.
(r) The Company owns or possesses adequate
rights to use all patents, patent rights, inventions, trademarks, service marks,
trade names and copyrights necessary for the conduct of its business as
described in the Prospectus and the Company has not received any notice of
infringement of or conflict with, and the Company, to the best of its knowledge,
is not infringing or in conflict with asserted rights of others with respect to,
any patents, patent rights, inventions, trademarks, service marks, trade names
or copyrights.
(s) Except as set forth in the Prospectus, the
Company is not obligated or under any liability whatsoever to make any payment
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise. In addition, the
Company owns and has the unrestricted right to use all trade secrets, know-how
(including all other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), inventions, designs, processes, works of
authorship, computer programs and technical data and information (collectively
herein "intellectual property") that are material to the development,
manufacture, operation and sale of all products and services sold or proposed to
be sold by the Company, free and clear of and without violating any right, lien,
or claim of others, including without limitation, former employers of its
employees; provided, however, that the possibility exists that other persons or
entities, completely independently of the Company or its employees or agents,
could have developed trade secrets or items of technical information similar or
identical to those of the Company. The Company is not aware of any such
development of similar or identical trade secrets or technical information by
others. The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all their intellectual property in all
material aspects.
-10-
<PAGE>
(t) There is no outstanding claim for services
in the nature of a finder's fee, brokerage fee or otherwise with respect to this
financing by the Company for which the Company or the Underwriter may be
responsible.
(u) No officer or director of the Company or
any affiliate (as such term is defined in Rule 405 promulgated under the Rules
and Regulations) of any such officer or director has taken, and each officer or
director has agreed that he will not take, directly or indirectly, any action
designed to constitute or which has constituted or which might reasonably be
expected to cause or result in the stabilization of the price of the Preferred
Stock, the Redeemable Warrants or the Common Stock or a violation of Rule 10b-6
of the Rules and Regulations or in a manipulation of the price of any security
issued by the Company.
(v) No officer, director or stockholder of the
Company, or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells products or services 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, or transactions, between or among the Company or any of its
Subsidiaries and any officer or director of the Company, or any partner,
affiliate or associate of any of the foregoing persons or entities.
(w) The minute books of each of the Company and
the Subsidiaries have been made available to the Underwriter and contain a
complete summary of all meetings and actions of the directors and stockholders
of each of the Company and the Subsidiaries since the time of their respective
dates of incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(x) The Company is not aware of any bankruptcy,
labor disturbance or other event affecting any of its principal suppliers or
customers which is reasonably likely to result in a material adverse change in
the condition, financial or otherwise, prospects, business or results of
operation of the Company.
(y) The Registered Securities and all the other
securities of the Company conform to all statements in relation
thereto in the Registration Statement.
-11-
<PAGE>
(z) On the Effective Date, (i) the authorized
capital stock of the Company will be as set forth in the Registration Statement,
and (ii) not more than an aggregate of _____________ shares of Common Stock
shall be issued and outstanding, not including: (A) 3,335,000 Public Conversion
Shares; (B) the 290,000 Underwriter's Conversion Shares; (C) _________ shares of
Common Stock reserved for issuance under a stock option plan previously
maintained by the Company, (the "Old Option Plan"), (D) not more than 300,000
shares of Common Stock reserved for issuance under the _________________________
("New Option Plan"); and (E) 100,000 shares of Common Stock issuable upon
exercise of warrants issued in connection with a bridge financing in September
1996 (the "Bridge Warrants"). Other than the shares of Common Stock already
issued (or reserved for issuance as described in the immediately preceding
sentence), and the Public Securities and the Underwriter's Securities to be
offered in or in connection with the proposed public offering, no other shares
of capital stock or securities convertible into capital stock shall be
outstanding or reserved for issuance at the completion of the proposed public
offering without the consent of the Underwriter, except as contemplated by the
Registration Statement.
(aa) Except for the registration rights granted
under the Underwriter's Warrant Agreement and those to the holders of the Bridge
Warrants (as described in the Registration Statement), no holder of any
securities of the Company has the right to require that the Company include such
securities in the Registration Statement or any registration statement to be
filed by the Company, and any person with registration rights has agreed not to
exercise any such rights within 24 months following the First Closing Date.
(bb) Assuming that there will be two "market
makers" for the Preferred Stock, at least 500 beneficial owners of the Preferred
Stock and a sufficient "public float" of the Shares, and that the Company's
registration of the Preferred Stock pursuant to the Securities Exchange Act of
1934 (the "1934 Act") becomes effective (all as contemplated by the requirements
of the National Association of Securities Dealers, Inc. (the "NASD")), the
Preferred Stock and the Redeemable Warrants are eligible for quotation on The
NASDAQ SmallCap Market ("NASDAQ") and have been approved for listing on the
Philadelphia Stock Exchange, subject to official notice of issuance. The Company
has filed a registration statement with the Commission pursuant to Sections
12(g) and 12(b) of the 1934 Act, and has used its best efforts to have same
declared effective by the Commission on an accelerated basis on the Effective
Date.
(cc) Neither the Company nor any officer,
director or other agent of the Company has, acting on behalf of the Company, at
any time (i) made any contributions to any candidate for political office in
-12-
<PAGE>
violation of law, or failed to disclose fully any such contributions in
violation of law, (ii) made any payment to any state, Federal or foreign
governmental officer or official, or any other person charged with similar
public or quasi-public duties, other than payments required or not prohibited by
law or (iii) made any payment of funds of the Company or received or retained
any funds in violation of any law, rule or regulation and under circumstances
requiring the disclosure of such payment, receipt or retention of funds in the
Prospectus.
(dd) Since April 30, 1996, the Company has not
sustained any material casualty loss or interference with its business from
fire, storm, explosion, flood or other like or unlike casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree which is not disclosed or reflected in the Prospectus.
(ee) The Company is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
(ff) No unregistered securities of the Company
have been sold by the Company within the three years prior to the date hereof,
except as disclosed in Part II of the Registration Statement.
(gg) The employment agreements between the
Company and its respective officers, as disclosed in the Registration Statement,
are or will be on or before the First Closing Date, as hereinafter defined,
binding and enforceable obligations upon the respective parties thereto in
accordance with their respective terms, except to the extent enforceability may
be limited by any bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally and to the
extent that the remedy of specific performance and injunction or other forms of
equitable relief may be subject to equitable defenses and the discretion of the
court before which any proceeding therefor may be brought.
(hh) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(ii) There are no voting or other shareholder
agreements between the Company and any shareholders of the Company or between
or by and among any shareholders of the Company.
-13-
<PAGE>
(jj) Each of the Company and the Subsidiaries
has generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance 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 or any of the Subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or any
of the Subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the
Company's best knowledge, threatened against or involving the Company or the
Subsidiaries or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company or any of
the Subsidiaries, and no collective bargaining agreement or modification thereof
is currently being negotiated by the Company or any of the Subsidiaries. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements to which the Company or any of the Subsidiaries
is or was a party. No labor dispute with the employees of the Company or any of
the Subsidiaries exists, or is imminent.
(kk) The statements in the Prospectus under
"RISK FACTORS," "BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and
"DESCRIPTION OF SECURITIES," insofar as they refer to statements of law,
descriptions of statutes, licenses, sales or regulations or legal conclusions
are correct in all material respects.
Any certificate signed by an officer of the Company
in his capacity as such and delivered to the Underwriter or counsel for the
Underwriter shall be deemed a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
3. Purchase, Delivery and Sale of the Offered Securities
and the Underwriter's Warrants.
(a) On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter the Firm Securities,
consisting of 1,200,000 shares of Preferred Stock and 1,700,000 Redeemable
Warrants, and the Underwriter agrees to purchase such Firm Securities from the
Company. on a firm commitment basis, at a purchase price of $4.50 per share of
Preferred Stock and $.09 per Redeemable Warrant.
(b) In addition, the Company hereby grants the
Underwriter the option (the "Over-allotment Option) to purchase from the
Company, at any time or from time to time during a
-14-
<PAGE>
period of forty-five (45) calendar days from the date of the Prospectus, all or
any part of the Option Securities at a purchase price of $4.50 per share of
Preferred Stock and/or $.09 per Redeemable Warrant. Notice of exercise of the
Over-allotment Option, in whole or in part, shall be delivered by the
Underwriter to the Company at least two (2) days in advance of the date on which
the Option Securities are to be delivered to the Underwriter, provided that
delivery of the Option Securities shall be made concurrently with tender of
payment therefor. Option Securities may be purchased by the Underwriter only for
the purpose of covering over-allotments in the sale of the Firm Securities, and
the Underwriter shall have no obligation to make any over-allotments. No Option
Securities shall be delivered and paid for unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered and paid for
as herein provided.
(c) On the First Closing Date, the Company
shall issue and sell to the Underwriter the Underwriter's Warrants. The total
purchase price of the Underwriter's Warrants shall be $290. The Underwriter's
Warrants shall be exercisable for a period of four years commencing 12 months
from the Effective Date, at prices of $5.50 per Underwriter's Share and $.11 per
Underwriter's Redeemable Warrant, respectively. The Underwriter's Warrant
Agreement, including the forms of Underwriter's Warrant Certificates, shall be
substantially in the form filed as Exhibit _____ to the Registration Statement.
Payment for the Underwriter's Warrants shall be made on the First Closing Date.
(d) Payment for the Firm Securities and the
Option Securities shall be made on each of the First Closing Date and Option
Closing Date (as hereinafter defined), respectively, by certified or bank
cashier's check in New York Clearing House funds, payable to the order of the
Company, or by wire transfer, at the offices of the Underwriter, or at such
other place as agreed upon by the Underwriter and the Company, upon delivery of
certificates (in form and substance reasonably satisfactory to the Underwriter)
representing the Firm Securities and Option Securities to be sold at such
closing or by confirmation of electronic transfer of the Firm Securities or
Option Securities, as the case may be, to the Underwriter for the accounts of
the Underwriter. Delivery and payment for the Firm Securities shall be made at
10:00 A.M. New York time, on or before the fifth business day following the
public offering or at such earlier time as the Underwriter shall determine or as
required by law, or at such other time as shall be agreed upon by the
Underwriter and the Company. The hour and date of delivery and payment for the
Firm Securities are called the "First Closing Date." The Firm Securities shall
be registered in such name or names and in such authorized denominations as the
Underwriter may request in writing at least two (2) full business days prior to
Closing Date. The Company will permit the Underwriter to examine and package any
-15-
<PAGE>
certificates representing the Firm Securities for delivery, at least one (1)
full business day prior to the First Closing Date. Delivery for each of the
Option Securities as provided above shall be made within two (2) business days
after notice of exercise to the Company, and against payment therefor, as
provided above. The hour and date of such delivery and payment made subsequent
to the First Closing Date for Option Securities is referred to as the "Option
Closing Date." The Option Securities shall be registered in such name or names
and in such denominations as the Underwriter may request in writing at the time
of exercise of the Over-allotment Option.
(e) The Company shall not be obligated to sell
or deliver any Firm Securities except upon tender of payment by the Underwriter
for all the Firm Securities.
4. Public Offering by the Underwriter. The Underwriter
agree to cause the Firm Securities to be offered to the public initially at the
prices and under the terms set forth in the Prospectus as soon, on or after the
effective date of this Agreement, as the Underwriter deems advisable, but no
more than five (5) full business days after such effective date. The Underwriter
may allow such concessions and discounts upon sales to other dealers as set
forth in the Prospectus. The Underwriter agrees to notify the Company in writing
when the offering is first made and when it is completed. After the completion
of the initial public offering, the public offering prices, the concessions and
the reallowance may be changed by the Underwriter.
5. Agreements of the Company. The Company covenants
and agrees with the Underwriter that:
(a) The Company will use its best efforts to
cause the Registration Statement to become effective as promptly as possible,
and will not at any time, whether before or after the Effective Date, file any
amendment or supplement to the Registration Statement, (i) which shall not have
been previously submitted to, and approved by, the Underwriter or counsel for
the Underwriter a reasonable time prior to the filing thereof, (ii) to which the
Underwriter or counsel for the Underwriter shall have reasonably objected in
writing as not being in compliance with the Act or the Rules and Regulations or
(iii) which is not in compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter,
promptly after it shall have received notice of the effectiveness of the
Registration Statement or any amendment or supplement thereto, of the receipt of
any comments of the Commission with respect thereto, of the time when the
Registration Statement or any post-effective amendment thereto has become
effective or any supplement to the Prospectus has been filed.
-16-
<PAGE>
(c) The Company will advise the Underwriter
promptly of any request of the Commission for an amendment or supplement to the
Registration Statement or the Prospectus, or for any additional information, or
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement, or of any judgment, order, injunction or decree
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, or of the institution of any proceedings for any of such purposes,
of which it has knowledge, and will use its best efforts to prevent the issuance
of any stop order, and, if issued, to obtain as promptly as possible the lifting
thereof.
(d) If at any time when a prospectus relating
to the Public Securities and/or the Underwriter Securities is required to be
delivered under the Act, any event shall have occurred as a result of which, in
the opinion of counsel for the Company or counsel for the Underwriter, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will notify the
Underwriter promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to counsel for the Underwriter, and
the Company will furnish to the Underwriter copies of such amendment or
supplement as soon as available and in such quantities as the Underwriter may
request.
(e) Within the time during which the Prospectus
is required to be delivered under the Act, or pursuant to the undertakings of
the Company in the Registration Statement, the Company will comply, at its own
expense, with all requirements imposed upon it by the Act, the Rules and
Regulations, the 1934 Act or the rules and regulations of the Commission
promulgated under the 1934 Act, each as now or hereafter amended or
supplemented, and by any order of the Commission so far as necessary to permit
the continuance of sales of, or dealings in, the Registered Securities.
(f) The Company will furnish to the
Underwriter, without charge, three (3) signed copies of the Registration
Statement and of any amendment or supplement thereto which has been filed prior
to the date of this Agreement, together with three (3) copies of each exhibit
filed therewith, and of five (5) conformed copies of such Registration Statement
and amendments thereto (unsigned and exclusive of exhibits) as the Underwriter
-17-
<PAGE>
may reasonably request. The signed copies of the Registration Statement so
furnished to the Underwriter will include signed copies of any and all consents
and reports of the independent public auditors as to the financial statements
included in the Registration Statement and Prospectus, and signed copies of any
and all consents and certificates of any other person whose profession gives
authority to statements made by them and who are named in the Registration
Statement or Prospectus as having prepared, certified or reviewed any parts
thereof.
(g) The Company will deliver to the
Underwriter, without charge, (i) prior to the Effective Date, copies of each
Preliminary Prospectus filed with the Commission bearing in red ink the
statement required by Item 501 of Regulation S-B of the Rules and Regulations;
(ii) on and from time to time after the Effective Date, copies of the
Prospectus; and (iii) as soon as they are available, and from time to time
thereafter, copies of each amended or supplemented Prospectus, and the number of
copies to be delivered in each such case will be such as the Underwriter may
reasonably request. The Company has consented and hereby consents to the use of
each Preliminary Prospectus for the purposes permitted by the Act and the Rules
and Regulations. The Company authorizes the Underwriter and dealers to use the
Prospectus in connection with the sale of the Offered Securities and the Public
Warrant Shares, for such period as, in the opinion of counsel for the
Underwriter, delivery of the Prospectus is required to comply with the
applicable provisions of the Act and the Rules and Regulations.
