United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period ended January 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 1-12687
IFS International, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3393646
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
185 Jordan Road
Troy, NY 12180
(Address of principal executive offices)
(518) 283-7900
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No ___
State the number of shares outstanding of each of the issuer's classes of
common equities as of the latest practicable date.
Common Stock, $.001 par value, 1,072,365 shares outstanding as of
February 28, 1997
Series A Convertible Preferred Stock, $.001 par value, 1,380,000
shares outstanding as of February 28, 1997
Transitional Small Business Disclosure Format: Yes___ NO (X)
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
Consolidated Balance Sheets
January 31, 1997 (unaudited) and
April 30,1996.............................................2-4
Consolidated Statements of Operations,
three months and nine months ended
January 31, 1997 and 1996 (unaudited).....................5-6
Consolidated Statements of
Cash Flows, nine months ended
January 31, 1997 and 1996(unaudited)......................7-8
Notes to Consolidated
Financial Statements (unaudited).........................9-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..12-16
Part II. Other Information
Item 1. Legal Proceedings................................17
Item 2. Changes in Securities............................17
Item 3. Defaults Under Senior Securities ................18
Item 4. Submission of Matters to a Vote of Security
Holders..........................................18
Item 5. Other Information................................18
Item 6. Exhibits and Reports on Form 8-K.................18
Part I. Financial Information
Item 1. Consolidated Unaudited Financial Statements
IFS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
January 31, April 30,
1997 1996
___________ ___________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 414,487 $ 137,462
Trade accounts receivable,
net of allowance for
doubtful accounts of $7,900 725,013 144,669
Other receivables 13,279 42,519
Costs and estimated earnings
in excess of billings on
uncompleted contracts 148,594 432,173
Prepaid expenses and other
current assets 98,934 27,549
___________ ___________
Total current assets 1,400,307 784,372
___________ ___________
PROPERTY, EQUIPMENT AND IMPROVEMENTS, net
210,992 136,231
___________ ___________
OTHER ASSETS
Software license 6,917 9,082
Capitalized software costs, net 458,842 377,482
Deferred offering costs 128,950 -
Deposits 22,195 -
___________ ___________
Total other assets 616,904 386,564
___________ ___________
$ 2,228,203 $ 1,307,167
______________________ ______________________
</TABLE>
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
January 31, April 30,
1997 1996
___________ ___________
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Notes Payable 500,000 -
Current maturities of long
term debt 54,323 38,329
Current portion of capital
lease obligations - 2,733
Accounts payable and other
liabilities 200,426 587,170
Accrued salary, commissions
and other expenses 744,399 702,515
Billings in excess of costs
and estimated earnings on
uncompleted contracts 378,163 32,524
Deferred revenue and customer
deposits 377,784 219,326
___________ ___________
Total current liabilities 2,255,095 1,582,597
LONG-TERM LIABILITIES
Long-term debt, less current
maturities 415,677 439,831
Other 12,515 12,515
___________ ___________
Total long-term liabilities 428,192 452,346
___________ ___________
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par
value; 25,000,000 shares
authorized, no shares issued -
or outstanding -
Common Stock $.001 par value;
50,000,000 shares
authorized, 1,072,365
and 1,009,361 issued and
outstanding 10,610 10,093
Additional paid-in capital 2,221,836 2,168,528
Accumulated deficit (2,687,530) (2,906,397)
___________ ___________
Total shareholders' deficit (455,084) (727,776)
___________ ___________
$2,228,203 $1,307,167
______________________ ______________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Nine Nine Three Three
Months Months Months Months
Ended Ended Ended Ended
January 31, 1997 January 31, 1996 January 31, 1997 January 31, 1996
<S> <C> <C> <C> <C>
__________ __________ _________ _________
Revenues:
Software license
and installation
contract fees $1,776,738 $876,212 $644,807 $420,973
Hardware sales 210,434 44,848 82,550 9,600
Service and
maintenance
revenue 671,029 301,353 343,859 97,115
__________ __________ _________ __________
Total revenue 2,658,201 1,222,413 1,071,216 527,688
__________ __________ _________ __________
Cost of software
license and
installation
contract fees 282,698 104,713 110,820 51,895
Cost of hardware
sales 180,700 16,124 75,341 3,414
Cost of service
and maintenance
revenue 158,584 157,946 48,102 60,137
__________ __________ _________ __________
621,982 278,783 234,263 115,446
__________ __________ _________ __________
Gross profit 2,036,219 943,630 836,953 412,242
__________ __________ _________ __________
Operating expenses
Research &
development 387,924 354,388 146,790 119,296
Salaries 589,659 472,215 231,433 151,920
Rent 90,410 69,980 27,975 27,066
Selling, general
& admin. 574,211 470,756 227,410 158,325
Other 21,836 15,824 9,609 4,946
__________ __________ _________ _________
Total
operating
expenses 1,664,040 1,383,163 643,217 461,553
__________ __________ _________ _________
Income (loss) from
operations 372,179 (439,533) 193,736 (49,311)
Other income
(expense):
Litigation
settlement costs (100,000) - - -
Interest
expense (53,312) (39,424) (25,196) (12,723)
Other - 1,232 (1,724) (1,366)
__________ __________ _________ _________
Income (loss) before
income taxes 218,867 (477,724) 166,816 (63,399)
Provision for income - - - -
taxes
__________ __________ _________ __________
Net income (loss) $218,867 $(477,724) $166,816 $(63,399)
____________________ ____________________ __________________ ____________________
Attributable to
common shares:
Net income
(loss) $0.21 $(0.48) $ 0.16 $ (0.06)
____________________ ____________________ __________________ ____________________
</TABLE>
<PAGE>
IFS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
January 31, 1997 January 31, 1996
<S> <C> <C>
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 218,867 $ (477,724)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 182,845 145,349
Changes in:
Trade accounts receivable, net (580,344) 52,133
Other receivables 29,240 21,208
Costs, estimated earnings and
billings on uncompleted
contracts 629,220 452,991
Other current assets (71,385) (19,869)
Accounts payable and other
liabilities (386,744) 776
Accrued salary, commissions and
other expenses 41,884 32,290
Deferred revenue and customer
deposits 158,458 36,574
____________ ____________
Net cash provided by operating
activities 222,041 243,728
________________________ ________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (118,223) (20,156)
Capitalized license costs (666) (2,158)
Capitalized software costs (217,911) (88,177)
Deposits advanced (22,195) -
____________ ____________
Net cash used in investing
activities (358,995) (110,491)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease
obligations (2,733) (11,011)
Principal payments on long-term
debt (8,160) (100,993)
Proceeds from short-term
borrowing 500,000 -
Deferred offering costs (128,950) -
Proceeds from issuance of stock 48,822 778
Proceeds from issuance of
warrants 5,000 -
____________ ____________
Net cash provided by (used in)
financing activities 413,979 (111,226)
____________ ____________
Increase in cash 277,025 22,011
Cash:
Beginning of year 137,462 8,083
____________ ____________
End of period $ 414,487 $ 30,094
________________________ ________________________
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IFS INTERNATIONAL, INC.
Notes to Consolidated
Financial Statements (Unaudited)
Note 1
Presentation of Interim Financial Statements
The accompanying consolidated financial statements include the accounts
of IFS International, Inc., a Delaware corporation, and its wholly-owned
subsidiary IFS International, Inc., a New York Corporation (collectively
the "Company"). All significant intercompany accounts and transactions
have been eliminated. The consolidated balance sheet as of January 31,
1997, the consolidated statements of operations for the three and nine
month periods ended January 31, 1997 and 1996 and the consolidated
statements of cash flows for the nine month periods ended January 31,
1997 and 1996 have been prepared by the Company, without audit. In the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
condition, results of operations and cash flows at January 31, 1997 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the fiscal year ended April
30, 1996. The results of operations for the periods ended January 31,
1997 are not necessarily indicative of the operating results for the full
year.
Note 2
Litigation Settlement
The litigation involving the Company and SLM Software, Inc. as previously
reported in the Company's annual report on Form 10-KSB for the fiscal
year ended April 30, 1996 has been settled. A Mutual Full and Final
Release was executed by the parties on December 4, 1996. The Company
accrued the settlement amount of $100,000 in the second quarter. Refer to
Part II, Item 1 of this report for further information.