(h) For so long as any Redeemable Warrant is
outstanding, the Company shall, at its own expense, use its reasonable best
efforts to cause post-effective amendments to the Registration Statement, or a
new registration statement relating to the Redeemable Warrants and the Preferred
Stock underlying the Redeemable Warrants, to become effective in compliance with
the Act and without any lapse of time between the effectiveness of the
Registration Statement and of any such post-effective amendment or new
registration statement. The Company also agrees to take such action as may be
necessary to qualify the Registered Securities for offer and sale under the Blue
Sky or securities laws of such states or other jurisdictions as is required and
as the Underwriter or counsel for the Underwriter may designate (provided that
such states or jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process) and to continue
such qualifications in effect so long as may be required for the purposes of the
distribution of the Registered Securities. In each state or jurisdiction where
the Company shall qualify the Registered Securities as above provided, the
Company will prepare and file such statements or reports as may be required by
the laws of such state or jurisdiction, and the Underwriter shall, upon the
written request of the Company, supply the Company with all information known to
the Underwriter and required to be included in such statements or reports.
-18-
<PAGE>
(i) During the period of three years from the
First Closing Date, the Company, at its expense, shall furnish the Underwriter
with (i) copies of each annual report of the Company; (ii) as soon as
practicable and in any event upon filing such report with the Commission, a
financial report of the Company, which will include a balance sheet as of the
end of the preceding fiscal year, a statement of operations, a statement of
stockholders' equity (deficit) and a statement of cash flows covering such
fiscal year, such report being in reasonable detail and audited by independent
public auditors; (iii) for each fiscal quarter of the Company other than the
last fiscal quarter in any fiscal year, as soon as practicable and in any event
upon filing such report with the Commission, a financial report of the Company,
which will include a balance sheet as of the end of the preceding fiscal
quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter, together
with notes thereto, for such fiscal quarter and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for the
preceding year, such report being in reasonable detail and certified by the
Chief Financial Officer of the Company to be correct and complete, to fairly
present the financial condition of the Company at the date thereof and the
results of operations for the period then ending and to have been prepared in
accordance with generally accepted accounting principles consistently applied,
except for normal year end adjustments; and (iv) a copy of any Schedule 13D,
13G, 14D-1, 13E-3 or 13E-4 received or filed by the Company from time to time;
(v) a copy of any report filed by the Company pursuant to the 1934 Act; (vi)
copies of all statements, documents or other information which the Company shall
mail or otherwise make available to any class of its security holders, or shall
file with the Commission or with any exchange upon which the securities issued
by the Company shall then be listed or registered; and (vii) such other publicly
available information as the Underwriter may from time to time request. If, and
so long as, the Company has an active subsidiary or subsidiaries, the Company's
financial statements 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. Separate financial statements shall be
furnished for all subsidiaries whose accounts are not consolidated but which at
the time are significant subsidiaries as defined by the Rules and Regulations.
With respect to each consolidated and unconsolidated significant subsidiary and
affiliate, if any, the financial reports shall be in sufficient detail to show
the basis of any consolidated reports required hereunder. Notwithstanding the
foregoing, the Company's financial statements shall be deemed to comply with the
requirements of this paragraph if they comply with the Rules and Regulations.
-19-
<PAGE>
(j) For a period of five years from the First
Closing Date, the Company shall not change its independent public accountants
without the Underwriter's prior consent. For a period of five years from the
First Closing Date, the Company, at its expense, shall cause its then
independent public accountants to review (but not audit), the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-QSB quarterly report and the mailing of quarterly financial information to
stockholders, provided that such review shall not be deemed to require
submission with the 10-QSB quarterly report of a report on the financial
statements included therein from such accountants. For a period of five years
from the First Closing Date, the Company shall promptly submit to the
Underwriter copies of all accountants' management reports and similar
correspondence between the Company and its independent public accountants.
(k) As soon as practicable, but in any event
not later than 45 days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the Effective
Date occurs (90 days in the event that the end of such fiscal quarter is the end
of the Company's fiscal year), the Company will make generally available to its
security holders in accordance with Section 11(a) of the Act an earnings
statement of the Company and its subsidiaries (which need not be audited) in
reasonable detail and covering a period of at least 12 months beginning after
the Effective Date, and advise the Underwriter that such statement has been so
made available.
(l) The Company will apply the net proceeds
("Proceeds") it realizes from the sale of the Offered Securities in the manner
set forth under the caption "Use of Proceeds" in the Prospectus. Except as
expressly provided therein, none of the Proceeds will be used to pay outstanding
loans from officers, directors or stockholders or to pay any salaries or bonuses
accrued prior to the date hereof to any employees or former employees.
(m) The Company on the First Closing Date will
sell to the Underwriter the Underwriter's Warrants according to the terms
specified in Section 3 hereof. The Company has reserved and shall continue to
reserve a sufficient number of shares of (i) Preferred Stock for issuance upon
exercise of the Underwriter's Warrants and the Underwriter's Redeemable Warrants
and (ii) Common Stock issuable upon conversion of the Underwriter's Shares and
Underwriter's Warrant Shares.
-20-
<PAGE>
(n) For the five year period following the
First Closing Date, the Company agrees that the Underwriter shall have the right
to nominate, and the Company shall use its best efforts to cause the election
of, one member of the Company's Board of Directors, who shall be reasonably
acceptable to the Company; alternatively, the Underwriter may appoint a designee
to serve as an observer at all meetings of the Company's Board of Directors,
which observer would be entitled to the same cash compensation and reimbursement
of expenses as the Company affords its directors who are not also officers or
employees of the Company and to receive all copies of all notices and other
documents distributed to the members of the Company's Board of Directors
(including, but not limited to, any unanimous consents prepared and advance
notices of all proposed Board actions or consents), as if such observer were a
member of the Company's Board of Directors. To the extent permitted by law, the
Company agrees to indemnify and hold the designee and the Underwriter harmless
against any and all claims, actions, awards and judgments arising out of his
service and in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
designee and the Underwriter as insureds under such policy, unless inclusion of
the observer or the Underwriter as an insured will cause the Company to become
subject to special insurance underwriting classifications which would increase
the cost of such insurance to the Company. In the event the Company does not
have a liability insurance policy in effect on the First Closing Date, the
Company agrees to use its best efforts to obtain, as promptly as practicable
following the First Closing Date, such a policy in an amount reasonable and
customary for similarly situated companies, at a premium the Company can
reasonably afford. The rights and benefits of such indemnification and the
benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be, or be alleged to be, responsible for such
advisor. The Company will deliver, on or before the First Closing Date, the
agreements of each of its officers, directors and holders of 5% or more of its
Common Stock to vote, during the five year period commencing on the First
Closing Date, for the election of the Underwriter's designee for director, if
any.
(o) The Company will maintain insurance in full
force and effect of the types and in the amounts adequate for its business and
in line with insurance maintained by similar companies and businesses, including
but not limited to, personal injury and product liability insurance and
insurance covering all personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, except insurance for theft or destruction of its merchandise
while in the possession of its customers.
-21-
<PAGE>
(p) During the course of the distribution of
the Offered Securities, the Company will not take, directly or indirectly, any
action designed to or which might, in the future, reasonably be expected to
cause or result in stabilization or manipulation of the prices of the Preferred
Stock, Redeemable Warrants and/or the Common Stock. During the so-called "quiet
period" in which delivery of a prospectus is required, if applicable, the
Company will not issue press releases or engage in any other publicity without
the Underwriter's prior written consent.
(q) The Company will use its best efforts, at
its cost and expense, to take all necessary and appropriate action to maintain
the listing of the Preferred Stock, the Redeemable Warrants and the Common Stock
on the NASDAQ SmallCap Market and Philadelphia Stock Exchange for a period of
five years from the First Closing Date and will, as promptly as practicable
following determination by the Company that the Preferred Stock, Redeemable
Warrants and/or Common Stock will qualify therefor, use its best efforts to list
such securities on the NASDAQ National Market and maintain such listing for as
long as such securities remain qualified.
(r) On or prior to the Effective Date, the
Company shall register with (i) the Corporation Records Service (including
annual report information) published by Standard & Poor's Corporation or (ii)
Moody's Industrial Manual (Moody's OTC Industrial Manual not being sufficient
for these purposes).
(s) The Company has filed a registration
statement with the Commission pursuant to Section 12(g) of the 1934 Act with
respect to the Preferred Stock, Redeemable Warrants and Common Stock and will
use its best efforts to have same declared effective by the Commission on or
before the Effective Date. The Company will use its best efforts to maintain
such registration in effect for a period of not less than 5 years from the
Public Closing Date.
(t) The Company will at all times, from the
First Closing Date until at least five (5) years from such date, maintain in
full force, or cause to be maintained in full force, from an insurer rated "A"
or better (General Policyholders Rating) in the most recent edition of "Best
Life Reports", term life insurance in the amount of at least $1,000,000 on the
lives of each of Frank Pascuito and Charles Caserta. Such policy shall be owned
by the Company and all benefits thereunder shall be payable to the Company.
(u) On the Closing Dates, all transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Offered Securities and the Underwriter's Warrants
will have been fully paid by the Company and all laws imposing such taxes will
have been fully complied with.
-22-
<PAGE>
(v) On the First Closing Date, the Company and
the Underwriter shall enter into a consulting agreement, in the form filed as
Exhibit _____ to the Registration Statement, pursuant to which the Underwriter
will offer to provide financial consulting services to the Company for a
two-year period (the "Consulting Agreement").
(x) Except for (i) the Public Securities, (ii)
the Underwriter's Securities, (iii) the issuance of Common Stock pursuant to the
exercise of warrants and options heretofore issued and described in the
Prospectus, and (iv) the issuance to employees, officers, directors, advisors
and consultants of stock options or warrants to purchase a number of shares of
Common Stock not to exceed 300,000 shares pursuant to the New Option Plan
(provided that (A) the Company may not grant options or warrants for more than
100,000 of such shares prior to the First Closing Date, (B) any options or
warrants granted pursuant to this clause (iv) shall have an exercise price equal
to the greater of $5.00 per share and the market price per share of Common Stock
on the date of grant and (C) the vesting of such options or warrants shall be
subject to the achievement of earnings performance criteria acceptable to the
Underwriter), the Company will not, from and after the date hereof until 24
months after the First Closing Date, sell or issue any shares of Common Stock,
Preferred Stock or other equity securities of the Company or sell or grant
options, warrants or rights to purchase any shares of equity securities of the
Company, without the Underwriter's prior written consent, provided that, in
addition, the Company will not, from and after the date hereof until 36 months
after the First Closing Date, sell or issue any shares of Preferred Stock
without the Underwriter's consent, other than the issuance of Preferred Stock
contemplated by (i) and (ii) above, or authorize any new class or series of
capital stock. Notwithstanding the foregoing, during the 24-month period
following the First Closing Date, the Company may issue securities in connection
with an acquisition, merger or similar transaction without the Underwriter's
prior consent, provided that such securities are not publicly registered and the
acquirer of the securities is not granted registration rights with respect
thereto which are effective prior to twenty-four (24) months after the First
Closing Date. Notwithstanding the foregoing, prior to the First Closing Date,
the Company will not issue any options or warrants without the prior written
consent of the Underwriter.
(y) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twenty-four (24)
-23-
<PAGE>
months following the First Closing Date without the Underwriter's prior written
consent.
(z) American Stock Transfer & Trust Company
("American Stock") is currently the transfer agent for the Common Stock, and the
Company has appointed American Stock as transfer agent for the Preferred Stock
and warrant agent for the Redeemable Warrants. For the five (5) year period
following the First Closing Date, the Company will not change its transfer agent
or warrant agent without the prior written consent of the Underwriter. For a
period of two (2) years from the First Closing Date, the Company, at its own
expense, shall cause American Stock (or any successor transfer and warrant
agent) to provide to the Underwriter on a weekly basis copies of the Company's
daily stock transfer sheets for each of the Preferred Stock, Redeemable Warrants
and Common Stock. In addition, for a period of two years from the First Closing
Date, the Company, at its own expense, shall cause Depository Trust Company to
provide to the Underwriter as frequently as may be required by the Underwriter a
copy of a security position listing with respect to each of the Preferred Stock,
Redeemable Warrants and Common Stock.
(aa) Subsequent to the dates as of which
information is given in the Registration Statement and Prospectus and prior to
the Closing Dates, except as disclosed in or contemplated by the Registration
Statement and Prospectus, (i) the Company will not have incurred any liabilities
or obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, income, net worth or properties, including any loss or damage to the
properties of the Company (whether or not such loss is insured against), which
could adversely affect the condition (financial or other), business, operations,
income, net worth or properties of the Company; and (iii) the Company shall not
have paid or declared any dividend or other distribution on its Common Stock or
its other securities or redeemed or repurchased any of its Common Stock or other
securities. The Company shall furnish to the Underwriter as early as practicable
prior to each of the date hereof, the First Closing Date and each Option Closing
Date, if any, but no later than two (2) full business days prior thereto, a copy
of the latest available unaudited interim financial statements of the Company
(which in no event shall be as of a date more than sixty (60) days prior to the
date of the Registration Statement) which have been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Section 9(d) hereof.
-24-
<PAGE>
(bb) For a period of two (2) years following the
First Closing Date, the Company shall not redeem any of its securities, and
shall not pay any dividends or make any other cash distribution in respect of
its securities in excess of the amount of the Company's current or retained
earnings derived after the First Closing Date without obtaining the
Underwriter's prior written consent, which consent shall not be unreasonably
withheld. The Underwriter shall either approve or disapprove such contemplated
redemption of securities or dividend payment or distribution within five (5)
business days from the date the Underwriter receives written notice of the
Company's proposal with respect thereto; a failure of the Underwriter to respond
within the five (5) business day period shall be deemed approval of the
transaction.
(cc) The Company will not, for a period of three
(3) years from the First Closing Date increase or authorize an increase in the
compensation of its five (5) most highly paid employees in any year without the
prior written consent of the Underwriter or unless permitted by the terms of
employment contracts satisfactory to the Underwriter.
(dd) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(ee) For a period of five (5) years from the
First Closing Date, the Company shall provide the Underwriter, on a not less
than annual basis, with internal forecasts setting forth projected results of
operations for each quarterly and annual period in the two (2) fiscal years
following the respective dates of such forecasts. Such forecasts shall be
provided to the Underwriter more frequently than annually if prepared more
frequently by management, and revised forecasts shall be prepared and provided
to the Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(ff) The Company, for a period of two years
after the Effective Date, will retain a financial public relations firm
reasonably acceptable to the Underwriter.
-25-
<PAGE>
(gg) No Proceeds from the sale of the Public
Securities or any other available funds of the Company will be used to pay
outstanding loans from officers, directors or shareholders or to pay any accrued
salaries or bonuses to any current or former employees or consultants or any
affiliates thereof within 24 months after the First Closing Date or (except as
set forth in the "Use of Proceeds" section in the Prospectus) to pay off any
other outstanding debt other than current trade payables which arose in the
ordinary course of business.
(hh) The Company agrees that for so long as the
Preferred Stock, Redeemable Warrants and/or Common Stock are registered under
the 1934 Act, the Company will hold an annual meeting of shareholders for the
election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, will provide the Company's shareholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by applicable rules
under the 1934 Act and shall be included in an annual report pursuant to the
requirements thereof.
(ii) For a period equal to the lesser of (i)
seven (7) years from the date hereof and (ii) the sale to the public of the
Underwriter's Securities, the Company will not take any action or actions which
may prevent or disqualify the Company's use of Form S-1 or Form SB-2 (or other
appropriate form) for the registration under the Act of the Underwriter's
Warrants and/or the Underwriter's Shares or Underwriter's Warrant Shares.
(jj) The Company hereby appoints, effective as
of the First Closing Date, the Underwriter as the Company's exclusive warrant
solicitation agent in the event of any solicitation of the exercise of the
Redeemable Warrants, in connection with a redemption of the Redeemable Warrants
or otherwise, commencing one year after the Effective Date, and shall pay to the
Underwriter a Warrant Solicitation fee of five (5%) percent of the exercise
price of all solicited Redeemable Warrants, subject to the rules and regulations
of the NASD with regard to such fees.
(kk) The Company shall pay, at the First Closing
Date, in an aggregate amount not to exceed $10,000, for the cost of engaging (i)
a firm of the Underwriter's choice to conduct an investigation of the Company
and its principals and (ii) a consultant of the Underwriter's choice to provide
a written analysis of the Company's business and prospects.
(ll) Promptly following the First Closing Date
the Board of Directors shall designate an Audit Committee, at
-26-
<PAGE>
least one of whose members shall be the director, if any, who is designated by
the Underwriter, and another of whose members shall be an independent director.
(mm) For a period of five (5) years from the
First Closing Date, the Underwriter will have a right of first refusal with
respect to any proposed public or private offering or sale by the Company of
debt or equity securities, whether pursuant to registration under the Act or
otherwise (other than as to securities issued by the Company pursuant to an
employee benefit plan, as compensation to an employee, or in connection with a
merger, acquisition or similar transaction). In furtherance of such right, the
Company agrees to consult with the Underwriter regarding the possible terms of
any such sale. Such right must be exercised (and if not exercised will be
forfeited with respect to such offering) within fifteen (15) days after receipt
by the Underwriter of written notice of the Company's intent to effect such
offering, which notice shall be given no less than fifteen (15) days (i) prior
to the proposed filing of any registration for any such public offering or (ii)
before commencement of any such private offering; and, if not accepted by the
Underwriter, such right shall thereafter cease with respect to the proposed
offering only. If such right is not exercised, and the terms offered by such
investment banking or other organization providing similar services are changed,
such offering shall again be offered to the Underwriter, and the right must be
exercised with fifteen (15) days after receipt of written notice by the
Underwriter from the Company of the revised terms or shall thereafter cease with
respect to such proposed offering only. In the event the Underwriter elects not
to exercise its right of first refusal in connection with any offering, such
election shall not be deemed a waiver of such right in respect of any subsequent
offerings during the five year period.
6. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Underwriter and each person, if any, who controls the Underwriter
within the meaning of the Act against any losses, claims, damages, expenses 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 attorney's fees), to which the Underwriter or any such controlling
person may become subject, under the Act or otherwise, but only as such losses,
claims, damages or liabilities (or action 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 alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
-27-
<PAGE>
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damages or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
in reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof. The
information set forth on the cover page concerning the Underwriter and under the
caption "Underwriting" or otherwise specifically relating to the Underwriter in
the Registration Statement shall be deemed to have been furnished to the Company
by the Underwriter for purposes hereof. This indemnity will be in addition to
any liability which the Company may otherwise have.
(b) The Underwriter agrees that it will
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 has signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages, expenses or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorney's fees),
joint or several, to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, but only 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 or the Prospectus or any 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, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus or the Prospectus or
such amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by the Underwriter specifically for
use in the preparation thereof, provided, however, that the obligation of each
Underwriter to indemnify the Company (including any controlling person, director
or officer thereof) shall (i) only relate to any untrue statement or alleged
untrue statement or any omission or alleged omission which applies to such
Underwriter and (ii) be limited in amount to the net proceeds received by the
Company from the Underwriter. This indemnity will be in addition to any
liability which the Underwriter may otherwise have.
-28-
<PAGE>
(c) Promptly after receipt by an indemnified
party under this Section 6 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 6, 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 solely pursuant to this Section 6. In case any
such action is brought against any indemnified party, which notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may choose, jointly with
any other indemnifying party similarly notified, reasonably assume the defense
thereof. Subject to the provisions herein stated 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 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall have a
default judgment entered against it or shall settle such action without the
consent of the indemnified party. 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, (ii) the named
parties to such action (including any impleaded parties) include both the
indemnified and the indemnifying party and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to the indemnifying party different from or in conflict with any legal defenses
which may be available to the indemnified party (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, 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 only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party), or (iii) the
professional competence of the counsel to be employed by the indemnifying party
is not reasonably acceptable to the indemnified party. No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
-29-
<PAGE>
withheld. The indemnifying party shall not be liable to indemnify the
indemnified party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which consent
shall not be unreasonably withheld.
7. Contribution. In order to provide for just and
equitable contribution under the Act in any case in which (i) either of the
Underwriter make a claim 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 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 either of the Underwriter, then the Company and the 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 costs of defense and investigation and all
attorneys' fees) in either such case (after contribution from others) in such
proportions such that the Underwriter shall be responsible in the aggregate for
that portion of such losses, claims, damages or liabilities determined by
multiplying the total amount of such losses, claims, damages or liabilities by
the difference between the aggregate public offering prices of the Shares and
Redeemable Warrants and the aggregate purchase prices of the Shares and
Redeemable Warrants to such Underwriter and dividing the product by the
aggregate public offering prices of the Shares and Redeemable Warrants, and the
Company shall be responsible for that portion of such losses, claims, damages or
liabilities determined by multiplying the total amount of such losses, claims,
damages or liabilities by the aggregate purchase prices of the Shares and
Redeemable Warrants to the Underwriter and dividing the product thereof by the
aggregate public offering prices of the Shares and Redeemable Warrants. No
person guilty of a fraudulent 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. 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
Underwriter. As used in this Section 7, the term "Underwriter" includes any
person who controls the Underwriter within the meaning of Section 15 of the Act.
If the full amount of the contribution specified in this Section 7 is not
permitted by law, then the Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the fullest
extent permitted by law. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect to which a claim for
-30-
<PAGE>
contribution may be made against another party or parties under this Section 7,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7, or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Survival of Agreements, etc. All statements contained
in any schedule, exhibit 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, indemnities, and agreements made by
the parties to this Agreement or pursuant hereto shall remain in full force and
effect and will survive delivery of and the payment for the Offered Securities,
for a period of five years from the date hereof, except that, if a party hereto
has actual knowledge at the time of the Closing Dates of facts which would
constitute a breach of the representations and warranties contained herein, such
breaches shall be waived by such party if such party consummates the
transactions contemplated by this Agreement.
9. Conditions of Underwriter's Obligations. The
obligations of the Underwriter hereunder will be subject to the accuracy of and
compliance with (as of the date of this Agreement and as of the Closing Dates)
the representations, warranties and agreements contained in Sections 2 and 5
hereof and to the following additional conditions:
(a) The Registration Statement shall have
become effective not later than 5:30 p.m., New York City time, on the date of
this Agreement, or such later date as shall be consented to in writing by the
Underwriter; and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been initiated or be pending or, to the knowledge of the Company or the
Underwriter, contemplated or threatened by the Commission; and any request by
the Commission for additional information to be included in the Registration
Statement or the Prospectus or otherwise shall have been complied with to the
satisfaction of counsel for the Underwriter, and qualification under the
securities laws of such states as the Underwriter may designate of the issue and
sale of the Offered Securities upon the terms and conditions herein set forth or
contemplated and containing no provision unacceptable to the Underwriter shall
have been secured; and no stop order shall be in effect denying or
-31-
<PAGE>
suspending effectiveness of such qualifications, nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened under
such laws. If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, the prices of the Shares and Redeemable Warrants and any price-
related information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the First Closing Date the Company shall
have provided evidence satisfactory to the Underwriter of such timely filing, or
a post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations.
(b) No amendments to the Registration
Statement, any Preliminary Prospectus or the Prospectus to which the Underwriter
or counsel for the Underwriter shall have objected, after having received
reasonable notice of a proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered
and disclosed to the Company prior to the respective Closing Dates that the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact which, in the reasonable opinion
of counsel for the Underwriter, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein or
is necessary to make the statements therein not misleading.
(d) The Underwriter shall have received from
Urbach, Kahn & Werlin, P.C., two certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the First Closing
Date, in form and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
Rules and Regulations, and no disclosure under Item 13 of the Registration
Statement is required insofar as it relates to them;
(ii) the financial statements included in
the Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the applicable
requirements of the Act, the Rules and Regulations and instructions of the
Commission with respect to registration statements on Form SB-2 and that the
Underwriter may rely upon the opinion of such firm with respect to the financial
statements and supporting schedules included in the Registration Statement;
-32-
<PAGE>
(iii) on the basis of inquiries and
procedures conducted by them (not constituting an examination in accordance with
generally accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial information
of the Company (with an indication of the date of the latest available unaudited
interim financial statements), inquiries of officers of the Company who have
responsibility for financial and accounting matters, reviews of minutes of all
meetings of the shareholders and the Board of Directors of the Company and its
subsidiaries since April 30, 1996, and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing inquiries and
procedures that causes them to believe that:
(A) during the period from (and
including) April 30, 1996 to a specified date not more than five days prior to
the date of such letter, there has been any change in the Common Stock or other
securities of the Company (except as specifically disclosed in such certificates
or letters), any decreases in shareholders equity or working capital or any
increases in net current liabilities, net liabilities or long-term debt (except,
regarding the foregoing, for decreases resulting from operating losses
continuing at rates commensurate with those incurred in prior periods) or in any
other item appearing in the Company's financial statements as to which the
Underwriter may request advice, in each case as compared with amounts shown in
the audited balance sheet as of April 30, 1996, as included in the Prospectus,
except in each case for changes, increases or decreases which the Prospectus
discloses have occurred or will or may occur; and
(B) during the period from (and
including) April 30, 1996 to such specified date there was any decrease in
revenues or in the total or per share amounts of income before extraordinary
items or net income or loss, or any other material change in such other items
appearing in the Company's financial statements as to which the Underwriter may
request advice, in each case as compared with the corresponding period in the
fiscal period ended April 30, 1996, except in each case for increases, changes
or decreases which the Prospectus discloses have occurred or will or may occur.
(iv) On the basis of certain procedures
specified by the Underwriter and described in their letter, they have compared
specific dollar amounts, numbers of shares, percentages of revenue and earnings
and other information (to the extent they are contained in or derived from the
accounting records of the Company, and excluding any questions of legal
interpretations) included in the Registration Statement and
-33-
<PAGE>
Prospectus with the accounting records and other appropriate data of the Company
and have found them to be in agreement.
Any changes, increases or decreases in the
items set forth in such letter which, in the sole judgment of the Underwriter,
are materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the Company
to comply with the conditions of the obligations to the Underwriter hereunder.
(e) The Underwriter shall have received from
Parker Duryee Rosoff & Haft ("Parker Duryee"), counsel for the Company, two
opinions, one dated and delivered on the Effective Date and one dated and
delivered on the First Closing Date, in form and substance reasonably
satisfactory to Zimet, Haines, Friedman & Kaplan, counsel for the Underwriter,
to the effect that:
(i) Each of the Company and the
Subsidiaries (A) has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on its business of the Company, and (C) has all requisite corporate power and
authority, and all licenses, permits, certifications, registrations, approvals,
consents and franchises, to own or lease its properties and conduct its business
as described in the Prospectus. Each of the Company and the Subsidiaries is and
has been doing business in material compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
federal, state and local laws, rules and regulations; and neither the Company
nor any of the Subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business, operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company and the
Subsidiaries, taken as a whole. The disclosures in the Registration Statement
concerning the effects of federal, state and local laws, rules and regulations
on the business of the Company and each of the Subsidiaries as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
-34-
<PAGE>
(ii) The Shares have been duly authorized
and when issued and delivered pursuant to this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable. The Redeemable
Warrants have been duly authorized and, when issued and delivered pursuant to
this Agreement, will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits provided by the
Public Warrant Agreement. The Public Warrant Shares have been reserved for
issuance upon exercise of the Redeemable Warrants and, when issued in accordance
with the terms of the Redeemable Warrants and Public Warrant Agreement, will be
duly authorized, validly issued, fully paid and non-assessable. The Public
Conversion Shares, when issued pursuant to conversion of Preferred Stock in
accordance with the terms thereof, will be duly authorized, validly issued,
fully paid and non-assessable. The Underwriter's Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to the Enforceability Exceptions, and will
be entitled to the benefits provided by the Underwriter's Warrant Agreement. The
Underwriter's Shares and Underwriter's Redeemable Warrants have been reserved
for issuance upon exercise of the Underwriter's Warrants. The Underwriter's
Shares, when issued in accordance with the terms of the Underwriter's Warrants
and Underwriter's Warrant Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Underwriter's Redeemable Warrants have been
duly authorized and, when issued in accordance with the terms of the
Underwriter's Warrants and Underwriter's Warrant Agreement, will constitute
valid and legally binding obligations of the Company enforceable in accordance
with their terms, subject to the Enforceability Exceptions, and will be entitled
to the benefits provided by the Public Warrant Agreement. The Underwriter's
Warrant Shares, when issued in accordance with the terms of the Underwriter's
Redeemable Warrants and the Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Underwriter's Conversion
Shares, when issued pursuant to conversion of Preferred Stock in accordance with
the terms thereof, will be duly authorized, validly issued, fully paid and
non-assessable. Neither the issuance of any of the Public Securities or any of
the Underwriter's Securities will violate or otherwise be subject to the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company, and none of the holders of any of the
Public Securities or any of the Underwriter's Securities will be subject to
personal liability by reason of being such holders. The certificates
representing the Preferred Stock and Redeemable Warrants are in due and proper
form. Upon delivery of the Offered Securities to the Underwriter against payment
therefor as provided for in this Agreement, the Underwriter (assuming it is a
bona fide purchaser within the meaning of the Uniform Commercial Code)
-35-
<PAGE>
will acquire good title to the Offered Securities, free and clear of all liens,
encumbrances, equities, security interests and claims.
(iii) Except as described in the
Prospectus, to the best of such counsel's knowledge, after due inquiry, the
Company does not own an interest in any corporation, partnership, joint venture,
trust or other business entity.
(iv) The Company has full legal right,
power and authority to enter into this Agreement, the Public Warrant Agreement,
the Underwriter's Warrant Agreement and the Consulting Agreement and to
consummate the transactions provided for herein and therein, and each of such
agreements has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable against
the Company in accordance with its respective terms, subject to the
Enforceability Exceptions. The consummation of the transactions contemplated by
this Agreement, the Public Warrant Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement by the Company and the compliance by the
Company with the terms of this Agreement, the Public Warrant Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement have each been duly
authorized by all corporate action.
(v) To the best of such counsel's
knowledge, after due inquiry, (A) there are no contracts or other documents
required under the Act and the Rules and Regulations to be filed as exhibits to
the Registration Statement other than those filed or incorporated by reference
as exhibits thereto, and the exhibits filed or incorporated by reference are
correct copies of the documents of which they purport to be copies, (B) there
are no legal or governmental proceedings pending or threatened against the
Company which could materially adversely affect the business, or financial
condition or questions the validity of the capital stock of the Company that
have not been disclosed in the Prospectus, (nor are there circumstances which
may give rise to the same) and (C) the Company is in compliance with all
statutes, rules and regulations, where the failure to so comply may materially
adversely affect the business or financial condition of the Company.
(vi) The Registration Statement is
effective under the Act and, if applicable, filing of all pricing information
has been timely made in the appropriate form under Rule 430A. To the best of
such counsel's knowledge, after due inquiry, no proceedings for a stop order are
pending or threatened under the Act.
(vii) All material consents, approvals,
authorizations or orders of any court or governmental agency or body (other
than such as may be required by the NASD or by state
-36-
<PAGE>
securities or Blue Sky laws, as to which no opinion need be rendered) required
in connection with the consummation of the transactions contemplated by this
Agreement, the Public Warrant Agreement, the Underwriter's Warrant Agreement and
the Consulting Agreement have been obtained and are in effect. No transfer tax
is payable by or on behalf of the Underwriter in connection with (A) the
issuance by the Company of any of the Offered Securities, (B) the purchase by
the Underwriter of any of the Offered Securities or the Underwriter's Warrants
from the Company, (C) the consummation by the Company of any of its obligations
under this Agreement, the Public Warrant Agreement or the Underwriter's Warrant
Agreement, or (D) resales of the Offered Securities in connection with the
distribution contemplated hereby.