Note 3
Public Offering
On February 28, 1997, the Company consumated a public offering (the
"Public Offering") of 1,380,000 shares of Series A Convertible Preferred
Stock (including 180,000 shares covering over-allotments) (the "Series A
Preferred Stock") and 1,955,000 Redeemable Series A Convertible Preferred
Stock Purchase Warrants (including 255,000 warrants covering over-
allotments) (the "Warrants"). The Company received net proceeds of
approximately $5,810,000 after deductions of the underwriter's discounts
of approximately $710,000 and offering expenses of approximately
$575,000. The Series A Preferred Stock is convertible, at the option of
the holder, into one share of the Company's common stock, subject to
adjustment, until February 20, 2002 or earlier upon the occurrence of
certain events. Each Warrant entitles the holder to purchase one share of
Series A Preferred Stock at a price of $6.25 per share, subject to
adjustment, for a period of three years commencing on February 21, 1999
or earlier upon the occurance of certain events.
Costs associated with the Public Offering were deferred through February
28, 1997.
Note 4
Stockholders' Equity
In October and November 1996, in connection with the Public Offering, the
Company approved a 1 for 10 reverse common stock split and increased the
number of shares of preferred stock authorized to 25,000,000 shares.
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 January 1997, the Company increased the number of shares of common
stock authorized to 50,000,000 shares.
Note 5
Bridge Financing
In September 1996, the Company borrowed $500,000 in bridge financing
pursuant to a private placement. This debt bore interest at 12% and was
due at the earlier of the closing of the 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. This debt
was repaid on February 28, 1997 with a portion of the proceeds from the
Public Offering.
Note 6
Real Estate
In December 1996, the Company entered into an agreement for the purchase
of real estate. The purchase agreement required initial deposits of
$50,000 with the balance of the purchase price of approximately $982,000
due on March 14, 1997. The balance of the purchase price was funded
through a promissory note entered into by the Company on March 14, 1997
with a financial institution. The promissory note is due on April 14,
1997 together with interest at 6.75% and is secured with a portion of the
proceeds from the Public Offering. Permanent financing for the
acquisition of the real estate is expected to be in the form of a
mortgage note, proceeds from which will be used to repay the promissory
note.
The Company intends to renovate the real estate and ultimately house its
operations at this location.
Note 7
Stock Option Plan
In December 1996, the Board of Directors of the Company adopted a second
stock option plan (the "1996 Plan") to provide for the granting of
options which are intended to qualify either as "incentive stock options"
under the Internal Revenue Code or "nonstatutory stock options" not
intended to qualify. 300,000 shares of common stock have been reserved
for issuance under the 1996 Plan which will be administered by the Board
of Directors. The 1996 Plan has obtained stockholder approval.
Item 2 - 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 electronic funds transfer ("EFT") market.
Substantially all of the Company's revenues have resulted from the
licensing of its family of TechNique Plus II ("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 International Service
Association ("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 January 31, 1997, 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 are recognized in the same
manner as revenues from the licensing of other TPII software products.
Occasionally, the Company resells hardware to its customers in
conjunction with its TPII software installation contracts. Since such
sales are isolated and random the Company is unable to predict the amount
of any future hardware revenues. Revenues from these occasional hardware
sales are recognized when invoiced to the customer.
Results of Operations
Total revenues of $1,071,216 for the fiscal quarter ended January 31,
1997 represent an increase of $543,528 or 103.0%, over total
revenues of $527,688 for the fiscal quarter ended January 31, 1996. Total
revenues of $2,658,201 for the nine months ended January 31, 1997
represent an increase of $1,435,788 or 117.5%, over total revenues of
$1,222,413 for the nine months ended January 31, 1996. This increase in
total revenues resulted primarily from a substantial increase in
licensing of TPII software products. Revenues from the licensing and
installation of TPII software products were $1,027,950 for the fiscal
quarter ended January 31, 1997, as compared to $501,624 for the fiscal
quarter ended January 31, 1996. Revenues from the licensing and
installation of TPII software products were $2,534,343 for the nine
months ended January 31, 1997, as compared to $1,140,280 for the nine
months ended January 31, 1996. Service revenues for the fiscal quarter
ended January 31, 1997 increased by $246,744, or 254.1%, over service
revenues for the fiscal quarter ended January 31, 1996. Service revenues
for the nine months ended January 31, 1997 increased by $369,676, or
122.7%, over service revenues for the nine months ended January 31, 1996.
As of January 31, 1997, the Company had approximately $319,000 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 59.2% of total revenues for the fiscal
quarter ended January 31, 1997 as compared to 83.3% for the fiscal
quarter ended January 31, 1996. Revenues from licensing of TPII software
products in countries outside the United States accounted for 53.3% of
total revenues for the nine months ended January 31, 1997 as compared to
82.3% for the nine months ended January 31, 1996. The decline as a
percentage of total revenues resulted primarily from an increase in
domestic software revenues. Such domestic software revenues have
increased for the nine months ended January 31, 1997 by approximately
$817,000 primarily as a result of revenues recognized from the smart card
pilot programs. The Company nevertheless expects total revenues from
foreign countries to continue to be a significant portion of its revenues
in the future.
Gross profit, as expressed as a percentage of total revenues, for the
fiscal quarter ended January 31, 1997 was consistant with the fiscal
quarter ended January 31, 1996 at 78.1%. Gross profit, as expressed as a
percentage of total revenues, decreased to 76.6% for the nine months
ended January 31, 1997 as compared to 77.2% for the nine months ended
January 31, 1996. This slight decrease is associated with the increase
in hardware revenues. Hardware revenues typically have a lower gross
margin than the Company's software products. Hardware revenues were
$210,434 for the nine months ended January 31, 1997 as compared to
$44,848 for the the nine months ended January 31, 1996. Hardware revenues
were $82,550 for the fiscal quarter ended January 31, 1997 as compared to
$9,600 for the fiscal quarter ended January 31, 1996.
Operating expenses of $643,217 for the fiscal quarter ended January 31,
1997 represent an increase of $181,664 or 39.4%, from operating expenses
of $461,553 for the fiscal quarter ended January 31, 1996. Operating
expenses of $1,664,040 for the nine months ended January 31, 1997
represent an increase of $280,817 or 20.3%, from operating expenses of
$1,383,163 for the nine months ended January 31, 1996. This increase in
operating expenses resulted primarily from an increase in personnel. The
Company expects that operating expenses will continue to increase 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 January 31, 1997
were $63,928 as compared to $9,697 for the fiscal quarter ended January
31, 1996. Capitalized software costs for the nine months ended January
31, 1997 were $217,911 as compared to $88,177 for the nine months ended
January 31, 1996. This increase in capitalized software costs resulted
primarily from costs incurred with respect to the TPII smart card
software technology. Such capitalized costs are being amortized on a
straight line basis over the estimated five year marketing lives of the
software.
Net income was $166,816 for the fiscal quarter ended January 31, 1997, as
compared to a net loss of $63,399 for the fiscal quarter ended January
31, 1996. Net income was $218,867 for the nine months ended January 31,
1997, as compared to a net loss of $477,724 for the nine months ended
January 31, 1996. This increase in net income was primarily a result of a
substantially increased licensing of TPII software products and increased
service revenues.
Liquidity and Capital Resources
The Company's primary source of funds has been operating revenue.
Although total revenues increased for the nine months ended January 31,
1997 by approximately 117.5%, the Company's working capital deficit
increased to $854,788 as of January 31, 1997 from $798,125 as of April
30, 1996. As a result, the Company was not able to meet scheduled
principal and interest payments on its outstanding debt during the nine
months ended January 31, 1997 nor pay some of its trade creditors on a
current basis. The Company's working capital deficit increased primarily
as a result of the funding of noncurrent assets such as capitalized
software costs, the purchase of equipment, deferred offering costs and
deposits advanced to the purchase of a building.
On February 28, 1997, the Company consumated a public offering (the
"Public Offering") of 1,380,000 shares of Series A Convertible Preferred
Stock (including 180,000 shares covering over-allotments) and 1,955,000
Redeemable Series A Convertible Preferred Stock Purchase Warrants
(including 255,000 warrants covering over-allotments.) The Company
received net proceeds of approximately $5,810,000 after deductions of the
underwriter's discounts of approximately $710,000 and offering expenses
of approximately $575,000.
The Company obtained approximately $500,000 from bridge financing in
September 1996. This bridge financing was repaid with a portion of the
net proceeds from the Public Offering. A portion of the net proceeds from
the Public Offering were used to satisfy past due amounts under the North
Greenbush Industrial Development Agency loan and the New York State
Science and Technology Foundation loan.