(viii) To the best of such counsel's
knowledge, after due inquiry, neither the execution and delivery of this
Agreement, the Public Warrant Agreement, the Underwriter's Warrant Agreement or
the Consulting Agreement, nor the issuance and sale of the Registered
Securities, nor the consummation of the transactions contemplated hereby or
thereby, nor the compliance by the Company with the terms and provisions hereof
or thereof, will conflict with, or result in a material breach of, any of the
terms and provisions of, or constitute a default under, or result in the
creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any mortgage, deed of
trust, note, indenture or loan or credit agreement or any other material
agreement or instrument known to such counsel 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 is subject; nor will such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company, as
amended and in effect on the date of such opinion, or (assuming compliance with
all applicable NASD rules and regulations and state securities and Blue Sky
laws), to the best of such counsel's knowledge, any material statute or any
order, rule or regulation applicable to the Company of any court or of any
federal, state or other regulatory authority or other governmental body having
jurisdiction over the Company, or have any material adverse effect on any
permit, certification, registration, approval, consent, license or franchise
necessary for the Company to own, lease or operate its properties and to conduct
its business.
(ix) The Registration Statement, each
Preliminary Prospectus that has been circulated and the Prospectus and any
post-effective amendments or supplements thereto (other than the financial
statements, schedules and other financial and statistical data included therein,
as to which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and Regulations and the conditions for
use of a registration statement on Form SB-2
-37-
<PAGE>
have been satisfied by the Company. Such counsel shall state that such counsel
has participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the Company
and representatives of the Underwriter at which the contents of the Registration
Statement, the Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus, on the basis of the foregoing, no facts
have come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto at the time such
Registration Statement or amendment became effective or the Prospectus as of the
date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or to make the
statements therein in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or Prospectus or with
respect to statements or omissions made therein in reliance upon information
furnished in writing to the Company on behalf of any Underwriter expressly for
use in the Registration Statement or the Prospectus).
(x) The Registered Securities and all
other securities issued or issuable by the Company conform in all material
respects to the description thereof contained in the Registration Statement and
the Prospectus.
(xi) To the best of such counsel's
knowledge, after due inquiry, the items of personal property stated in the
Prospectus to be owned or leased by the Company as lessee are free and clear of
all liens, encumbrances, claims, security interests, defects and restrictions of
any material nature whatsoever, other than those referred to in the Prospectus
(including the financial statements and notes thereto included therein), and
liens for taxes not yet due and payable.
(xii) The Company is not in breach of, or
in default under, any term or provision of any material indenture, mortgage,
deed of trust, lease, note, loan or credit agreement or any other material
agreement or instrument evidencing an obligation for borrowed money, or any
material term of any other material agreement or instrument to which it is a
party or by which it or any of its properties may be bound or affected, the
effect of which could be materially adverse to the condition (financial or
otherwise), earnings, affairs or business prospects of the Company; and the
Company is not in violation of any term or provision of its Certificate of
Incorporation or By-Laws, as amended and in effect on the date of such opinion,
or in violation of any material franchise, license, permit, judgment, decree,
order, statute, rule or regulation, except as referred to in the Prospectus.
-38-
<PAGE>
(xiii) The descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or any of the Subsidiaries is
a party or by which it is bound, including any document to which the Company or
any of the Subsidiaries is a party or by which it is bound and which is
incorporated by reference into the Prospectus and any supplement or amendment
thereto, are accurate in all material respects and fairly represent the
information required to be shown by Form SB-2. The statements in the Prospectus
under "Risk Factors," "Business," "Management," "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. There
are no material statutes, regulations or government classifications or, to the
best of such counsel's knowledge, material contracts or documents of a character
to be described in the Registration Statement or the Prospectus which are not so
described as required.
(xiv) The Preferred Stock, Redeemable
Warrants and Common Stock are listed on the NASDAQ, SmallCap Market and the
Philadelphia Stock Exchange.
(xv) The authorized and outstanding
capital stock of the Company is as set forth under the caption "Capitalization"
in the Prospectus; all of the issued and outstanding capital stock, options and
warrants of the Company have been duly authorized and validly issued and all of
the issued and outstanding shares of capital stock of the Company are, after due
inquiry, fully paid and nonassessable; the holders are not subject to personal
liability by reason of being holders; and none of such securities or interests
were issued in violation of the preemptive rights or similar rights of any
holder of any security or interest of the Company. The authorized shares of
Common Stock and Preferred Stock, the Redeemable Warrants and other outstanding
options and warrants to purchase capital stock of the Company conform to the
description thereof contained in the Registration Statement.
(xvi) To the best of such counsel's
knowledge, after due inquiry, 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 and, except as set forth
in the Prospectus, no holder of any of the Company's securities has any right,
"demand", "piggyback" or otherwise, to have such securities registered under the
Act.
-39-
<PAGE>
(xvii) Except as disclosed in the
Prospectus, there is no action, suit or proceeding pending, or threatened,
against or affecting the Company or any of the Subsidiaries before any court or
arbitrator or governmental body, agency or official (or any basis thereof known
to such counsel) in which there is a reasonable possibility of an adverse
decision which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, business, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement, the Public Warrant Agreement, the Underwriter's Warrant Agreement or
the Consulting Agreement or which in any manner draws into question the validity
or enforceability of this Agreement, the Public Warrant Agreement, the
Underwriter's Warrant Agreement or the Consulting Agreement.
(xviii) To the best of such counsel's
knowledge, after due inquiry, 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 Securities hereunder or
financial consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the Underwriter's
compensation, as determined by the NASD;
In rendering such opinion, such counsel may
rely (A) as to matters involving the application of laws other than the laws of
the United States and jurisdictions in which they are admitted to the extent
such counsel deems proper and to the extent specified in such opinion, if at
all, upon an opinion or opinions (in form and substance reasonably satisfactory
to Underwriter's counsel) of other counsel reasonably acceptable to
Underwriter's counsel, familiar with the applicable laws; and (B) as to matters
of fact, to the extent they deem proper, on certificates and written statements
of responsible officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to Underwriter's counsel if requested. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and, in their opinion, the Underwriter and they are
justified in relying thereon.
At the Option Closing Date, the Underwriter
shall have received the favorable opinion of Parker Duryee dated such date,
addressed to the Underwriter and in form and substance satisfactory to Zimet,
Haines, Friedman & Kaplan, counsel to the Underwriter, confirming as of such
date the statements made by Parker Duryee in their opinion delivered on the
First Closing Date.
-40-
<PAGE>
(f) All corporate proceedings relating to this
Agreement, the Registered Securities, the Registration Statement, each
Preliminary Prospectus, the Prospectus and other related matters shall be
satisfactory to, or approved by, counsel for the Underwriter, and the
Underwriter shall have received from such counsel a signed opinion, in form and
substance reasonably satisfactory to the Underwriter, dated the First Closing
Date, with respect to such corporate proceedings and other legal matters in
connection with this Agreement, the Registered Securities, the Registration
Statement, the Prospectus (other than the financial statements and other
financial data contained therein) and related matters as the Underwriter may
reasonably require, and the Company shall have furnished to such counsel such
documents, certificates and opinions as they may have requested for the purpose
of enabling them to pass upon such matters.
(g) The Underwriter shall have received a
certificate, dated and delivered as of the date of the First Closing Date, of
the Chief Executive Officer and Secretary of the Company stating that:
(i) The Company and such officers have
complied with all the agreements and satisfied all the conditions on their
respective part to be performed or satisfied hereunder at or prior to such date,
including but not limited to the agreements and covenants of the Company set
forth in Section 4 hereof.
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending, contemplated or threatened
under the Act.
(iii) Such officers have carefully examined
the Registration Statement and the Prospectus and any supplement or amendment
thereto, each of which contains all statements required to be stated therein or
necessary to make the statements therein not misleading and does not contain any
untrue statement of a material fact, and since the Effective Date there has
occurred no event required to be set forth in the amended or supplemented
prospectus which has not been set forth.
(iv) As of the date of such certificate,
the representations and warranties contained in Section 1 hereof are true and
correct as if such representations and warranties were made in their entirety on
the date of such certificate, and the Company has complied with all its
agreements herein contained as of the date hereof and certifying as to the
matters referred to in Sections 9(h) and (i).
-41-
<PAGE>
(v) Subsequent to the respective dates
as of which information is given in the Registration Statement and Prospectus,
and except as contemplated in the Prospectus, the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions and there has not been any change in the Common Stock or funded
debt of the Company or any adverse change in the condition (financial or other),
business, operations, income, net worth, properties or prospects of the Company.
(vi) Subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, the Company shall have not sustained any material loss of or damage
to its properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
(vii) Neither the Company nor any of its
officers or affiliates shall have taken, and the Company, its officers and
affiliates will not take, directly or indirectly, any action designed to, or
which might reasonably be expected to, cause or result in the stabilization or
manipulation of the price of the Company's securities to facilitate the sale or
resale of the Shares.
(viii) No action, suit or proceeding, at
law or in equity, shall be pending or, to the knowledge of such officers,
threatened against the Company, or affecting any of its properties, before or by
any commission, board or other administrative agency, except as otherwise set
forth in the Registration Statement.
(h) On the First Closing Date, the Company
shall not be a party to, or be involved in, any arbitration, litigation (except
as set forth in the Registration Statement and described in the Company's Form
10-KSB for the year ended April 30, 1996) or governmental proceeding, which is
then pending, or, to the knowledge of the Company, threatened, of a character
which might materially and adversely affect the Company or be required to be
disclosed in the Registration Statement.
(i) The Company shall not have sustained, at
any time since April 30, 1996, any loss on account of fire, flood, accident, or
other calamity, whether or not covered by insurance, which, in the sole judgment
of the Underwriter, adversely affects the business of the Company.
-42-
<PAGE>
(j) All of the Shares and Redeemable Warrants
shall have been tendered for delivery in accordance with the terms and
provisions of this Agreement.
(k) At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this Agreement shall
be true and correct with the same effect as if made on and as of the Closing
Dates and the Company shall have performed, in all material respects, all its
obligations due to be performed prior thereto; (ii) the Registration Statement
and the Prospectus and any amendment or supplement thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and conform in all material respects to the
requirements thereof, and neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; (iii) there shall
have been, since the date as of which information is given, no material adverse
change in the condition, business, operations, properties, business prospects,
securities, long-term or short-term debt or general affairs of the Company from
that set forth in the Registration Statement or the Prospectus, except changes
which the Registration Statement and the Prospectus indicate will occur after
the Effective Date and prior to such Closing Date, and the Company shall not
have incurred any liabilities or obligations, direct or contingent, or entered
into any material transaction, contract or agreement not in the ordinary course
of business other than as referred to in the Registration Statement and the
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding, at law or in equity, shall be pending or threatened against the
Company which might be required to be set forth 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, ruling or finding might adversely
affect the condition, business, operations, properties, prospects or general
affairs of the Company.
(l) Upon exercise of the Over-allotment Option
provided for in Section 3(b) hereof, the obligations of the Underwriter to
purchase and pay for the Option Shares will be subject to the following
additional conditions:
(i) The Registration Statement shall
remain effective at the Option Closing Date, and 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
Underwriter or the Company, shall be contemplated by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the satisfaction of counsel for the Underwriter.
-43-
<PAGE>
(ii) At the Option Closing Date there
shall have been delivered to the Underwriter the signed opinion of Parker
Duryee, counsel for the Company, in form and substance reasonably satisfactory
to Zimet, Haines, Friedman & Kaplan, counsel for the Underwriter, which opinion
shall be substantially the same in scope and substance as the opinions furnished
to the Underwriter by such counsel at the First Closing Date pursuant to Section
9(e).
(iii) At the Option Closing Date there
shall have been delivered to the Underwriter a certificate of the Chief
Executive Officer and the Secretary of the Company dated the Option Closing
Date, in form and substance satisfactory to counsel for the Underwriter,
substantially the same in scope and substance as the certificates furnished to
the Underwriter at the First Closing Date pursuant to Section 9(g).
(iv) At the Option Closing Date there
shall have been delivered to the Underwriter a certificate or letter, in form
and substance satisfactory to the Underwriter, from Urbach, Kahn & Werlin, P.C.,
dated the Option Closing Date and addressed to the Underwriter, confirming the
information in its certificate or letter referred to in Section 9(d) hereof and
stating that nothing has come to their attention during the period from the
ending date of their review referred to in said certificate or letter to a date
not more than five business days prior to the Option Closing Date which would
require any change in said certificate or 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 transfer of the Option
Securities shall be satisfactory in form and substance to the Underwriter, and
the Underwriter and counsel for the Underwriter, shall have been furnished with
all such documents, certificates, affidavits and opinions as the Underwriter and
counsel for the Underwriter may reasonably 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.
(m) The Company shall have executed and
delivered the Public Warrant Agreement, the Underwriter's Warrant Agreement and
the Consulting Agreement, and shall have issued the Underwriter's Warrants.
(n) The Company shall have furnished to the
Underwriter such other certificates, documents, and opinions as
-44-
<PAGE>
the Underwriter may have reasonably requested (including certificates of
officers of the Company) as to the accuracy, at the Closing Dates, of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to other conditions concurrent
and precedent to the obligations of the Underwriter hereunder.
The opinions and certificates mentioned above or
elsewhere in this Agreement will be deemed to be in compliance with the
provisions hereof only if they are reasonably satisfactory to the Underwriter
and to counsel for the Underwriter.
Any certificate signed by an officer of the
Company delivered to the Underwriter or to counsel for the Underwriter, will be
deemed a representation and warranty by the Company to the Underwriter as to the
statements made therein.
10. Effective Date. This Agreement will become
effective at 9:30 a.m. on the first business day following the date on which the
Registration Statement becomes effective; provided, however, this Agreement will
become effective at such later time after the Registration Statement becomes
effective as the Underwriter may determine on and by notice to the Company or by
release of any of the Offered Securities for sale to the public or by any other
action constituting a commencement of the public offering. For the purposes of
this Section 10, the Offered Securities will be deemed to be so released upon
the release for publication of any newspaper advertisement relating to the
Offered Securities or upon the release by the Underwriter of telegrams offering
the Offered Securities for sale to securities dealers, whichever may occur
first. The term "business day" shall mean a calendar day other than a Saturday,
Sunday or holiday. Notwithstanding anything herein to the contrary, the
provisions of this Section and of Sections 6, 7, 11 and 12 hereof will, however,
be effective upon the execution of this Agreement.
11. Termination. This Agreement may be terminated by the
Underwriter by notice to the Company (i) at any time before this Agreement
becomes effective in accordance with Section 9 hereof; (ii) if, prior to the
First Closing Date, the Company shall have failed or refused to fully comply
with any of the provisions of this Agreement on its part to be performed prior
thereto, or if any of the agreements, conditions, covenants, representations or
warranties of the Company herein contained shall not have been performed or
fulfilled within the times specified; (iii) trading in securities generally on
the New York Stock Exchange or the American Stock Exchange will have been
suspended; (iv) limited or minimum prices will have been established on either
such Exchange or maximum ranges for prices for securities shall have been
required on the over-the-counter
-45-
<PAGE>
market by the NASD; (v) a banking moratorium will have been declared either by
federal or New York State authorities; (vi) any other restrictions on
transactions in securities materially affecting the free market for securities
or the payment for such securities, will be established by either of such
Exchanges, by the Commission by any other federal or state agency, by action of
the Congress or by Executive Order; (vii) the Company will have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; (viii) any action has been taken by the Government of the United
States or any department or agency thereof which, in the sole judgment of the
Underwriter, has had a material adverse effect upon the general market for
securities; (ix) if, prior to the First Closing Date, there shall have occurred
the outbreak of any war or any other event or calamity which, in the sole
judgment of the Underwriter, materially disrupts the financial markets of the
United States; (x) if, prior to the First Closing Date, the general market for
securities or political, legal or financial conditions should deteriorate so
materially from that in effect on the date of this Agreement that, in the sole
judgment of the Underwriter, it becomes impracticable for the Underwriter to
commence or proceed with the public offering of the Offered Securities and with
the payment for or acceptance thereof; (xi) if trading of any securities of the
Company shall have been delisted on any exchange or in any over-the-counter
market; or (xii) if, prior to the First Closing Date, the Underwriter
determines, in its sole discretion, that any materially adverse change shall
have occurred, since the date as of which information is given in the
Registration Statement and the Prospectus, in the financial condition, business,
prospects, operations, properties or obligations of the Company. Notwithstanding
any contrary provision contained in this Agreement, any election hereunder or
any termination of this Agreement, and whether or not this Agreement is
otherwise carried out, the provisions of Section 7, 8 and 12 shall not be in any
way affected by such election or termination or failure to carry out the terms
of this Agreement or any part hereof.
12. Expenses.
(a) Whether or not the offering is consummated,
the Company will pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including without limiting the generality
of the foregoing, (i) the preparation, printing, filing, and copying of the
Registration Statement, Prospectus, this Agreement, the Selected Dealer
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter and
the costs of mailing Prospectuses to offerees and purchasers of the Offered
Securities; (ii) the out-of-pocket travel expenses of the
-46-
<PAGE>
Underwriter and counsel to the Underwriter or other professionals designated by
the Underwriter to visit the Company's facilities for purposes of discharging
due diligence responsibilities; (iii) the printing, engraving, issuance and
delivery of certificates representing the Offered Securities, including any
transfer or other taxes payable thereon; (iv) the registration or qualification
of the Offered Securities under state securities or "blue sky" laws, in
accordance with the provisions of Section 11(c) below; (v) all reasonable fees
and expenses of the Company's counsel and accountants; (vi) all costs, expenses
and filing fees in connection with review of the terms of the offering by the
NASD (it being agreed that all fees and expenses of the Underwriter and
Underwriter's counsel in securing NASD approval, shall be paid by the Company);
(vii) all costs and expenses of any listing of the Offered Securities on NASDAQ
or a stock exchange; (viii) all costs and expenses of three (3) bound volumes
provided to the Underwriter of all documents, paper exhibits, correspondence and
records forming the materials included in the offering; (ix) the cost of
"tombstone" advertisements to be placed in one or more daily or weekly
periodicals as the Underwriter may request; (x) all expenses incurred in
connection with presentation of two "due diligence" meetings and (xi) all other
costs and expenses incurred or to be incurred by the Company in connection with
the transactions contemplated by this Agreement. The obligations of the Company
under this subsection (a) shall survive any termination or cancellation of this
Agreement.
(b) In addition to the Company's responsibility
for payment of the foregoing expenses, the Company shall pay to the Underwriter
a non-accountable expense allowance equal to three percent (3%) of the gross
proceeds of the offering, including in such amount the proceeds from the
exercise of the Underwriter's over-allotment option. The non-accountable expense
allowance due shall be paid at the First Closing Date and any Option Closing
Date, as applicable. The Underwriter hereby acknowledges prior receipt from the
Company of $25,000, which amount shall be applied to the non-accountable expense
allowance due when and if the offering is closed. If the offering is not
consummated because the Underwriter elects to terminate this agreement in
accordance with Section 11 hereof, then the Company shall reimburse the
Underwriter in full for its actual out-of-pocket expenses (including, without
limitation, the fees and disbursements of its counsel) up to a maximum of
$________ (less the $25,000 previously paid on account). If the Company decides
not to proceed with the offering for any reason, and subsequently engages in any
public offering, private placement, merger, acquisition, joint venture or
corporate reorganization with any entity within 12 months after the Company
notifies the Underwriter of its decision not to proceed, the Underwriter shall
be entitled to receive from the Company a cash fee equal to 5% of the
consideration paid or received by the Company in connection
-47-
<PAGE>
with such transaction, less any payments previously made to the Underwriter
pursuant to this Section 12(b).
(c) The Underwriter shall determine in which
states or jurisdictions the Offered Securities shall be registered or qualified
for sale. Immediately prior to the Effective Date, counsel for the Underwriter
shall advise counsel for the Company in writing of all states in which the
offering has been registered or qualified for sale or has been cancelled,
withdrawn or denied and the number of Offered Securities registered or qualified
for sale in each such state. The Company shall be responsible for the cost of
state registration or qualification, including the filing fees (which filing
fees are payable to Underwriter's counsel in advance of such filings) and the
legal fees and disbursements of Underwriter's counsel in connection with
obtaining such registration or qualification; provided, however, that the legal
fees of Underwriter's counsel payable by the Company with respect to blue sky
filings shall not exceed $35,000. The disbursements of Underwriter's counsel
shall be paid by the Company monthly as incurred by such legal counsel. The
Underwriter hereby acknowledge that the Company has previously paid $10,000 to
Underwriter's counsel to be applied towards the legal fees payable pursuant to
this paragraph (c) and the Company hereby acknowledges that any remaining
balance with respect to legal fees or blue sky filing fees is due and payable on
the First Closing Date.
13. Notices. Any notice hereunder shall be in writing,
unless otherwise expressly provided herein, and if to the respective persons
indicated, will be sufficient if mailed by certified mail, return receipt
requested, postage prepaid, or hand delivered, and confirmed in writing or by
telegraph, addressed as respectively indicated or to such other address as will
be indicated by a written notice similarly given, to the following persons:
(a) If to the Underwriter -- addressed to
Duke & Co., Inc., 909 Third Avenue, New York, New York 10022, Attention:
Gregg Thaler, President, with a copy to Zimet, Haines, Friedman & Kaplan,
460 Park Avenue, New York, New York 10022, Attention: James Martin Kaplan, Esq.
(b) If to the Company -- addressed to IFS
International, Inc., Rennselaer Technology Park, 185 Jordan Road, Troy, New York
12180, Attention: Frank A. Pascuito, Chairman, with a copy to Parker Duryee
Rosoff & Haft, 529 Fifth Avenue, New York, New York 10017, Attention: Michael D.
DiGiovanna, Esq.
Notice shall be deemed delivered upon receipt.
14. Successors. This Agreement will inure to the
benefit of and be binding upon the Underwriter and the Company
-48-
<PAGE>
and their respective successors and assigns. Nothing expressed or mentioned in
this Agreement is intended, or will be construed, to give any person,
corporation or other entity other than the persons, corporations and other
entities mentioned in the preceding sentence any legal or equitable right,
remedy, or claim under or in respect to this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other persons; except that the representations, warranties
and indemnities of the Company contained in this Agreement will also be for the
benefit of the directors and officers of the Underwriter and any person or
persons who control any of the Underwriter within the meaning of Section 15 of
the Act, and except that the indemnities of the Underwriter will also be for the
benefit of the directors and officers of the Company and any person or persons
who control the Company within the meaning of Section 15 of the Act. No
purchaser of any of the Offered Securities from the Underwriter will be deemed a
successor or assign solely because of such purchase.
15. Finders and Holders of First Refusal Rights.
(a) The Company hereby represents and
warrants to the Underwriter that no person is entitled, directly or indirectly,
to compensation for services as a finder in connection with the proposed
transactions or holds a right of first refusal or similar right in connection
with the proposed offering, and the Company hereby agrees to indemnify and hold
harmless the Underwriter, its officers, directors, agents and each person, if
any, who controls such Underwriter within the meaning of Section 15 of the Act,
from and against any loss, liability, claim, damage or expense whatsoever
arising out of a claim by an alleged finder or alleged holder of a right of
first refusal or similar right in connection with the proposed offering, insofar
as such loss, liability, claim, damage or expense arises out of any action or
alleged action of the Company.
(b) The Underwriter hereby represents and
warrants to the Company that no person is entitled, directly or indirectly, to
compensation for services as a finder in connection with the proposed
transactions; and the Underwriter hereby agrees to indemnify and hold harmless
the Company, its officers, directors and agents, from and against any loss,
liability, claim, damage or expense whatsoever arising out of a claim by an
alleged finder in connection with the proposed offering, insofar as such loss,
liability, claim, damage or expense arises out of any action or alleged action
of the Underwriter.
-49-
<PAGE>
16. 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 applicable to
contracts made and to be performed entirely within such State. The Company (1)
agrees that any legal suit, action or proceeding arising out of or relating to
this Agreement shall be instituted exclusively in New York State Supreme Court,
County of New York, or in the United States District Court for the Southern
District of New York, (2) waives any objection which the Company may have now or
hereafter to the venue of any such suit, action or proceeding, and (3)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York in any such suit, action or procedure. Each of the Company
and the Underwriter further agrees to accept and acknowledge service of any and
all process which may be served in any suit, action or proceeding in the New
York State Supreme Court, County of New York and the United States District
Court for the Southern District of New York, and agrees that service of process
upon the Company mailed by certified mail to the Company's address shall be
deemed in every respect effective service of process upon the Company in any
such suit, action or proceeding. In the event of litigation between the parties
arising hereunder, the prevailing party shall be entitled to costs and
reasonable attorney's fees.
17. Headings. The headings in this Agreement are
for purposes of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
18. Counterparts. This Agreement may be executed in any
number of counterparts which, taken together, shall constitute one and the same
instrument.
19. Entire Agreement. This Agreement sets forth the
entire agreement and understanding between the Underwriter and the Company with
respect to the subject matter hereof, and supersedes all prior agreements,
arrangements and understandings, written or oral, between them.
20. Representation of the Underwriter. The Underwriter
hereby represents that it is registered as a broker-dealer with the Commission
and is registered as a broker-dealer in all states in which it of conducts
business and it is a member in good standing of the NASD.
21. Terminology. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders and the singular shall include the plural, and vice
versa.
-50-
<PAGE>
If the foregoing correctly sets forth our
understanding, please indicate the Underwriter's acceptance thereof, as of the
day and year first above written, in the spaces provided below for that purpose,
whereupon this letter with the Underwriter's acceptance shall constitute a
binding agreement among us.
Very truly yours,
IFS INTERNATIONAL, INC.
By_______________________________________
Name: Frank A. Pascuito
Title: Chairman of the Board
Confirmed and accepted on the
day and year first above written.
DUKE & CO., INC.
By:______________________________
Name: Gregg Thaler
Title: President
-51-
<PAGE>
IFS INTERNATIONAL, INC.
SELECTED DEALER AGREEMENT
___________________, 1996
______________________________
______________________________
______________________________
Dear Sirs:
A Registration Statement on Form SB-2 (the "Registration
Statement"), filed by IFS International, Inc. (the "Company") relating to
1,200,000 shares ("Firm Shares") of Preferred Stock, par value $.001 per share
(the "Preferred Stock"), and 1,700,000 redeemable Preferred Stock purchase
warrants (the "Firm Redeemable Warrants" and, collectively with the Firm Shares,
the "Firm Securities") plus up to 180,000 additional shares of Preferred Stock
and 255,000 Redeemable Warrants (collectively the "Option Securities") which are
subject to an option for the purpose of covering over-allotments has become
effective. The Firm Securities and the Option Securities are hereinafter
collectively referred to as the "Offered Securities". The Offered Securities are
being sold for the account of the Company and are described in the enclosed
final prospectus (the "Prospectus").
Some of the Offered Securities are being offered, when, as and
if accepted by us and subject to withdrawal, cancellation or modification of the
offer without notice and to the other terms and conditions hereof, to certain
dealers, at the initial public offering price, less a selling concession of
$____ per Share and $____ per Redeemable Warrant. Such dealers may reallow out
of such selling concession not more than $____ per Share and $____ per
Redeemable Warrant to members of the National Association of Securities Dealers
("NASD"), and to foreign dealers not eligible for membership in the NASD who
agree not to offer or sell the Offered Securities in the United States and agree
that in making such sales of the Offered Securities outside the United States
they will comply with the requirements of the Interpretation of the NASD with
Respect to Free-Riding and Withholding.
Subscriptions will now be received by us at the office of Duke
& Co., Inc., 909 Third Avenue, New York, New York 10022, subject to allotment in
our uncontrolled discretion. We reserve the right to close the subscription
books at any time without notice and to reject any subscriptions, in whole or
in part.
Offered Securities purchased by you are to be bona fide
reoffered by you in conformity with this Agreement and the terms of offering set
forth in the Prospectus. You agree that you will not bid
-52-
<PAGE>
for, purchase, attempt to induce others to purchase, or sell, directly or
indirectly, any Offered Securities of the Company except as contemplated by this
Agreement and except as a broker pursuant to unsolicited orders. You confirm
that you have at all times complied with the provisions of Rule 10b-6 of the
Securities and Exchange Commission applicable to this offering. In respect of
Offered Securities sold by you and thereafter purchased by us at or below the
initial public offering price prior to the termination of this Agreement, you
agree at our option either to repurchase the Offered Securities at a price equal
to the cost thereof to us, including commissions, if any, and transfer taxes on
redelivery or to repay us such part of your selling concession on such Offered
Securities, as we designate.
You agree that you will at any time, upon request, inform us
of the number of Offered Securities allotted to you hereunder which then remain
unsold.
Payment for the Offered Securities purchased by you is to be
made at the net dealer price of $_______ per Share and $_______ per Redeemable
Warrant, at the office of Duke & Co., Inc. 909 Third Avenue, New York, New York
10022, at such time and on such date as we may designate, by certified or
official bank check, payable in New York Clearing House funds to the order of
Duke & Co., Inc. against delivery of certificates for the securities comprising
the Offered Securities so purchased. If such payment is not made at such time
and on such date, you agree to pay Duke & Co., Inc. interest on such funds at
the prevailing broker's loan rate.
We have been informed that a Registration Statement in respect
of the Offered Securities has become effective under the Securities Act of 1933.
You are not authorized to give any information or to make any representations
other than those contained in the Prospectus or to act as agent for the Company
or for the undersigned when offering Offered Securities to the public or
otherwise.
We do not assume any responsibility or obligations as to your
right to sell Offered Securities in any jurisdiction, notwithstanding any
information we may furnish in that connection. You confirm that you are familiar
with Securities Act Release No. 4968 and Rule 15c2-8 under the Securities
Exchange Act of 1934, relating to the distribution of preliminary and final
prospectuses, and confirm that you have complied and will comply therewith. We
will make available to you, to the extent they are made available to us by the
Company, such number of copies of the Prospectus as you may reasonably request
for the purposes contemplated by the Securities Act of 1933, the Securities and
Exchange Act of 1934, and the applicable rules and regulations thereunder.
The provisions of the second, fourth and sixth paragraphs of
this Agreement will terminate at the close of business 30 days after
-53-
<PAGE>
the Offered Securities are released by us for sale to the public, but upon
notice to you may be extended by us in our discretion for a period or periods
not exceeding in the aggregate an additional 30 days or may be terminated by us
at any time.
Nothing herein will constitute you, and the other dealers to
whom any of the Offered Securities may be sold in accordance with the terms of
the Agreement, an association, unincorporated business or other separate entity
or partners with each other or with us; but you agree to pay your proportionate
share of any liability or expense based on any claim to the contrary. We will
not be under any liability to you except for obligations expressly assumed in
this Agreement and for liabilities under the Securities Act of 1933.
Please confirm your agreement to purchase on the foregoing
terms and conditions the Shares and Redeemable Warrants allotted to you against
your subscription by signing and returning the attached confirmation, even
though you may already have informed us of your acceptance by telephone or
telegraph.
Very truly yours,
DUKE & CO., INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
-54-
<PAGE>
Duke & Co., Inc.
909 Third Avenue
New York, New York 10022
Gentlemen:
The undersigned confirms its agreement to purchase _________
Shares and __________ Redeemable Warrants referred to in the foregoing Selected
Dealer Agreement, subject to the terms and conditions of such Agreement, and
further agrees that any agreement by it to purchase additional Shares and
Redeemable Warrants during the life of such Agreement will be subject to the
same terms and conditions. The undersigned acknowledges receipt of the offering
Prospectus relating to such Shares and Redeemable Warrants, and confirms that in
agreeing to purchase such Shares and Redeemable Warrants it has relied on such
Prospectus and not on any other statement whatsoever, written or oral.