The Company believes that the proceeds of the Public 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 the Public 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 consent of the underwriter of the Public Offering 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.
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 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.
<PAGE>
IFS INTERNATIONAL, INC.
Part II - Other Information
Item 1 - Legal Proceeding
As stated in the Company's annual report on Form 10-KSB for the fiscal
year ended April 30, 1996, the Company and SLM Software, Inc. ("SLM"), a
competitor of the Company, were involved in litigation in the civil trial
courts of the province of Ontario, Canada. On December 4, 1996, the SLM
litigation was settled resulting in the Company paying SLM the sum of
$100,000 U.S. The Company also surrendered its counterclaims against
SLM. The settlement provides that neither party admits any wrongdoing,
and was made by the Company for the purpose of avoiding the expense of
protracted litigation in the Canadian courts. The Company has no further
exposure with respect to this claim.
The Company is not aware of any other legal proceedings.
Item 2 - Changes in Securities
At 5:00p.m. Delaware time, on November 8, 1996, a one-for-ten reverse
split of the outstanding Common Stock of the Company was effectuated. As
a result of such reverse split, the number of outstanding shares of
Common Stock was reduced from 10,597,300 shares to 1,059,730 shares.
In November 1996, the Company increased the number of shares of preferred
stock authorized to 25,000,000 shares, and designated 20,000,000 of the
shares of preferred stock as Series A Convertible Preferred Stock.
In January 1997, the Company increased the number of authorized shares of
common stock of the Company from 25,000,000 shares to 50,000,000 shares.
The Company issued Series A Convertible Preferred Stock (the "Series A
Preferred Stock")in the Public Offering. The holders of Series A
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 Series A Preferred Stock, voting separately as a
class, except that with respect to the election of the directors, the
Series A Preferred Stock and common stock vote together as one class. No
dividends will be paid on the Series A Preferred Stock, except that
holders of Series A Preferred Stock will be entitled to receive dividends
if dividends are declared with respect to the common stock and, in such
event, ratably with the holders of common stock.
Item 3 - Defaults Under Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security
Holders
In January 1997, the stockholders of the Company
holding more than a majority of the outstanding shares of the
Company's common stock consented in writing to and approved an
amendment to the Company's Certificate of Incorporation, relating to
the capitalization of the Company. Such amendment states, among other
things, that the authorized shares of the Company shall be 50,000,000
shares of common stock, par value $.001, and 25,000,000 shares of
preferred stock, par value $.001. The stockholders of the Company also
approved the adoption of a stock option plan providing for the
issuance of up to 300,000 shares of common stock to employees and non
employee Directors of, and consultants to, the Company.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 - Certificate of Designation of the Series A
Convertible Preferred Stock
Exhibit 4.2 - Warrant Agreement between the Company and the
underwriter of the Public Offering (the "Underwriter")
Exhibit 4.3 - Warrant Agreement between the Company and the
American Stock Transfer and Trust Company, as warrant agent
Exhibit 10.1- Underwriting Agreement between the Company and
the Underwriter
Exhibit 10.2- Employment Agreement, dated as of January 1, 1997
between the Company and Frank A. Pascuito
Exhibit 10.3- Employment Agreement, dated as of January 1, 1997
between the Company and Charles J Caserta
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE>
Signature
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: March 17, 1997 IFS International, Inc.
By:
\s\ Frank Pascuito
_____________________________
Frank Pascuito
Chairman of the Board
(Principal Executive and Financial Officer)
<PAGE>
Exhibit 4.1
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES A PREFERRED STOCK
OF
IFS INTERNATIONAL, INC.
It is hereby certified that:
. The name of the corporation (hereinafter called the
"Corporation" or the "Company") is IFS INTERNATIONAL, INC.
. The certificate of incorporation of the Corporation authorizes
the issuance of 25,000,000 shares of Preferred Stock, par value $.001 per
share, and expressly vests in the Board of Directors of the Corporation
the authority provided therein to issue any or all of said shares in one
or more series and by resolution or resolutions to establish the
designation, number, full or limited voting powers, or the denial of
voting powers, preferences and relative, participating, optional, and
other special rights and the qualifications, limitations, restrictions,
and other distinguishing characteristics of each series to be issued.
. The Board of Directors of the Corporation, pursuant to the
authority expressly vested in it as aforesaid, has adopted the following
resolutions creating a Series A issue of Preferred Stock:
RESOLVED, that Twenty Million (20,000,000) of the Twenty-Five
Million (25,000,000) authorized shares of Preferred Stock of the
Corporation shall be designated Series A Convertible Preferred Stock (the
"Series A Preferred Stock") and shall possess the rights and privileges
set forth below:
. DIVIDENDS. No dividends or distributions shall be paid on
the Series A Preferred Stock; except that if and when dividends are
declared by the Board of Directors of the Corporation with respect to the
holders of issued and outstanding shares of Common Stock, out of assets
at the time legally available for such purpose, the holder of each issued
and outstanding share of Series A Preferred Stock shall be entitled to
receive dividends ratably (on the basis of the number of shares of Common
Stock into which such share of Series A Preferred Stock is then
convertible) with the holders of Common Stock when, as and if paid.
. LIQUIDATION PREFERENCE.
. In the event of any liquidation, dissolution or
winding-up of the Corporation, either voluntary or involuntary (a
"Liquidation"), the holders of shares of the Series A Preferred Stock
then issued and outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, before any payment shall be
made to the holders of shares of the Common Stock or upon any other
series of Preferred Stock of the Corporation with a liquidation
preference subordinate to the liquidation preference of the Series A
Preferred Stock, an amount equal to five dollars ($5.00) per share
("Liquidation Value"), subject to adjustment as set forth in Section B.3
of this Designation. If, upon any Liquidation of the Corporation, the
assets of the Corporation available for distribution to its stockholders
shall be insufficient to pay the holders of shares of the Series A
Preferred Stock and the holders of shares of any other series or class of
Preferred Stock with a liquidation preference on a parity with the
liquidation preference of the Series A Preferred Stock, the holders of
all such shares of each such series or class of Preferred Stock,
including the Series A Preferred Stock, shall share ratably in the total
assets available for distribution in proportion to the respective
aggregate Liquidation Value of each series and class (i.e., the product
of the per share liquidation value of the shares of such series or class
and the total number of shares of such series or class issued and
outstanding at the time of Liquidation) bears to the aggregate
liquidation value of all such classes or series. After payment shall
have been made to the holders of shares of the Series A Preferred Stock
of the full amount to which they shall be entitled, as aforesaid, the
holders of shares of the Series A Preferred Stock (on the basis of the
number of shares of Common Stock into which the shares of Series A
Preferred Stock is then convertible) and the holders of shares of the
Common Stock shall be entitled to share in all remaining assets of the
Corporation available for distribution to its stockholders to the same
extent as the holders of Common Stock.
. A merger or consolidation of the Corporation with or
into any other corporation, or a sale, lease, exchange, or transfer of
all or any part of the assets of the Corporation which shall not in fact
result in the liquidation (in whole or in part) of the Corporation and
the distribution of its assets to its stockholders shall not be deemed to
be a voluntary or involuntary liquidation (in whole or in part),
dissolution, or winding-up of the Corporation.
. If, prior to a Liquidation, the number of outstanding
shares of Series A Preferred Stock is increased by a stock split, stock
dividend, or similar event, the liquidation preference of the Series A
Preferred Stock shall be proportionately decreased, or if the number of
outstanding shares of Series A Preferred Stock is decreased by a
combination, reverse stock split or reclassification of shares, or
similar event, the liquidation preference of the Series A Preferred Stock
shall be proportionately increased.
. CONVERSION OF SERIES A PREFERRED STOCK.
The holders of Series A Preferred Stock shall have the
following conversion rights:
. RIGHT TO CONVERT. Each share of Series A Preferred Stock
shall be convertible, during the Conversion Period and at the Conversion
Number set forth below, into fully paid and nonassessable shares of
Common Stock.
. MECHANICS OF CONVERSION. Each holder of Series A
Preferred Stock who desires to convert the same into shares of Common
Stock shall provide notice ("Conversion Notice") to the transfer agent of
the Series A Preferred Stock (the "Transfer Agent"). The Conversion
Notice and the certificate or certificates representing the Series A
Preferred Stock for which conversion is elected, duly endorsed (the
"Series A Certificates"), shall be delivered to the Transfer Agent via
first class mail or courier. The date upon which a Conversion Notice and
the Series A Certificates are properly received by the Transfer Agent
shall be a "Notice Date."