The undersigned hereby confirms that it is actually engaged in
the investment banking or securities business and is either (i) a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD") or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered under the
Securities Exchange Act of 1934 who hereby agrees to make no sales within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. The undersigned hereby agrees to comply
with Section 24 of this Article III of the Rules of Fair Practice of the NASD,
and if it is a foreign dealer and not a member of NASD, it also hereby agrees to
comply with the NASD's interpretation with respect to free-riding and
withholding, to comply as though it were a member of the NASD with the
provisions of Sections 8 and 36 of Article III of such Rules of Fair Practice,
and to comply with Section 25 of Article III thereof as that Section applies to
non-member foreign dealers.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address:___________________________________
Dated: ________________, 1996
-55-
<PAGE>
CERTIFICATE OF INCORPORATION
----------------------------
OF
WELLSWAY VENTURES CORPORATION
-----------------------------
----------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is
WELLSWAY VENTURES CORPORATION
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 229 South State
Street, City of Dover, County of Kent; and the name of the registered agent of
the corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is Twenty-Five Million (25,000,000). The par value of
each of such shares is One Mill ($.001). All such shares are of one class and
are shares of Common Stock.
FIFTH: The name and the mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
J.A. Kent 229 South State Street, Dover, Delaware 19901
SIXTH: The corporation is to have perpetual existence.
<PAGE>
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-Laws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with
-2-
<PAGE>
the provisions of Section 109 of the General Corporation Law of the State
of Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-Laws of the
corporation may be exercised by the Board of Directors of the corporation;
provided, however, that any provision for the classification of directors
of the corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law of the State
of Delaware shall be set forth in an initial By-Law or in a By-Law adopted
by the stockholders entitled to vote of the corporation unless provisions
for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever
the corporation shall be authorized to issue more than one class of stock,
no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) of Section 242 of the
General Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied voting
power shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of
-3-
<PAGE>
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to the person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on September 23, 1986.
/s/ J.A. Kent
-------------------------
J.A. Kent
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION OF
WELLSWAY VENTURES, INC.
1. The name of the Corporation is Wellsway Ventures, Inc.
2. The certificate of its incorporation was filed with the Secretary
of State on September 23, 1986 under the name Wellsway Ventures
Corporation and a Certificate of Amendment changing its corporate
name to Wellsway Ventures, Inc. was filed with the Secretary of
State on October 21, 1987.
3. The amendment to be made by this Certificate of Amendment is to
change the Corporation's name from Wellsway Ventures, Inc. to IFS
International, Inc. To effect such change, the provisions of
paragraph 1 of the Certificate of Incorporation are hereby revised
to read as follows:
1. The name of the Corporation is IFS International, Inc.
4. The above amendment to the Certificate of Incorporation was
authorized at a special meeting of the Board of Directors by a
majority of the directors, followed by written consent of a
majority of all outstanding stock entitled to vote thereon, in
accordance with the applicable provisions of Sections 141, 228 and
242 of the General Corporation Law of the State of Delaware, with
written notice of the written consent promptly given to those
stockholders who had not consented in writing.
IN WITNESS WHEREOF, we have executed this Certificate and affirm the truth
of the statements herein set forth under penalty of perjury this 9th day of
June, 1989.
ATTEST: WELLSWAY VENTURES, INC.
[SEAL] BY: /s/ Charles Caserta
----------------------------
Charles Caserta, President
BY: /s/ Frank Pascuito
-------------------------
Frank Pascuito, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IFS INTERNATIONAL, INC.
IFS INTERNATIONAL, INC., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is IFS International, Inc.
2. The corporation's original certificate of incorporation was filed with
the Delaware Secretary of State on September 23, 1986, under the name
Wellsway Ventures Corporation. A certificate of amendment was filed on
October 21, 1987, changing the corporation's name to Wellsway
Ventures, Inc. A certificate of amendment was filed on June 19, 1989,
changing the corporation's name to IFS International, Inc.
3. The certificate of incorporation is amended to:
(a) authorize the issuance of one million (1,000,000) shares of a new
class of preferred stock divided into such series, and having such
relative rights and preferences, as may be fixed by the
corporation's board of directors; and
(b) change the language of paragraph NINTH to specifically eliminate
and limit the liability of the corporation's directors.
4. To effectuate the amendments specified in the preceding paragraph, the
corporation's certificate of incorporation is amended as follows:
(a) Paragraph FOURTH of the certificate of incorporation is deleted in
its entirety and replaced by the following new paragraph FOURTH:
"FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is twenty-six million (26,000,000). The
par value of each of such shares is one mill ($.001). Twenty-five
million of such shares shall be shares of Common Stock. One million of
such shares shall be Preferred Stock, which Preferred Stock shall be
divided into such series, and shall have such relative rights and
preferences, as may be fixed by the corporation's board of
directors."
(b) Paragraph NINTH of the certificate of incorporation is deleted
in its entirety and replaced by the following new paragraph NINTH:
"NINTH. No director of the corporation shall have any personal
liability to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that
this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in
good faith which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware
Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. The provisions of this
paragraph shall not eliminate or limit the liability of a director
for any act or omission occurring prior to the date on which this
provision became effective."
The foregoing amendments to the corporation's certificate of
incorporation were authorized at a special meeting of the board of directors,
by a vote of the majority of directors, held on March 18, 1991, and at the
annual meeting of shareholders, by a majority of the shareholders entitled to
vote thereon, held on March 19, 1991, in accordance with the applicable
provisions Sections 141, 228 and 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this certificate of
amendment to be signed by Charles Caserta, its President, and Frank Pascuito,
its Secretary, who affirm the truth of the Statements herein set forth under
penalty of perjury this 12th day of April, 1991.
IFS INTERNATIONAL, INC.
By: /s/ Charles Caserta
---------------------------
Charles Caserta, President
ATTEST:
By: /s/ Frank Pascuito
--------------------------
Frank Pascuito, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IFS INTERNATIONAL, INC.
IFS INTERNATIONAL, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware DOES HEREBY
CERTIFY:
That pursuant to a meeting of the Board of Directors of IFS INTERNATIONAL,
INC. (the "Corporation") on September 24, 1996, resolutions were duly adopted
setting forth a proposed amendment to the Certificate of Incorporation of said
Corporation, declaring said amendment to be advisable and directing that the
stockholders of said Corporation consider approval thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that Article FOURTH of the Certificate of Incorporation,
relating to the capitalization of the Corporation, is hereby amended and
restated in its entirety to read as follows:
"FOURTH: (a) the Corporation shall be authorized to issue the
following shares:
Class Number of Shares Par Value
----- ---------------- ---------
Common Stock 25,000,000 $.001
Preferred Stock 25,000,000 $.001
(b) The designations and the powers, preferences and rights, and the
qualifictibons or restrictions thereof are as follows:
The shares of Preferred Stock shall be issued from time to time in one or
more series, with such distinctive serial designations as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
shares from time to time adopted by the Board of Directors of the Corporation;
and in such resolution or resolutions providing for the issue of shares of each
particular series, the Board of Directors of the Corporation is expressly
authorized to fix the annual rate or rates of dividends for the particular
series; the dividend payment dates for the particular series and the date from
which dividends on all shares of such series issued prior to the record date for
the first dividend payment date shall be cumulative; the redemption price or
prices for the particular series; the voting powers for the particular series;
the rights, if any, of holders of the shares of the particular series to convert
the same into shares of any other series or class or other securities of the
Corporation, with any provisions for the subsequent adjustment of such
conversion rights; and to classify or reclassify any unissued shares by fixing
or altering from time to time any of the foregoing rights, privileges and
qualifications.
<PAGE>
All shares of Preferred Stock of any one series shall be identical with
each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall be
cumulative; and all shares of Preferred Stock shall be of equal rank, regardless
of series, and shall be identical in all respects, except as to the particulars
fixed by the Board of Directors of the Corporation as hereinabove provided or as
fixed herein.
(c) At 5:00 p.m., Dover, Delaware time, on the date of the filing of this
Certificate of Amendment to the Certificate of Incorporation with the Secretary
of State of the State of Delaware, all then outstanding shares of Common Stock
held by each holder of record on such time and date shall be automatically
reduced at the rate of 1-for-10 without any further action on the part of the
holders thereof or this Corporation. No fractional shares will be issued. In
lieu of issuing fractional shares, the Corporation shall pay the holder
otherwise entitled to such fractional share a sum in cash equal to the closing
bid price of the Corporation's Common Stock on the date of the filing of this
Certificate of Amendment to the Certificate of Incorporation multiplied by such
fraction."
That thereafter, pursuant to a resolution of the Board of Directors of the
Corporation directing that such amendment be considered by the stockholders of
the Corporation, the stockholders of the Corporation holding more than a
majority of the outstanding shares of Common Stock of the Corporation, in
accordance with Section 228 of the General Corporation Law of the State of
Delaware, consented in writing to an approved said amendment and delivered such
written consents to the Corporation. The Corporation thereafter provided to the
other stockholders of the Corporation the notice called for in Section 228 of
the General Corporation Law.
That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Charles J. Caserta, its President, and attested to by Frank A
Pascuito, its Secretary, this_____ day of_________ , 1996.
IFS INTERNATIONAL, INC.
By: /s/ Charles J. Caserta
------------------------------
Charles J. Caserta, President
Attest:
By:/s/ Frank A. Pascuito
-----------------------------
Frank A. Pascuito, Secretary
2
<PAGE>
LEASE AGREEMENT
Between
Rensselaer Polytechnic Institute
(Landlord)
and
Avant Garde Computer Systems, Inc.
(Tenant)
Space: 2,780 square feet
125 Jordan Road
Troy, New York 12180
Date: October 1, 1986
Address of Tenant
to which Notices shall be sent:
125 Jordan Road
Troy, New York 12180
<PAGE>
TABLE OF CONTENTS
-----------------
Paragraph Page
Number Number
------ ------
SUMMARY
1 PREMISES 1
2 TERM 1
3 BASE RENT 1
4 SECURITY DEPOSIT 1
5 ADDITIONAL PAYMENTS 2-4
6 USE 4
7 LANDLORD'S MAINTENANCE 5
8 TENANT'S MAINTENANCE 5
9 PARKING 6
10 ALTERATIONS 6
11 SIGNS 6
12 INSPECTION 7
13 ASSIGNMENT AND SUBLETTING 7
14 FIRE AND CASUALTY 8-9
15 LIABILITY 9-10
16 CONDEMNATION 10
17 HOLDING OVER 10
18 QUIET ENJOYMENT 10-11
19 DEFAULT 11
20 LANDLORD'S REMEDIES 11-12
21 MORTGAGE SUBORDINATION 12
22 NEW OWNER 12
23 MECHANIC'S LIENS 13
24 NOTICES 13
25 BUSINESS INTERRUPTION 13
26 DELIVERY OF GOODS 13
27 NONDISCRIMINATION 13
28 WAIVER OF JURY 14
29 LANDLORD REFUSAL TO CONSENT 14
30 WAIVER OF REDEMPTION 14
31 ENTIRE AGREEMENT 14
32 DESIGN AND OPERATIONS MANUAL 14
33 IDA FINANCING 14
34 CAPTIONS, DELETIONS, DEFINITIONS 15
<PAGE>
SUMMARY PAGE
This page summarizes operational information from the body of the lease for
the convenience of the Landlord. In the event of a conflict between information
contained herein and that contained in the body of the lease, the terms of the
body of the lease shall prevail:
1. Tenant: Avant Garde Computer Systems, Inc.
2. Space: 2,780 square feet, 125 Jordan Road at Rensselaer Technology Park
3. Term: 3 years
4. Base Rent and Operating Costs:
a. Base Rent Per Annum Monthly in
Advance
-------
(1) 10/1/86-10/1/87 = $22,935.00 $1,911.00 $8.25 sf
(2) 10/1/87-10/1/88 = 23,630.00 1,969.00 8.50 sf
(3) 10/1/88-10/1/89 = 25,020.00 2,085.00 9.00 sf
b. Operating Costs Per Annum
(1) 10/1/86 - 10/1/87 = $5,560.00 (Est) $2.00 sf
(2) 10/1/87 - 10/1/88 = As Adjusted
(3) 10/1/88 - 10/1/89 = As Adjusted
5. Special Features:
A) Tenant relocation or expansion - see addendum.
B) Renewal - see addendum.
<PAGE>
LEASE AGREEMENT
This agreement between Rensselaer Polytechnic Institute
("Landlord") and Avant Garde Computer Systems, Inc. ("Tenant").
1. PREMISES: Landlord hereby leases to Tenant premises at the Rensselaer
Technology Park ("Park") more particularly described on Exhibit "A" attached
hereto and incorporated herein ("premises"). Lease of the premises is subject to
the terms and conditions of this agreement. 2,780 square feet have been
attributed to premises. Whenever reference is made herein to Tenant's pro rata
share based upon square feet of premises, this number shall define square feet
of premises.
2. TERM: The term of the lease shall start on October 1, 1986 and end on
September 30, 1989.
A. Landlord has made no representations as to the repair of the
premises, or promises to alter, remodel or improve premises, except as set forth
in Schedule "A" herein. Tenant's taking possession of premises shall
conclusively show that premises are in good and satisfactory condition.
B. If premises are not ready for occupancy on the date that this lease
is due to commence (because construction has not been completed, or because
premises are not vacant, or for any other reason) Landlord shall not be in
default. Tenant shall accept possession of premises when Landlord is able to
deliver same. The term of this lease shall then begin on the date of delivery,
but the end of the lease term shall remain the same. Landlord hereby waives
payment of rent covering any period prior to tendering of possession of premises
to Tenant. On the date the lease term begins, Tenant shall execute and deliver
to Landlord a letter of acceptance of delivery of premises.
3. BASE RENT: Tenant shall pay annual rent of $22,935.00 in equal monthly
installments of $1,911.00 (payable monthly in advance) for the first year of
this Lease. See addendum for subsequent year(s) base rent.
4. SECURITY DEPOSIT: Tenant shall deposit with Landlord one month's base
rent as security for the full and faithful performance by Tenant of all required
obligations of this lease. The security deposit shall be returned to Tenant
after the expiration of this lease if Tenant has fully and faithfully complied
with all of its obligations. If Tenant does not fully comply with the conditions
of this Lease, Landlord may use the security to pay any amounts owed by Tenant,
including damages. If the security is insufficient, Tenant shall upon notice
promptly pay all further amounts due.
<PAGE>
5. ADDITIONAL PAYMENTS: In addition to base rent, Tenant shall pay the
following as additional rent:
A. Tenant shall pay its pro rata share of disbursements paid by
Landlord for building and appurtenant grounds including (without limitation)
Tenant's proportional share of: 1) real property taxes, including all taxes,
assessments, special assessments, levies and government charges of any kind and
nature whatever (collectively, "taxes") levied, assessed or payable against
building and appurtenant grounds; 2) insurance; 3) repair, maintenance,
janitorial and cleaning, including supplies of areas for which Tenant is not
directly responsible; 4) landscape maintenance including regular mowing of
grass, trimming, weed removal and general landscaping of appurtenant grounds; 5)
snow plowing; 6) common area utilities, including (without limitation) parking
area lighting; 7) water and sewer charges; 8) management and administration
expenses; 9) parking lot maintenance and cleaning; 10) and other operating
costs.
B. Tenant shall repay Landlord for additional operating costs directly
attributable to Tenant within thirty days of statement rendered by Landlord.
These shall include (without limitation): extra fire insurance premiums and
unusual water usage charges caused by Tenant's use of premises.
C. Disbursements paid by Landlord for building and appurtenant grounds
(other than those directly attributable to Tenant) shall be proportioned among
all tenants of the building. This shall be calculated as follows: the total
reimbursements paid by Landlord for building and appurtenant grounds shall be
divided by the number of square feet in building in which premises are located.
The resulting amount shall be multiplied by the number of square feet attributed
herein to premises, and the product shall be Tenant's pro rata share of
Landlord's disbursements.
D. Tenant shall pay Landlord additional rent due hereunder in monthly
installments as follows:
i. Tenant shall pay such costs according to Landlord's estimate
of what they will be, which Landlord shall calculate once a
year. Payment shall be made monthly in advance, together
with basic rental payments.
-2-
<PAGE>
ii. For the first year of this Lease, Landlord has estimated
such disbursements as $2.00 per square foot. This sum
includes only costs set forth in paragraph 5A herein.
iii. After the close of Landlord's fiscal year, Landlord shall
prepare a statement of actual costs (currently called Report
of Actual Operating Costs) for the building in which the
premises are located and appurtenant grounds.
iv. A copy of the Report will be furnished to Tenant, and will
set forth Tenant's pro rata share of such actual operating
costs, as well as any additional operating costs for which
the Tenant is responsible pursuant to paragraph 5B herein
for which Tenant has not already repaid Landlord.
v. Tenant shall receive a credit against its share of such
costs for additional rent actually paid by it to Landlord.
If the sum of Tenant's additional rent payments hereunder is
less than the disbursements actually made by Landlord, the
Tenant will be billed for the additional amounts for which
he is responsible. Tenant shall pay such bill within thirty
(30) days after it is rendered. If the sum of Tenant's
additional rental payments is greater than the actual
disbursements made by Landlord, Tenant shall receive a
credit against its next month or months additional rental
obligation.
-3-
<PAGE>
E. Tenant is responsible for paying all charges for its own use of
utilities, which shall be separately metered. Landlord shall, at its own
expense, have an electric meter installed in Tenant's name at premises, and
Tenant shall, pay its electric bills directly to Niagara Mohawk. Premises
heating, air conditioning and ventilation are included in Tenant's separately
billed utilities.
F. If Tenant fails to pay rent or additional rent when due, Tenant
shall pay Landlord a late charge of five (5%) percent of such overdue payment.
Such late charge shall be in addition to (and not in limitation of) all of
Landlord's other rights and remedies hereunder or at law. Such charge shall not
be considered liquidated damages.
6. USE:
A. The premises shall only be used for: receiving, research,
development, testing, storing, shipping and selling (other than retail)
technology related products, materials and merchandise (collectively,
"Products") made and/or distributed by Tenant, and ordinary and necessary
incidental activities. Outside storage (including, without limitation, all
motor vehicles such as trucks or trailers) is prohibited without Landlord's
prior written consent. Tenant shall at its own cost and expense obtain any and
all licenses and permits necessary for its use of premises.
B. Tenant shall comply with all governmental laws, ordinances,
regulations, rules, orders and directives (collectively, "regulations"),
including (without limitation) all environmental, energy and zoning regulations.
Tenant at its sole expense shall promptly comply with all regulations for the
correction, prevention and abatement of nuisances in, upon, or connected with
premises.
C. Tenant shall not permit any objectionable, unpleasant or dangerous
odors, smoke, dust, gas, emission, noise or vibrations to emanate from premises,
nor permit any activity upon premises which would constitute a nuisance or would
disturb or endanger any other tenant of the Park.
D. Without Landlord's prior written consent, Tenant shall not receive,
store or otherwise handle any product, material or merchandise which is
explosive or highly inflammable or which has been listed by EPA as being an
actual or suspected carcinogen. Tenant shall not permit premises to be used in
any manner which would render the insurance thereon void or in the judgment of
the insurer make the insurance risk more hazardous than previously (causing an
increase in premiums) or cause the State Board of Insurance or other insurance
authority to disallow any sprinkler credits.
-4-
<PAGE>
7. LANDLORD'S MAINTENANCE: Landlord shall at its expense maintain only the
roof, foundation and the structural soundness of the exterior walls (including
windows, glass, plate glass, door or entries) of the building in good repair,
reasonable wear and tear excepted. Provided, however, Tenant shall repair and
pay for any damage caused by Tenant or Tenant's employees, agents or invitees,
or caused by Tenant's default hereunder. Tenant shall immediately give Landlord
written notice of any defects or need for repairs for which Landlord is
responsible, after which Landlord shall have reasonable time to determine
whether such repair is needed, and, if so, to repair. Landlord's liability
hereunder shall be limited to the cost of such repairs, maintenance or curing of
defect.
8. TENANT'S MAINTENANCE:
A. Tenant shall, at its own cost and expense, keep and maintain all
parts of the premises (except those for which Landlord is expressly responsible
under the terms of this Lease) clean and in good condition. In the event Tenant
fails to carry out required maintenance, and upon written notice from Landlord,
Tenant authorizes Landlord to arrange for, at Tenant's expense, Tenant's
required cleaning, repair and replacement of premises, including (without
limitation): windows, glass and plate glass, doors, any special office entry,
interior walls and finished work, floors and floor covering, downspouts,
gutters, heating and air conditioning systems, dock boards, truck doors, dock
bumpers, paving, plumbing work and fixtures, termite and pest extermination,
regular removal of trash and debris, keeping the whole of premises in clean and
sanitary condition. Tenant shall not be obliged to repair any damage caused by
fire, tornado or other casualty covered by the insurance to be maintained by
Landlord pursuant hereto, except that Tenant shall, at Tenant's own expense,
repair all damages caused by the negligence of the Tenant or its employees,
agents or invitees.
B. Tenant shall not damage any wall or disturb the integrity and
support provided by any wall. Tenant shall, at its own cost and expense promptly
repair any damage or injury to any part of the building or grounds caused by
Tenant or its employee, agents or invitees.
-5-
<PAGE>
9. PARKING: Parking shall be available on a "first-come, first-served"
basis in the parking area adjacent to premises, shared by all tenants of that
building and Landlord. Landlord may require that all cars shall be marked with a
parking decal provided by Landlord. Tenant shall instruct all of its officers,
employees and agents not to park in spaces marked for visitor parking.
10. ALTERATIONS:
A. Tenant shall not make any alterations, additions or improvement to
the premises (including without limitation roof and wall penetrations)
(collectively, "alterations") without the prior written consent of Landlord.
Tenant may, without the consent of Landlord, but at its own cost and expense and
in a good workmanlike manner erect such shelves, bins, machinery and fixtures as
it may deem advisable, so long as such comply with all regulations and do not
alter the basic character of, or overload or damage, the building or
improvements.
B. All alterations, additions and improvements erected by Tenant shall
be Tenant's property during the term of this Lease. Prior to expiration of this
Lease, Tenant shall (unless Landlord otherwise elects as provided herein) remove
all alterations, additions and improvements erected by Tenant and restore
premises to their original condition by the date of lease termination or upon
earlier vacating of premises. However, Landlord shall have the right to elect,
during the thirty (30) days prior to termination or earlier vacating of
premises, that any such alterations, additions and improvements shall become the
property of Landlord as of the date of termination or upon earlier vacating of
premises, and that they shall not be removed by Tenant.
C. All removals and restoration to original condition shall be
accomplished in a good workmanlike manner so as not to damage the primary
structure or structural quality of premises or building.
11. SIGNS: Tenant shall not erect any signs upon or within premises without
prior written approval of the Landlord. This prohibition shall extend, without
limitation, to space within premises visible from the outside of the building.
Landlord shall not unreasonably withhold its approval if the proposed sign is
consistent with the Park design and operations manual as the same may be changed
from time to time.
-6-
<PAGE>
12. INSPECTION: Landlord, its agents and representatives, shall have the
right to enter and inspect premises:
A. any time during business hours for the purpose of ascertaining
the condition of the premises or in order to make such repairs as may be
herein required of or permitted to Landlord; and
B. any time in the event of an emergency, to be determined in
Landlord's sole discretion; and
C. during the one-hundred and twenty (120) days in advance of
expiration of this Lease, at any time during business hours to show premises.
During such one-hundred and twenty (120) days, Landlord shall have the right
to erect on premises a suitable sign stating that premises are available.
D. Tenant shall meet with Landlord on premises for a joint
inspection of premises thirty (30) days prior to vacating. If Tenant fails to
arrange for such joint inspection, Landlord's inspection at or after Tenant's
vacating premises shall conclusively determine Tenant's responsibility for
repairs and restoration.
E. Landlord shall at all times have a key to all locks to premises.
Tenant shall not change or install any locks without Landlord's prior approval
for consistency with Landlord's master key.
13. ASSIGNMENT AND SUBLETTING:
A. Tenant shall not assign this Lease or sublet the whole or any
part of premises without prior written consent of Landlord. If Landlord
consents to such, Tenant shall remain directly, primarily and fully
responsible and liable for the payment of the rent herein specified and for
compliance with all its other obligations hereunder.
B. In the event of default (defined at paragraph 19 herein), if
premises or any part thereof have been assigned or sublet, Landlord, in
addition to any other remedies provided herein or by law, may at its option
collect directly from such assignee or subtenant all rents becoming due to
Tenant under such assignment or sublease and apply such rent against any sums
due to Landlord from Tenant hereunder. Such collections, if any, shall not be
a novation or a release of Tenant from any performance of Tenant's obligation
hereunder except so much of rent due as is so collected.
-7-
<PAGE>
14. FIRE AND CASUALTY:
A. Landlord shall maintain standard fire and extended coverage
insurance covering the building at which premises are a part in an amount of not
less than eighty (80%) percent (or for such greater percentage as may be
necessary to comply with the provisions of any co-insurance clauses of the
policy) of the "replacement cost" thereof as such term is defined in the
Replacement Cost Endorsement to be attached thereto. Such coverage shall insure
against the perils of fire, lightning, and extended coverage, such coverages and
endorsements to be as defined, provided and limited in the standard bureau forms
prescribed by the insurance regulatory authority for New York State. Subject to
the other provisions in this paragraph 14, such insurance shall be for the sole
benefit of Landlord and under its sole control.
B. If premises should be damaged or destroyed by fire, wind or other
casualty, Tenant shall give Landlord immediate written notice thereof. If
premises have been destroyed, or in Landlord's sole judgment damaged beyond
usability, Landlord may, in its sole discretion, terminate this lease and the
rent shall be abated during the unexpired portion of this lease (effective upon
the date of the occurrence of such damage or destruction). No damages shall be
payable to Tenant if Landlord so terminates.
C. If Landlord does not choose to terminate, but rather decides to
repair or rebuild premises, the rent payable hereunder during the period in
which premises are not tenantable shall be reduced to such extent as may be fair
and reasonable under all the circumstances during such period of repair or
rebuilding. At the completion of such repair or rebuilding, rent shall resume
for the full amount herein set forth for the remainder of the term of the lease.
D. If holder of an instrument (defined at paragraph 21 herein)
requires that the insurance proceeds be applied to pay off the indebtedness
evidenced by that instrument, Landlord shall have the right to terminate this
Lease by delivering written notice of termination to Tenant within fifteen (15)
days after such requirement is made by any such holder. In such event, all
rights and obligations hereunder shall cease and terminate, except for any
payments previously due and owing from Tenant to Landlord.
-8-
<PAGE>
E. To the extent that either party has insurance payable to it under
any policy of insurance (directly or by subrogation), the other party is hereby
released from any claim for loss or damage to property caused by fire or other
peril, but only if the releaser's insurance policy (or policies) contains a
clause or endorsement to the effect that any such release shall not adversely
effect or impair the policy or prejudice the right of the releaser to recover
under the policy.
This release shall be effective even if the loss or damage is caused
by fault or negligence of the party released, or anyone for whom it is
responsible, but this release is effective only to the extent and limit of the
proceeds payable under the releaser's insurance policy.
15. LIABILITY:
A. Covenant not to sue. Tenant shall not commence an action, interpose
a counterclaim, or implead Landlord for any injury to person or damage to
property on or about premises resulting from and/or caused in part or whole by:
1) the negligence or misconduct of Tenant, its directors, officers, agents,
servants or employees, or of any other person entering upon premises for
Tenant's purposes; or 2) Tenant's failure to repair; or 3) leakage of gas, oil,
water or steam or electricity emanating from premises prior to or within 2
working days after notification to Landlord by Tenant or Tenant's agent.
B. Indemnification. Tenant shall at all times indemnify and hold
harmless Landlord, its Trustees, officers, employees and agents, from any loss,
liability , claims, suits, costs, expenses (including, without limitation,
attorneys fees) and damages, (actual or punitive), arising out of any personal
injury or property damage associated with premises, except for personal injury
or property damage caused by gross negligence of Landlord or (but only if Tenant
has duly notified Landlord of the need for repair) failure of Landlord to repair
any part of premises which Landlord is obligated to repair and maintain
hereunder.
C. Insurance. Tenant shall procure and maintain throughout the term of
this Lease a policy or policies of insurance at its sole cost and expense,
insuring Tenant against all claims, demands or actions arising out of or in
connection with: (i) premises; (ii) the condition of premises; (iii) Tenant's
operations, maintenance and use of premises; and (iv) all assumed contractual
liability.
-9-
<PAGE>
The limits of such policy or policies shall be in aggregate amounts of no less
than Two Million ($2,000,000) Dollars. Tenant shall name Landlord and Tenant as
insured. All such policies shall be procured by Tenant from responsible
insurance companies satisfactory to Landlord. Evidence of such insurance shall
be provided to Landlord prior to commencement date of this Lease.
16. CONDEMNATION: In the event premises, or any portion thereof, shall be
taken by Eminent Domain (or by private purchase in lieu thereof):
A. the proceeds of such taking or purchase shall exclusively belong to
Landlord.
B. This Lease shall not terminate so long as Tenant can still carry on
its business on premises but rental shall abate in proportion to space taken.
C. This lease shall terminate if it is impossible (by reason of such
taking or purchase) for Tenant to still carry on its business on premises.
17. HOLDING OVER: At the termination of this Lease Tenant shall yield up
immediate possession to Landlord. If Landlord agrees in writing that Tenant may
hold over after the expiration or termination of this Lease, the hold over
tenancy shall be subject to termination by Landlord at any time upon not less
than five (5) days advance written notice, or by Tenant at any time upon not
less than thirty (30) days advance written notice. All other terms and
provisions of this Lease shall be applicable during the hold over tenancy,
except that Tenant shall pay Landlord as rental through the period of any hold
over an amount equal to one and one-half times the base rent and additional rent
in effect on termination date. Such rental shall be computed on a daily basis
for each day of the hold over period. No holding over by Tenant, whether with or
without consent of Landlord, shall extend this Lease except as otherwise
expressly provided herein. This paragraph may not be interpreted for any purpose
as a consent by Landlord to any hold over by Tenant.
18. QUIET ENJOYMENT: Subject to all rights of mortgagees, as set forth in
paragraph 21 herein Landlord covenants that:
A. It now has, or will have before Tenant takes possession of the
premises, good title to the premises. Such title is or shall be free and clear
of all liens and encumbrances, except for liens for current taxes not yet due,
such mortgage or mortgages as are permitted by the terms of this Lease,
regulations as defined herein, and easements, restrictions and other conditions
for record.
-10-
<PAGE>
B. Landlord has full right and authority to enter into this Lease.
C. Tenant, upon paying rent as required, and performing its other
obligations, shall peaceably and quietly have, hold and enjoy the premises for
the term without hindrance or molestation from Landlord.
19. DEFAULT: The following shall be events of default by Tenant under this
Lease:
A. Tenant's failure to pay any installment of rent or additional
payments, required by this lease when due, and such failure continues for a
period of fifteen (15) days from the due date.
B. Tenant becoming insolvent, making a transfer in fraud of creditors,
or making an assignment for the benefit of creditors.
C. Tenant filing a petition under any bankruptcy law of the United
States or any state, or Tenant being placed in bankruptcy proceedings or
adjudged bankrupt or insolvent in proceedings filed against Tenant.
D. Receiver or trustee or similar officer being appointed for all or
substantially all of Tenant's assets.