The Transfer Agent shall use all reasonable efforts to issue
and deliver within three (3) business days after the Notice Date, to such
holder of Series A Preferred Stock at the address of the holder on the
stock books of the Corporation, a certificate or certificates for the
number of shares of Common Stock to which the holder shall be entitled as
aforesaid; provided that the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common
Stock as of the close of business on the Notice Date.
. CONVERSION PERIOD. The Series A Preferred Stock shall
become convertible into shares of Common Stock at any time during the
five-year period (the "Conversion Period") commencing on the date of the
definitive prospectus included within the registration statement
previously filed on Form SB-2 (File No. 333-11653) with the Securities
and Exchange Commission (the "Registration Statement"), which, among
other things registers the issuance of the Series A Preferred Stock,
pursuant to the Securities Act of 1933, as amended (the "Prospectus
Date") subject to earlier automatic conversion as provided in Section
C.5. below.
. CONVERSION NUMBER. Each share of Series A Preferred Stock
shall be convertible into such number of shares of Common Stock as shall
equal the Conversion Number, at the time of conversion. The Conversion
Number shall equal one share, subject to adjustment as set forth in
Section C.8 of this Designation.
. MANDATORY CONVERSION. Each share of Series A Preferred
Stock automatically shall be converted into Common Stock on the earlier
of (a) the opening of business on the fifth anniversary of the Prospectus
Date or (b) the opening of business on the first business day following
the date of consummation of a merger or acquisition of the Corporation
(the "Business Combination") in which the outstanding capital stock of
the Corporation are exchanged for either cash, property or securities
(the "Consideration") of another entity if the Consideration received in
the Business Combination for each share of the Common Stock is $5.00 or
greater per share on a fully diluted basis. If part or all of the
Consideration is other than cash, the amount of the Consideration other
than cash shall be deemed to be the value as determined in good faith by
the Board of Directors. The date of such automatic conversion shall be
deemed to be the Notice Date with respect to such conversion.
. FRACTIONAL SHARES. No fractional share shall be issued
upon the conversion of any shares, share or fractional share of Series A
Preferred Stock. All shares of Common Stock (including fractions
thereof) issuable upon conversion of shares (or fractions thereof) of
Series A Preferred Stock by a holder thereof shall be aggregated upon
such conversion for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Common Stock, the Corporation shall, in lieu
of issuing any fractional share, pay the holder otherwise entitled to
such fraction a sum in cash equal to the closing sale price of the
Corporation's Common Stock on the Notice Date multiplied by such
fraction.
. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred
Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purpose.
. ADJUSTMENT TO CONVERSION NUMBER AND STATED PRICE.
()(1) As used herein "Excepted Security" includes (i)
any security of the Company described in or covered by the Registration
Statement including options to be issued pursuant to the Company's stock
option plans in effect on the date of filing of this Certificate, options
issued or to be issued to executives pursuant to employment agreements
with Charles Caserta and Frank Pascuito as described in the Registration
Statement and warrants or convertible notes, (ii) options issued pursuant
to any new stock option plan approved by the Company's shareholders after
the filing of the Designation or (iii) Common Stock or other securities
issued pursuant to the terms of any security described in sections
8(a)(1)(i) and 8(a)(1)(ii) of this Section C or for which an adjustment
was previously made pursuant to Section C.8.(f).
(2) As used herein, "Stated Price" shall initially
mean $5.00, and shall be subject to adjustment as provided in this
Section C.8.
() If, prior to the conversion of all shares of Series A
Preferred Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
Conversion Number shall be proportionately increased and the Stated Price
decreased, or if the number of outstanding shares of Common Stock is
decreased by a combination, reverse stock split or reclassification of
shares, or other similar event, the Conversion Number shall be
proportionately decreased and the Stated Price increased.
() In case the Corporation shall at any time after the
filing date of this Designation issue or sell any shares of Common Stock
(other than an Excepted Security or an issuance pursuant to Section 8(b))
for a consideration per share less than the Stated Price (as defined in
Section C.8(a)(2)) on the date immediately prior to the issuance or sale
of such shares, or without consideration, then forthwith upon such
issuance or sale, the Stated Price shall (until another such issuance or
sale) be decreased to the price (calculated to the nearest full cent)
equal to the quotient derived by dividing (A) an amount equal to the sum
of (X) the product of (i) the total number of shares of Common Stock
outstanding immediately prior to the issuance or sale of such shares,
multiplied by (ii) the Stated Price on the date immediately prior to the
issuance or sale of such shares, plus (Y) the aggregate amount of
consideration, if any, received by the Corporation upon the issuance or
sale of such shares, by (B) the total number of shares of Common Stock
outstanding immediately after the issuance or sale of such shares;
provided, however, that in no event shall the Stated Price be adjusted
pursuant to this computation to an amount in excess of the Stated Price
in effect immediately prior to such computation. Whenever an adjustment
is made to the Stated Price as provided in this Section C.8.(c), the
Conversion Number shall be correspondingly increased in the ratio that
the Stated Price existing immediately prior to the adjustment bears to
the Stated Price existing immediately after such adjustment.
() For purposes of any computation to be made in
accordance with Section C.8(c) and (f), the following provisions shall be
applicable:
) In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be cash, the
amount of the cash consideration therefore shall be deemed to be the
amount of cash received by the Corporation for such shares before
deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or
others performing similar services, or any expenses incurred in
connection therewith.
) In case of the issuance or sale (otherwise than
as a dividend or other distribution of any stock of the Corporation) of
shares of Common Stock for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor other than cash
shall be deemed to be the value of such consideration as determined in
good faith by the Board of Directors of the Corporation.
) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Corporation shall be
deemed to have been issued immediately after the opening of business on
the day following the record date for the determination of stockholders
entitled to receive such dividend or other distribution and shall be
deemed to have been issued without consideration.
) The reclassification of securities of the
Corporation other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance of such
shares of Common Stock for a consideration other than cash immediately
prior to the close of business on the date fixed for the determination of
security holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section C.8(d).
() As used in this Section C of this Designation,
"Derivative Securities" shall include any security exercisable for or
convertible or exchangeable into shares of Common Stock and shall include
warrants, options, convertible or exchangeable securities or rights. The
number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) of any exercisable,
convertible or exchangeable Derivative Securities.
() In case the Corporation shall at any time after the
filing date of this Designation issue or sell any Derivative Securities,
other than Excepted Securities, for a consideration per share less than
the Stated Price immediately prior to the issuance of such Derivative
Securities, or without consideration, the Stated Price and Conversion
Number in effect immediately prior to the issuance of such Securities, as
the case may be, shall be adjusted to a price and to a number,
respectively, determined by making a computation in accordance with the
provisions of Section C.8(c) hereof, provided that:
) In case the Corporation shall in any manner
issue or sell Derivative Securities and the price per share for which
such shares are issuable or deliverable upon the exercise, conversion or
exchange of such Derivative Securities (determined by dividing (I) the
total amount, if any, received or receivable by the Corporation as
consideration for the issue or sale of such exercise, conversion or
exchange, plus the total minimum amount of additional consideration
payable to the Corporation upon the exercise, conversion or exchange by
(II) the total maximum number of shares issuable or deliverable upon the
exercise, conversion or exchange of such Derivative Securities) shall be
less than the Stated Price in effect immediately prior to the time of the
issue or sale of such Derivative Securities, then the issue or sale of
such Derivative Securities shall be deemed to be an issue or a sale of
shares of Common Stock (as of the date of the issue or sale of such
Derivative Securities) and the amount received or receivable by the
Corporation as consideration for the issue or sale of such Derivative
Securities, plus the aggregate amount of additional consideration payable
to the Corporation upon the exercise, conversion or exchange of such
Derivative Securities, shall be deemed to be the consideration actually
received by the Corporation (as of the date of the issue or sale of such
Derivative Securities) for the issue or sale of such shares of Common
Stock;
) If the exercise price or the rate of conversion
or exchange of any Derivative Securities for which an adjustment was made
pursuant to Section C.8(f)(i) shall decrease ("Reduction") at any time
while any shares of Series A Preferred Stock remain outstanding, whether
by reason of provisions with respect thereto designed to protect against
dilution or otherwise, then a further adjustment shall be made pursuant
to Section C.8(f)(i) as of the date of such Reduction solely to reflect
such Reduction.
) Upon expiration or cancellation of any such
Derivative Securities an adjustment shall be made to the Stated Price and
the Conversion Number to account for the number of shares of Common Stock
no longer subject to issuance as a result of such expiration or
cancellation.
() Except as set forth in Section C.5 of this
Designation, if prior to the conversion of all shares of Series A
Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Corporation shall be
exchanged into the same or a different number of shares of the same or
another class or classes of stock or securities of the Corporation or
another entity and/or shall be exchanged in whole or in part for cash,
then the holders of Series A Preferred Stock shall thereafter have the
right to purchase and receive upon conversion of shares of Series A
Preferred Stock, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such shares of stock, cash and/or
securities as may be issued or payable with respect to or in exchange for
the number of shares of Common Stock immediately theretofore purchasable
and receivable upon the conversion of shares of Series A Preferred Stock
held by such holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and
interests of the holders of the Series A Preferred Stock to the end that
the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Number and Stated Price) shall thereafter be
applicable, as nearly as may be practicable, in relation to any shares of
stock or securities thereafter deliverable upon the exercise hereof. The
Corporation shall not effect any transaction described in this subsection
unless the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligation to deliver to
the holders of the Series A Preferred Stock such shares of stock, other
securities and/or cash as, in accordance with the foregoing provisions,
the holders of the Series A Preferred Stock may be entitled to purchase.
() Except to the extent that Section A may be
applicable, in the event that the Corporation shall at any time prior to
the conversion of all of the Series A Preferred Stock declare a dividend
(other than a dividend consisting solely of shares of Common Stock, in
which event the provisions of Section C.8(b) shall apply) or otherwise
distribute to its holders of Common Stock any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Corporation or by another, or any other
thing of value, the holders of the unconverted Series A Preferred Stock
shall thereafter be entitled, in addition to the shares of Common Stock
or other securities and property receivable upon the conversion thereof,
to receive, upon the conversion of such Series A Preferred Stock, the
same property, assets, rights, evidences of indebtedness, securities or
any other thing of value that they would have been entitled to receive at
the time of such dividend or distribution as if the Series A Preferred
Stock had been converted immediately prior to such dividend or
distribution. At the time of any such dividend or distribution, the
Corporation shall make appropriate reserves to ensure the timely
performance of the provisions of this Section C.8(h).
. VOTING. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the holders of the Series A
Preferred Stock shall have one vote per share of Series A Preferred
Stock. All matters requiring a vote of the stockholders of the
Corporation shall require approval of the Series A Preferred Stock,
voting separately as a class, except that with respect to the election of
the directors of the Corporation, the Series A Preferred Stock and Common
Stock shall vote together as one class.
. PROTECTIVE PROVISIONS. So long as shares of Series A Preferred
Stock are outstanding, the Corporation shall not without first obtaining
the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
() alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock so as to affect adversely the
Series A Preferred Stock;
() create any new class or series of stock being on a parity
with or having a preference over the Series A Preferred Stock with
respect to dividends or distributions or, to payments upon Liquidation
(as provided for in Section B of this Designation); or
(3) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of
the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock shall be converted as contemplated by this Designation,
the shares so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated class or series,
and shall not be issuable by the Corporation as Series A Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series A Preferred Stock
and fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics
thereof shall, upon the effective date of said series, be deemed to be
included in and be a part of the Certificate of Incorporation of the
Corporation pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware.
Signed on January 31, 1997.
IFS INTERNATIONAL, INC.
By: /S/ FRANK A. PASCUITO
Frank A. Pascuito,
Chief Executive Officer
Attest:
By: /S/ CARMEN PASCUITO
Carmen Pascuito, Secretary
<PAGE>
Exhibit 4.2
UNDERWRITER'S WARRANT AGREEMENT dated as of February 28, 1997
between IFS International, Inc., a Delaware corporation (the "Company"),
and Duke & Co., Inc. (the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated
February 21, 1997 between the Underwriter and the Company, to act as the
underwriter in connection with the Company's proposed public offering
(the "Public Offering") of 1,200,000 shares of preferred stock, par value
$.001 per share ("Preferred Stock"), and 1,700,000 redeemable Preferred
Stock purchase warrants ("Redeemable Warrants"), plus up to an additional
180,000 shares of Preferred Stock and 255,000 Redeemable Warrants
pursuant to the Underwriter's over-allotment option, which securities are
included in a registration statement on Form SB-2 (File No. 333-11653)
(hereinafter, the "Public Offering Registration Statement); and
WHEREAS, the Company proposes to issue to the Under- writer
warrants, one for the purchase of up to 120,000 shares of Preferred Stock
and the other for the purchase of up to 170,000 Redeemable Warrants; and
WHEREAS, the warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or officers and partners
of the Underwriter and members of the selling group (the "Selling Group")
and/or their officers or partners, in consideration for, and as part of
the Underwriter's compensation in connection with, the Underwriter acting
as the underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, the
payment by the Underwriter to the Company of an aggregate of $290.00, the
receipt of which is hereby acknowledged by the Company, the agreements
herein set forth and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT. Subject to the terms and conditions of this
Agreement, the Underwriter, and/or its designees who are officers or
partners of the Underwriter or members of the Selling Group in connection
with the Public Offering, are hereby granted the right to purchase, at
any time from February 21, 1998 until 5:00 P.M., New York City time, on
February 20, 2002 (the "Warrant Exercise Term"), up to (i) 120,000 shares
of Preferred Stock (the "Shares") at an initial exercise price (subject
to adjustment as provided in Article 8 hereof) of $6.25 per Share and
(ii) 170,000 Redeemable Warrants at an initial exercise price of $1.6875
per Redeemable Warrant. The right to purchase Shares as described in (i)
above is hereinafter referred to as "Warrant No. 1" and the right to
purchase Redeemable Warrants as described in (ii) above is hereinafter
referred to as "Warrant No. 2". Warrant No. 1 and Warrant No. 2 are
hereinafter referred to collectively as the "Warrants". Except as
specifically otherwise provided herein, the Shares and the Redeemable
Warrants issued pursuant to Warrant No. 1 and Warrant No. 2,
respectively, shall bear the same terms and conditions as described under
the caption "Description of Securities" in the Public Offering
Registration Statement, the Shares shall be governed by the terms of the
Certificate of Designation relating to the Preferred Stock and the
Redeemable Warrants shall be governed by the terms of the Warrant
Agreement dated as of February 21, 1997, executed in connection with the
Public Offering (the "Public Warrant Agreement"), and except that the
holder shall have registration rights under the Securities Act of 1933,
as amended (the "Act"), with respect to the Warrants, the Shares and the
Redeemable Warrants subject thereto, the shares of Preferred Stock
underlying the Redeemable Warrants issuable upon exercise of Warrant No.
2 and the shares of Common Stock issuable upon conversion of the
Preferred Stock, which registration rights are more fully described in
paragraph 6 of this Warrant Agreement. In the event of any reduction of
the exercise price of the Redeemable Warrants pursuant to the Public
Warrant Agreement, the same changes to the Redeemable Warrants subject to
Warrant No. 2 shall be simultaneously effected.
2. WARRANT CERTIFICATES. The warrant certificates (the
"Warrant Certificates") for Warrant No. 1 and Warrant No. 2 to be
delivered pursuant to this Agreement shall be in the forms set forth as
Exhibit A and Exhibit B attached hereto, respectively, and made a part
hereof, with such appropriate insertions, omissions, substitutions and
other variations as required or permitted by this Agreement.
3. EXERCISE OF WARRANTS.
3.1 CASH EXERCISE. The exercise price of the respective
Warrants shall be payable in cash or by check to the order of the
Company, or any combination of cash or check. Upon surrender of the
applicable Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the applicable exercise
price for the Shares and/or Redeemable Warrants purchased, at the
Company's principal offices, currently located at Rensselaer Technology
Park, 185 Jordan Road, Troy, New York 11280, the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive
a certificate or certificates for the Shares and/or Redeemable Warrants
so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole
or in part (but not as to fractional Shares or fractional Redeemable
Warrants). In the case of the purchase of less than all the Shares or
Redeemable Warrants, as the case may be, purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
of like tenor for the balance of the Shares or Redeemable Warrants, as
the case may be, purchasable thereunder.