E. Tenant failing to comply with any other teem, provision or covenant
of this Lease and not curing such within ten (10) days after written notice
thereof.
20. LANDLORD'S REMEDIES: If Tenant defaults Landlord may pursue any one or
more of the following remedies without any notice or demand whatsoever:
A. Terminate the Lease. In such event, Tenant shall immediately
surrender the premises to Landlord. If Tenant fails to do so, Landlord may,
without limiting any other remedy which it may have for possession or arrearages
in rent, enter upon and take possession of the premises and remove Tenant and
any other person that may be occupying premises without being liable for
prosecution or any claim of damages therefor. In such event, Tenant agrees to
pay to Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, including without limitation Landlord's
inability to relet the premises on terms satisfactory to Landlord.
B. In the event of a termination and removal as set forth herein7
Landlord may:
-11-
<PAGE>
1) relet the premises and receive rent therefor. Tenant shall pay
to Landlord on demand any deficiency between rent under this Lease and the
reletting. If Landlord relets the premises at a greater rental, such excess
shall be the sole property of Landlord, and Tenant hereby waives any claim to
such relet excess rent; and
2) perform Tenant's obligations under the terms of this Lease.
Tenant agrees to reimburse landlord on demand for any expenses which Landlord
incurs in fulfilling Tenant's obligations.
C. Exercise of any of the remedies set forth herein or otherwise
provided by law, shall not constitute a forfeiture or waiver of any rent or
other payments due to Landlord, or of any damages accruing to Landlord; nor
shall any act of Landlord hereunder be deemed an acceptance of surrender of
premises. Only a writing signed by Landlord shall constitute a valid acceptance
of surrender of premises.
D. Landlord's acceptance of any rent or other payments hereunder after
a default by Tenant shall not be deemed a waiver of such default unless Landlord
so notifies Tenant in writing. Forbearance by Landlord to enforce a remedy shall
not be a waiver of default or Landlord's right to enforce any remedy with
respect to that default or any later default. Tenant shall pay Landlord's
reasonable attorneys fees in the enforcement or defense of any of Landlord's
rights or remedies hereunder.
21. MORTGAGE SUBORDINATION: Tenant accepts this Lease subject and
subordinate to any mortgage(s) and/or deed(s) of trust, mortgage modifications,
extensions and additions (collectively, "instruments") now or at any time
hereafter constituting a lien or charge upon the premises or improvements
thereon. Tenant shall at any time hereafter and as often as requested to do so
on demand execute any documents which may be required by any holder of an
instrument for the purpose of subjecting and subordinating this Lease to the
lien of any such instrument.
22. NEW OWNER: If Landlord shall sell, assign, or convey its right, title
and interest in premises to another (called herein "new owner"), this Lease
shall continue in full force and effect; Tenant shall in all respects recognize
the new owner as its Landlord under this Lease, paying all rents and complying
with all terms of this Lease. In such event, Landlord shall turn over Tenant's
security deposit, if any, to the new owner. Landlord's liability to return same
to Tenant shall then cease, and the new owner shall then be obligated to return
security deposit to Tenant subject to the terms and conditions of this Lease.
The new owner shall have all of Landlord's rights and shall assume all of
Landlord's obligations hereunder.
-12-
<PAGE>
23. MECHANIC'S LIENS: Tenant shall have no authority, express or implied,
to create, place or allow any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in the
premises. Payments under this Lease shall not be chargeable by any third party,
including any who may furnish materials or perform labor for any construction or
repairs. Any claim or lien shall affect and attach to, if at all, only the
leasehold interest granted to Tenant by this agreement. Tenant shall pay all
sums legally due and payable by it on account of any labor performed on
premises. Tenant shall indemnify and hold Landlord harmless from any and all
loss, costs or expense (including, without limitation, reasonable legal fees)
based on or arising out of asserted claims or liens against the leasehold estate
or against the right, title and interest of Landlord in premises.
24. NOTICES: Tenant shall send all rent or required notices by
hand-delivery or be registered mail to Landlord at 100 Jordan Road, Troy, New
York, 12180. Landlord shall provide any notice to Tenant by hand-delivery or
registered mail at the address set forth on the title page hereof, or as Tenant
may otherwise designate in writing. Any notice or payment made shall be deemed
delivered when actually received and not when deposited in the mail.
25. BUSINESS INTERRUPTION: Landlord shall not be responsible to Tenant for
any damages or inconvenience caused by interruption of business or inability to
occupy premises for any reason whatsoever.
26. DELIVERY OF GOODS: All deliveries to and shipments from Tenant are the
sole responsibility of Tenant. Tenant shall provide that such do not disrupt any
other tenant of the Park. Landlord, in its sole discretion, may reasonably
regulate such deliveries and shipments to prevent disturbance to other tenants
of the Park.
27. NONDISCRIMINATION: Tenant shall not discriminate against any employee
or applicant for employment because of race, color, religion, sex or national
origin or in any other way prohibited by law. Tenant shall act affirmatively to
ensure that applicants are employed, and employees treated during employment,
without regard to race, color, religion, sex or national origin or other
discrimination prohibited by law. Such nondiscrimination shall include, without
limitation: employment, promotion, demotion, transfer, recruitment, advertising,
lay-off, termination, rates of pay or other forms of compensation, selection of
training, including apprenticeship.
-13-
<PAGE>
28. WAIVER OF JURY: Landlord and Tenant waive trial by Jury in any
matter-pertaining to this Lease (except for a personal injury or property damage
claim).
29. LANDLORD REFUSAL TO CONSENT: If Landlord is required to give reasonable
consent in any matter hereunder (rather than such consent being in Landlord's
sole discretion), and Landlord refuses to consent, Tenant's sole remedy shall be
to apply to an appropriate court to request that Landlord be directed to give
its consent. Tenant agrees not to make any claim against Landlord for money or
subtract any sum from rent based on Landlord's refusal to consent.
30. WAIVER OF REDEMPTION: Tenant waives all rights to redeem under any law
of the State of New York.
31. ENTIRE AGREEMENT: Both parties have read this Lease and understand that
it sets forth their entire agreement. This Lease may be changed only by an
agreement in writing duly signed and acknowledged and delivered to each party.
32. DESIGN AND OPERATIONS MANUAL: Tenant has read the design and operations
manual of the Rensselaer Technology Park, which is hereby incorporated by
reference. Tenant shall comply with all applicable provisions of said manual as
it now exists or may be revised from time to time.
33. IDA FINANCING: Tenant hereby certifies to Landlord that:
A. Other than the North Greenbush Industrial Agency's 1985 Industrial
Development Revenue Bonds ("Bonds"), no other bonds, notes or other obligations
the interest on which is exempt from federal taxation under Section 103 of the
Internal Revenue Code are outstanding, the proceeds of which have been used to
finance facilities located in whole or in part in the Town of North Greenbush,
Rensselaer County, New York, or to finance facilities which are contiguous to or
integrated with facilities located in the Rensselaer Technology Park in the Town
of North Greenbush, Rensselaer County, New York, and where a Principal User of
such facilities or Beneficiary of such bonds, notes or other obligations is also
Tenant or one or more related persons.
B. Notwithstanding any other provisions of this Lease, Tenant shall be
bound by the representations contained in this paragraph; Landlord shall have
full remedies for breach and damages. Tenant certifies that its Federal Employer
Identification number (or social security number if an individual) is
14-1626415.
-14-
<PAGE>
34. CAPTIONS, DELETIONS, DEFINITIONS: Headings and captions used in this
Lease are for the convenience of reference only, and are not deemed to modify
any of the legal rights of the parties, such deletion may not be used in
interpreting the rights of the parties hereunder. Each party shall then have all
rights which it would have had, at law or otherwise, as if such deleted
provision had never been a part hereof.
TENANT LANDLORD
Avant Garde Computer Systems, Inc. RENSSELAER POLYTECHNIC
- ------------------------------------ INSTITUTE
BY: /s/ Frank Pascuito BY: /s/ Paul Lawler
--------------------------------- -----------------
POSITION: President POSITION: Vice President for Finance
-------------------------- --------------------------
DATED: 9/16/86 DATED: 9/25/86
------------------------------ -----------------------------
BY: /s/ Michael H. Wacholder
------------------------
POSITION: Director/RTP
------------------
DATED: 9/26/86
---------------------
-15-
<PAGE>
SCHEDULE "A"
In addition to the provision of standard ceilings at 9 foot heights,
lighting, perimeter walls, HVAC secondary ducts and diffusers, and 100 AMP
electric service,
(a) Landlord will provide the sum of $11,120.00 as an amount to offset total
other modification costs.
(b) Tenant agrees to reimburse Landlord for unamortized portion of modification
expense per Landlord's modification allowance based on a three-year
straight-line amortization schedule should Tenant occupy the space described in
Exhibit A for a period of time less than three years, or fail to occupy
additional or other space at 125 Jordan Road, or another facility located at
Rensselaer Technology Park.
(c) Tenant agrees to reimburse Landlord for modification costs in excess of the
amount provided by Landlord according to the following payment schedule:
Upon receipt of Landlord's bill.
<PAGE>
ADDENDUM
Tenant relocation or expansion
Landlord reserves the right to relocate Tenant into comparable Premises any time
after the first year of the lease term upon Tenant's receipt of written
notification, which shall be given at least 90 days prior to planned relocation
date. Landlord agrees to reimburse Tenant for all reasonable, direct,
move-related expenses.
Upon notification of Landlord by Tenant (in writing 90 days in advance) of
Tenant's need to occupy additional or new space at Rensselaer Technology Park,
Landlord will make every reasonable effort to provide such additional or new
space providing such space is at least 100% larger than the premises described
in this Lease and such space is available.
Renewa1
Tenant will notify Landlord in writing 90 days before the expiration of this
Lease of its intent to renew this Lease. Lease costs will be negotiated at the
time Tenant notifies Landlord of its intent to renew this Lease. Tenant and
Landlord agree that reasonable efforts will be made to arrive at mutually
agreeable rates at least 30 days prior to the expiration of this Lease.
<PAGE>
AMENDMENT TO LEASE AGREEMENT
This Amendment to Lease Agreement (the "Amendment") is made as of February
1, 1996, between Rensselaer Polytechnic Institute, ("Landlord"), and IFS
International, Inc. ("Tenant").
RECITALS
1. Landlord and Tenant have previously entered into a Lease Agreement, (the
"Lease") dated August 1, 1995 and executed by Landlord on September 25, 1995 and
by Tenant on September 15, 1995, pursuant to which Landlord leased to Tenant
6717 square feet of premises known as 185 Jordan Road in the Rensselaer
Technology Park, more particularly described in Exhibit "A" to the Lease, for a
term commencing August 1, 1995 and ending July 31, 1999.
2. Landlord and Tenant now desire to change certain terms of the Lease,
pursuant to paragraph "31" thereof, as more particularly set forth in this
Amendment.
NOW THEREFORE, in consideration of the foregoing recitals Landlord and
Tenant agree as follows:
1. Paragraph "1" of the Lease is amended to provide that the premises shall
henceforth consist of 8459 square feet described on Exhibit "B" attached to this
Amendment including the 6717 square feet described in Exhibit "A" to the Lease
and an additional 1742 square feet at 185 Jordan Road as shown on Exhibit "B."
<PAGE>
2. Paragraph "3" of the Lease is amended to provide that the annual base
rent rate per square foot for the additional 1742 square foot space shall
correspond to the base rent rate of the original 6717 square feet during the
remaining period in the Lease from February 1, 1996 to July 31, 1999. The
additional rent for the 8459 square feet shall be billed at the same rate and in
the same manner as specified in the Lease Agreement. Tenant shall pay annual
rent in equal monthly installments payable in advance on the first day of the
month. See the attached Schedule "B" for base rent and additional rent.
Additional rent is the Tenant's pro-rated share of disbursements paid by
Landlord for such operating costs as real property taxes, insurance, repair,
maintenance, janitorial expenses, etc. This rent is based on actual expenditures
for which Tenant shall receive a full accounting annually. If the sum of
tenant's additional rental payments is greater than the actual disbursements
made by Landlord, Tenant shall receive a credit against its next month's or
months' additional rental obligation. If the sum of Tenant's additional rent
payments hereunder is less than the disbursements actually made by Landlord, the
Tenant will be billed for the additional amounts for which it is responsible.
3. Tenant is responsible for paying all charges for its own use of
utilities, which are separately metered; however Tenant shall continue to pay
Landlord a utility fee on the first day of the month for its prorated share of
utility expenses (adjusted annually on the basis of actual costs and an
assessment of user requirements) on 3272 square feet comprising the 1530 square
feet, part of its originally leased 6717 square feet, and the additional 1742
square feet of this Lease Amendment. During the period of February 1 to July 31,
1996 the estimated share of utility expenses shall continue at the annual rate
of $2.00 per square foot. Tenant shall have electric and gas meters assigned to
its name and shall pay its electric and gas bills directly to the utility
company. Premises lighting, outlets, heating, air conditioning and ventilation
are included in Tenant's separately billed utilities.
<PAGE>
4. Improvements required for expansion shall be undertaken as shown on
Exhibit "B" which reflects modifications agreed upon between Landlord and Tenant
for both the originally leased 6717 square foot premises and the 1742 square
foot addition. Any additional modifications shall be at Tenant's expense. All
telephone and computer cabling shall be done at Tenant's expense as well as any
specialized electrical connections.
5. Landlord and Tenant hereby confirm and ratify all other provisions of
the Lease except those provisions explicitly changed hereby.
6. Insofar as any provision of this Amendment to is inconsistent with any
provision of the Lease, the provisions of this Amendment control and render any
inconsistent provisions of no force and effect.
7. In all other respects the Lease remains unchanged and in full force and
effect.
8. Executed counterparts of this Amendment have been delivered to Landlord
and Tenant.
In Witness Whereof Landlord and Tenant have executed and acknowledged this
Amendment on the dates hereinafter set forth.
TENANT LANDLORD
IFS INTERNATIONAL, INC. RENSSELAER POLYTECHNIC INSTITUTE
By: ________________________ By: ____________________________
Position: __________________ Position: ______________________
Dated: _____________________ Dated: _________________________
By: __________________________________________
Position: Director. Rensselaer Technology Park
------------------------------------
Dated: _______________________________________
<PAGE>
SCHEDULE "B"
SCHEDULE OF MONTHLY PAYMENTS
IFS International, Inc.
8459 square feet
2/1/96-7/13/96
- --------------
Base Rent $ 82,475.00 $ 6,873.00
Additional Rent 24,531.00 2,044.00
Utilities (3272 sf) 6,544.00 545.00
----------- ---------
Total $113,550.00 $ 9,462.00
8/1/96-7/31/97
- --------------
Base Rent $ 82,475.00 $ 6,873.00
Additional Rent To be based on actual costs for fiscal year 1995-96
Utilities To be based on actual costs for fiscal year 1995-96
8/1/97-7/31/98
- --------------
Base Rent $ 82,475.00 $ 6,873.00
Additional Rent To be based on actual costs for fiscal year 1996-97
Utilities To be based on actual costs for fiscal year 1996-97
8/1/98-7/31/99
- --------------
Base Rent $ 83,744.00 $ 6,979.00
Additional Rent To be based on actual costs for fiscal year 1997-98
Utilities To be based on actual costs for fiscal year 1997-98
<PAGE>
Exhibit 21.1
SUBSIDIARIES
OF
IFS INTERNATIONAL, INC.,
A DELAWARE CORPORATION
State or Other
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ ----------------
IFS International, Inc. New York
IFS International, Inc. (S) PTE Singapore
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form
SB-2 of our report dated July 17, 1996, except for the second paragraph of
Note 14, for which the date is August 6, 1996 and Note 15, for which the date
is November 1, 1996, relating to the consolidated financial statements of IFS
International, Inc. and subsidiary, and to the reference to our Firm under the
caption "Experts" in the Prospectus.
URBACH KAHN & WERLIN PC
Albany, New York
November 4, 1996