3.2 CASHLESS EXERCISE FOR WARRANT NO. 1. At any time
during the Warrant Exercise Term, the Holder may, at its option, exchange
Warrant No. 1, in whole or in part (a "Warrant Exchange"), into the
number of Shares determined in accordance with this Section 3.2, by
surrendering the Warrant Certificate representing Warrant No. 1 at the
principal office of the Company, accompanied by a notice stating (i) such
Holder's intent to effect such exchange, (ii) the number of Shares
subject to Warrant No. 1 as to which the exchange is to be effected and
(iii) the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place
on the date specified in the Notice of Exchange or if the date the Notice
of Exchange is received by the Company is later than the date specified
in the Notice of Exchange, such later date (the "Exchange Date").
Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the
Shares remaining subject to this Warrant, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) business days
following the Exchange Date. In connection with any Warrant Exchange,
Warrant No. 1 shall represent the right to subscribe for and acquire the
number of Shares (rounded to the next highest integer) equal to (i) the
number of Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Shares equal to the quotient
obtained by dividing (A) the product of the Total Number and the existing
exercise price of Warrant No. 1 by (B) the market price of a share of
Preferred Stock on the Exchange Date; and, in the case of any Warrant
Exchange for less than all of the Shares purchasable under Warrant No. 1,
the Company shall execute and deliver a new Warrant Certificate of like
tenor for the balance of the Shares purchasable thereunder. By way of
example, if the holder of Warrant No. 1 submits a Notice of Exchange
relating to 60,000 of the 120,000 Shares subject to Warrant No. 1 and the
current market price of a share of Preferred Stock on the Exchange Date
is $10.00, the holder will be entitled to receive 22,500 shares of
Preferred Stock, along with a new Warrant Certificate entitling the
holder to purchase 60,000 Shares.
4. ISSUANCE OF CERTIFICATES.
4.1. ISSUANCE. Upon exercise of the Warrants, the
issuance of certificates for the Shares and/or Redeemable Warrants, as
applicable shall be made forthwith (and in any event within three (3)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions
of Article 5 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder, and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
4.2. FORMS OF CERTIFICATES. The Warrant Certificates and
certificates representing the Shares and/or Redeemable Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of
the present or any future Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary
of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange,
substitution or transfer. The Warrant Certificates and, upon exercise of
the Warrants, in part or in whole, certificates representing the Shares
and/or Redeemable Warrants shall bear a legend substantially similar to
the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except (i) pursuant to
an effective registration statement under the Act, (ii) to the
extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to
counsel to the Company, stating that an exemption from
registration under such Act is available."
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by acceptance thereof,
covenants and agrees that the Warrant is being acquired as an investment
and not with a view to the distribution thereof, and that the Warrant may
not be sold, transferred, assigned, hypothecated or otherwise disposed
of, in whole or in part, for a period of one (1) year from the date
hereof, except to officers or partners of the Underwriter or to any
member of the Selling Group participating in the distribution to the
public of the Preferred Stock and Redeemable Warrants, and/or their
respective officers or partners.
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICES. The initial
exercise price of Warrant No. 1 shall be $6.25 per Share and the initial
exercise price of Warrant No. 2 shall be $1.6875 per Redeemable Warrant.
The adjusted exercise price shall be the price which shall result from
time to time from any and all adjustments of the initial exercise price
in accordance with the provisions of Article 8 hereof.
6.2 EXERCISE PRICE. The term "exercise price" herein
shall mean the initial exercise price of Warrant No. 1 or Warrant No. 2,
as the case may be, or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. None
of the Warrants, the Shares, the Redeemable Warrants, the Preferred Stock
issuable upon exercise of the Redeemable Warrants (the Underlying
Shares") or the shares of Common Stock issuable upon conversion of the
Shares or the Underlying Shares (the "Conversion Shares") has been
registered for purposes of public distribution under the Securities Act
of 1933, as amended (the "Act").
7.2 REGISTRABLE SECURITIES. As used herein the term
"Registrable Securities" means the Warrants, the Shares issuable upon
exercise of Warrant No. 1, the Redeemable Warrants issuable upon exercise
of Warrant No. 2, the Underlying Shares, the Conversion Shares and any
securities issued upon any stock split or stock dividend in respect of
any of the foregoing; provided, however, any of such securities shall
cease to be Registrable Securities when, as of the date of determination,
(i) it has been effectively registered under the Act and disposed of
pursuant thereto, (ii) registration under the Act is no longer required
for the immediate public distribution of such securities or (iii) it has
ceased to be outstanding. In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure
affecting the Common Stock or Preferred Stock, such adjustment shall be
made in the definition of "Registrable Securities" as is appropriate in
order to prevent any dilution or enlargement of the rights granted
pursuant to this Article 7.
7.3 PIGGYBACK REGISTRATION. If, at any time during the
seven years following the date of this Agreement, the Company proposes to
prepare and file one or more post-effective amendments to the Public
Offering Registration Statement filed in connection with the Public
Offering or any new registration statement or posteffective amendments
thereto covering equity or debt securities of the Company, or any such
securities of the Company held by its shareholders (other than pursuant
to a Form S-4 relating to a merger or acquisition or pursuant to a Form
S-8) (for purposes of this Article 7, collectively, a "Registration
Statement"), it will give written notice of its intention to do so by
registered mail ("Notice"), at least thirty (30) business days prior to
the filing of each such Registration Statement, to all holders of the
Registrable Securities. Upon the written request of such a holder (a
"Requesting Holder"), made within twenty (20) business days after receipt
of the Notice, that the Company include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the
Company shall, as to each such Requesting Holder, use its best efforts to
effect the registration under the Act of the Registrable Securities which
it has been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the
Requesting Holders (other than underwriting discounts and commissions
applicable to the sale of such Registrable Securities and the fees and
disbursements, if any, of counsel to the Requesting Holders); provided,
however, that the Company shall in any event be entitled to withdraw such
Registration Statement prior to its effectiveness if such Registration
Statement is withdrawn as to all securities proposed to be registered
thereunder.
7.4 DEMAND REGISTRATION.
(a) At any time during the Warrant Exercise Term,
any "Demand Holder" (as such term is defined in Section 7.4(d) below) of
the Registrable Securities shall have the right (which right is in
addition to the piggyback registration rights provided for under Section
7.3 hereof), exercisable by written notice to the Company (the "Demand
Registration Request"), to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion,
at the sole expense of the Company, a Registration Statement and such
other documents, including a prospectus, as may be necessary (in the
opinion of both counsel for the Company and counsel for such Demand
Holder), in order to comply with the provisions of the Act, so as to
permit a public offering and sale of the Registrable Securities by the
holders thereof for nine (9) consecutive months. In the event a Demand
Registration Request is made pursuant to this Section 7.4(a) and the
Registration Statement relating thereto is declared effective, no further
Demand Registration Request can be made by any holder of Registrable
Securities.
(b) The Company covenants and agrees to give written
notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) days from the date of the
Company's receipt of any such Demand Registration Request. After
receiving notice from the Company as provided in this Section 7.4(b),
holders of Registrable Securities may request the Company to include
their Registrable Securities in the Registration Statement to be filed
pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to have such securities included within ten (10) days of their
receipt of the Company's notice.
(c) In addition to the registration rights provided
for under Section 7.3 hereof and subsection (a) of this Section 7.4, at
any time during the Warrant Exercise Term, any Demand Holder (as defined
below in Section 7.4(d)) of Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company
prepare and file with the Commission, on one occasion in respect of all
holders of Registrable Securities, a Registration Statement so as to
permit a public offering and sale of such Registrable Securities for nine
(9) consecutive months; PROVIDED, HOWEVER, that all costs incident
thereto shall be at the expense of the holders of the Registrable
Securities included in such Registration Statement. If a Demand Holder
shall give notice to the Company at any time of its or their desire to
exercise the registration right granted pursuant to this Section 7.4(c),
then within ten (10) days after the Company's receipt of such notice, the
Company shall give notice to the other holders of Registrable Securities
advising them that the Company is proceeding with such registration and
offering to include therein the Registrable Securities of such holders,
provided they furnish the Company with such appropriate information in
connection therewith as the Company shall reasonably request in writing.
(d) The term "Demand Holder" as used in this Section
7.4 shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of shares of Preferred Stock (including Shares already
issued and not disposed of in a public offering and/or Shares issuable
pursuant to the exercise of Warrant No. 1 and Underlying Shares already
issued and not disposed of in a public offering and/or Underlying Shares
issuable pursuant to the exercise of Redeemable Warrants issued and not
disposed of in a public offering or issuable pursuant to exercise of
Warrant No. 2 (the "Total Preferred Shares")) as would constitute 50% or
more of the aggregate number of such Total Preferred Shares; provided
that, for purposes of such calculation, if any Holder has converted any
Shares and/or Underlying Shares into Conversion Shares prior to the time
that any notice requesting registration pursuant to this Section 7.4 is
given, and the Conversion Shares so issued are still deemed Registrable
Securities hereunder, such conversion shall be disregarded for purposes
of such calculation.
7.5 COVENANTS OF THE COMPANY WITH RESPECT TO
REGISTRATION. The Company covenants and agrees as follows:
(a) In connection with any registration under
Section 7.4 hereof, the Company shall file the Registration Statement as
expeditiously as possible, but in no event later than thirty (30)
business days following receipt of any demand therefor (unless delayed by
the failure of a holder of Registrable Securities to promptly furnish
such information necessary to complete such registration statement),
shall use its best efforts to have any such Registration Statement
declared effective at the earliest possible time, and shall furnish each
holder of Registrable Securities such number of prospectuses as shall
reasonably be requested; provided, however, if such 30th business day
falls on or after the 45th day following the last day of the Company's
most recently completed fiscal year and prior to the 90th day following
the last day of such fiscal year, unless the then applicable rules and
regulations of the Commission permit the filing of a registration
statement on a form which the Company is then eligible to use in respect
of the Registrable Securities if the Company has not yet filed audited
financial statements for the most recently completed fiscal year, the
Company shall not be required to file such Registration Statement until
the filing of the Company's audited financial statements in respect of
such fiscal year, but in any event the filing of the Registration
Statement shall be made by no later than the 90th day following the last
day of such fiscal year.
(b) The Company shall pay all costs, fees and
expenses in connection with all Registration Statements filed pursuant to
Sections 7.3 and 7.4(a) hereof (excluding any underwriting discounts and
commissions which may be incurred in connection with the sale of any
Registrable Securities and excluding any fees and expenses of counsel for
any Requesting Holder or Demand Holder), including, without limitation,
the Company's legal and accounting fees, printing expenses, and blue sky
fees and expenses. The holders of Registrable Securities included in any
Registration Statement filed pursuant to Section 7.4(c) hereof will pay
all costs, fees and expenses in connection with such Registration
Statement, including their own legal fees and expenses, if any.
(c) The Company will take all reasonably necessary
action which may be required in qualifying or registering the Registrable
Securities included in a Registration Statement for offering and sale
under the securities or blue sky laws of such states as are reasonably
requested by the holders of such securities, provided that the Company
shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement
and each person, if any, who controls such holder within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such Registration Statement to the same extent
and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Underwriter contained in Section 6 of the
Underwriting Agreement (which indemnity will not apply to losses, claims,
damages, expenses or liabilities arising from information provided in
writing by or on behalf of the holder to the Company expressly for
inclusion in the Registration Statement) and to provide for just and
equitable contribution as set forth in Section 7 of the Underwriting
Agreement.
(e) Each holder of Registrable Securities to be sold
pursuant to a Registration Statement will furnish to the Company such
information as may be reasonably be requested by the Company for
inclusion in the Registration Statement. Any holder of Registrable
Securities to be sold pursuant to a Registration Statement, and its
successors and assigns, shall severally, and not jointly, indemnify, the
Company, its officers and directors and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may
become subject under the Act, the Exchange Act or otherwise, arising from
information furnished in writing by or on behalf of such holder, or its
successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions
contained in Section 6 of the Underwriting Agreement pursuant to which
the Underwriter has agreed to indemnify the Company and to provide for
just and equitable contribution as set forth in Section 6 of the
Underwriting Agreement.
(f) Nothing contained in this Agreement shall be
construed as requiring any Holder to exercise his Warrants prior to the
initial filing of any Registration Statement or the effectiveness
thereof.
(g) If the Company shall fail to materially comply
with the provisions of this Article 7, the Company shall, in addition to
any other equitable or other relief available to the holders of
Registrable Securities, be liable for any or all actual damages (but not
punitive or consequential damages) sustained by the holders of
Registrable Securities, requesting registration of their Registrable
Securities.
(h) The Company shall not permit the inclusion of
any securities other than the Registrable Securities to be included in
any Registration Statement filed pursuant to Section 7.4 hereof, or,
unless otherwise required by the terms of a contract existing on the date
of this Agreement, permit any other registration statement to be or
remain effective during the ninety (90) day period commencing on the
effectiveness of a Registration Statement filed pursuant to Section 7.4
hereof (except for a Form S-4 relating to a merger or acquisition or a
Form S-8 or successor form), without the prior written consent of the
Demand Holders, which consent shall not be unreasonably withheld.
(i) The Company shall deliver promptly to each
holder of Registrable Securities whose securities are included in a
Registration Statement copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda
relating to discussions with the Commission or its staff with respect to
the Registration Statement and permit each holder of Registrable
Securities and underwriters to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from
the Registration Statement as it deems reasonably necessary to comply
with applicable securities laws or rules of the National Association of
Securities Dealers, Inc. ("NASD"); provided that each such holder of
Registrable Securities agrees not to disclose such information without
the prior consent of the Company. Such investigation shall include
access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all
to such reasonable extent and at such reasonable times and as often as
any such holder of Registrable Securities or underwriter shall reasonably
request.
(j) If, in connection with a registration which
includes Registrable Securities pursuant to this Article 7, the Company
shall enter into an underwriting agreement with one or more underwriters
selected for such underwriting, such agreement shall contain such
representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
underwriters. The holders of Registrable Securities shall be parties to
any underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or all
the representations and warranties of the Company to or for the benefit
of such underwriters shall, to the extent that they may be applicable,
also be made to and for the benefit of such holders of Registrable
Securities. Such holders of Registrable Securities shall not be required
to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such holders of
Registrable Securities and their intended methods of distribution.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF
SHARES.
8.1 STOCK DIVIDEND, SPLIT, ETC.. In case the Company
shall (i) declare a dividend or make a distribution on its outstanding
shares of Preferred Stock in shares of Preferred Stock, (ii) subdivide or
reclassify its outstanding shares of Preferred Stock into a greater
number of shares, or (iii) combine or reclassify its outstanding shares
of Preferred Stock into a smaller number of shares, the exercise price
under Warrant No. 1 in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal
the price determined by multiplying the exercise price by a fraction, the
denominator of which shall be the number of shares or Preferred Stock
outstanding after giving effect to such action, and the numerator of
which shall be the number of shares of Preferred Stock outstanding
immediately prior to such action.
8.2 RIGHTS OR WARRANTS. In the case the Company shall
fix a record date for the issuance of rights or warrants to all holders
of its Preferred Stock entitling them to subscribe for or purchase shares
of Preferred Stock (or securities convertible into Preferred Stock) at a
price (the "Subscription Price") (or having a conversion price per share)
less than the current market price of the Preferred Stock (as defined in
Section 8.5 below) on such record date, the exercise price of Warrant No.
1 shall be adjusted so that it shall thereafter equal the price
determined by multiplying (i) the exercise price in effect immediately
prior to the date of such issuance and (ii) a fraction, the numerator of
which shall be the sum of the number of shares of Preferred Stock
outstanding on such record date and the number of additional shares of
Preferred Stock which the aggregate offering price of the total number of
shares of Preferred Stock so offered for subscription or purchase (or the
aggregate conversion price of the convertible securities so offered)
would purchase at such current market price per share of the Preferred
Stock, and the denominator of which shall be the sum of the number of
shares of Preferred Stock outstanding on such record date and the number
of additional shares of Preferred Stock offered for subscription or
purchase (or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately
after the record date for the determination of shareholders entitled to
receive such rights or warrants; and to the extent that shares of
Preferred Stock are not delivered (or securities convertible into
Preferred Stock are not delivered) after the expiration of such rights or
warrants the exercise price shall be readjusted to the exercise price
which would then be in effect had the adjustments made upon the issuance
of such rights or warrants been made upon the basis of delivery of only
the number of shares of Preferred Stock (or securities convertible into
Preferred Stock) actually delivered.
8.3 EVIDENCES OF INDEBTEDNESS OR ASSETS. In case the
Company shall hereafter distribute to the holders of its Preferred Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions of securities of the type referred to in Section 8.1 above)
or subscription rights or warrants (excluding those referred to in
Section 8.2 above), then in each such case the exercise price of Warrant
No. 1 in effect thereafter shall be determined by multiplying (i) the
exercise price in effect immediately prior thereto and (ii) a fraction,
the numerator of which shall be the total number of shares of Preferred
Stock outstanding multiplied by the current market price per share of
Preferred Stock (as defined in Section 8.5 below), less the fair market
value (as determined by the Company's Board of Directors) of said assets
or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of
shares of Preferred Stock outstanding multiplied by such current market
price per share of Preferred Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall
be made whenever any such distribution is made and shall become
effectively immediately after the record date for the determination of
shareholders entitled to receive such distribution.
8.4 ADJUSTMENT OF NUMBER OF SHARES. Whenever the
Exercise Price payable upon exercise of Warrant No. 1 is adjusted
pursuant to Sections 8.1, 8.2 or 8.3 above, the number of Shares
purchasable upon exercise of Warrant No. 1 shall simultaneously be
adjusted by multiplying the number of Shares initially issuable upon
exercise of Warrant No. 1 by the exercise price in effect on the date
hereof and dividing the product so obtained by the exercise price, as
adjusted.
8.5 DETERMINATION OF CURRENT MARKET PRICE. For the
purpose of any computation under Sections 8.2 and 8.3 above, the current
market price per share of Preferred Stock at any date shall be deemed to
be the average of the daily closing prices for twenty (20) consecutive
business days before such date. The closing price for each day shall be
the last sale price regular way or, in case no such reported sale takes
place on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities exchange
on which the Preferred Stock is admitted to trading or listed, or as
reported by National Association of Securities Dealers, Inc. Automatic
Quotation System ("NASDAQ") or other similar organization if NASDAQ is no
longer reporting such information, or if not so available, the fair
market price as determined by the Board of Directors.
8.6 NO ADJUSTMENT FOR DE MINIMUS ADJUSTMENT. No
adjustment in the Exercise Price shall be required unless such adjustment
would require an increase or decrease of at least ten cents ($0.10) in
such price; provided, however, that any adjustments which by reason of
this Section 8.6 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Article 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may
be. Anything in this Article 8 to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the exercise price, in addition to those required by this
Article 8, as it shall determine, in its sole discretion, to be advisable
in order that any dividend or distribution in shares of Preferred Stock,
or any subdivision, reclassification or combination of Preferred Stock,
hereafter made by the Company shall not result in any Federal income tax
liability to the holders of Preferred Stock or securities convertible
into Preferred Stock (including Redeemable Warrants issuable upon
exercise of Warrant No. 2).
8.7 NOTICE. Whenever on exercise price is adjusted, as
herein provided, the Company shall promptly, but no later than 10 days
after any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted exercise price and adjusted number of Shares
and/or Warrants issuable upon exercise of the Warrants and, if requested,
information describing the transactions giving rise to such adjustments,
to be mailed to the Holder, at the address set forth herein, and shall
cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by
this Section 8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
8.8 OTHER SECURITIES. In the event that at any time, as
a result of any adjustment made pursuant to this Article 8, the Holder
thereafter shall become entitled to receive any securities of the Company
other than Preferred Stock and Redeemable Warrants, thereafter the number
of such other securities receivable upon exercise of the Warrants shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Preferred Stock and Redeemable Warrants contained in Sections 8.1 to 8.6,
inclusive above.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
9.1 EXCHANGE. Each Warrant Certificate is exchangeable
without expense, upon the surrender hereof by the registered Holder at
the principal executive office of the Company, for a new Warrant
Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares or Redeemable Warrants, as
the case may be, in such denominations as shall be designated by the
Holder thereof at the time of such surrender.
9.2 REPLACEMENT. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of any Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of
like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall
not be required to issue certificates representing fractions of shares of
Preferred Stock or Redeemable Warrants and shall not be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Preferred Stock
or Redeemable Warrants, as the case may be.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall
at all times reserve and keep available out of its authorized shares of
Preferred Stock, solely for the purpose of issuance upon the exercise of
Warrant No. 1 and the exercise of the Redeemable Warrants subject to
Warrant No. 2, such number of shares of Preferred Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of Warrant No. 1 and payment of the exercise price
therefor, all shares of Preferred Stock issuable upon such exercise shall
be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any shareholder, and that, upon exercise of
Warrant No. 2 and payment of the exercise price therefor, the Redeemable
Warrants will be valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms. As long
as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Preferred Stock and all Redeemable
Warrants issuable upon the exercise of the Warrants, as well as the
Underlying Shares and the Conversion Shares, to be listed on or quoted by
NASDAQ or listed on such national securities exchanges as reasonably
requested by the Underwriter.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this
Agreement shall be construed as conferring upon the Holder or Holders the
right to vote or to consent or to receive notice as a shareholder in
respect of any meetings of shareholders for the election of directors or
any other matter, or as having any rights whatsoever as a shareholder of
the Company. If, however, at any time prior to the expiration of the
Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Preferred Stock and/or Redeemable Warrants for the
purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Preferred Stock and/or Redeemable Warrants any additional
shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription
rights, options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing of the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the
declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
13. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been duly made when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) If to a registered Holder of the Warrants, to
the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to Rensselaer Technology
Park, 185 Jordan Road, Troy, New York 12180, Attn: Chairman, or to such
other address as the Company may designate by notice to the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the
Underwriter may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates in order to
cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Underwriter may deem necessary or
desirable and which the Company and the Underwriter deem not to adversely
affect the interests of the Holders of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company and the Holders inure to
the benefit of their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close
of business on February 20, 2005. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date when all Warrants have been
exercised and all the Shares issuable upon exercise of Warrant No. 1 and
all the Redeemable Warrants issuable upon exercise of Warrant No. 2 (or
the Underlying Shares) have been resold to the public; provided, however,
that the provisions of Section 7.5 shall survive such termination until
the close of business on February 20, 2008.
17. GOVERNING LAW. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said State.
18. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company and the Underwriter and any other registered holder or holders of
the Warrant Certificates, Warrants or the underlying securities any legal
or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and
the Underwriter and any other holder or holders of the Warrant
Certificates, Warrants or the underlying securities.
19. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above
written.
[SEAL] IFS INTERNATIONAL, INC.
By: Name:
Title:
Attest:
Name:
Title
DUKE & CO., INC.
By: Name:
Title:
Attest:
Name:
Title
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF
AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, FEBRUARY 20, 2002
No. WW-1 120,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that or
registered assigns is the registered holder of 120,000 Warrants to
purchase, at any time from February 21, 1998 until 5:00 P.M. New York
City time on February 20, 2002 ("Expiration Date"), up to 120,000 shares
("Shares") of fully-paid and nonassessable preferred stock, par value
$.001 per share ("Preferred Stock"), of IFS International, Inc., a
Delaware corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $6.25
per Share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Warrant Agreement dated as of
February 21, 1997 between the Company and Duke & Co., Inc. (the "Warrant
Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable
to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to in a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders"
or "holder" meaning the registered holders or registered holder) of the
Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise
Price and the number and/or type of securities issuable upon the exercise
of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter,
or otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s)
in exchange for this Warrant Certificate, subject to the limitations
provided herein and in the Warrant Agreement, without any charge except
for any tax, or other governmental charge imposed in connection
therewith.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof
a new Warrant Certificate representing such number of unexercised
Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: February 28, 1997 IFS INTERNATIONAL, INC.
By: Name:
Title:
Attest:
Name:
Title
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ Shares and
herewith tenders in payment for such Shares cash or a certified or
official bank check payable in New York Clearing House Funds to the order
of in the amount of $ , all in accordance
with the terms hereof. The undersigned requests that a certificate for
such Shares be registered in the name of , whose
address is and that such Certificate be delivered
to whose address is .
Dated: Signature:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
, Attorney, to transfer the within Warrant Certificate on the books of
the within-named Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate)
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF
AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, FEBRUARY 20, 2002
No. WW-2 170,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that or
registered assigns is the registered holder of 170,000 Warrants to
purchase, at any time from February 21, 1998 until 5:00 P.M. New York
City time on February 21, 2002 ("Expiration Date"), up to 170,000
Redeemable Series A Convertible Preferred Stock Purchase Warrants
("Redeemable Warrants"), of IFS International, Inc., a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $1.6875 per
Redeemable Warrant upon surrender of this Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the Warrant Agreement dated as
of February 21, 1997 between the Company and Duke & Co., Inc. (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash,
or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to in a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders"
or "holder" meaning the registered holders or registered holder) of the
Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In
such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and
the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue
such new Warrant Certificates shall not in any way change, alter, or
otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s)
in exchange for this Warrant Certificate, subject to the limitations
provided herein and in the Warrant Agreement, without any charge except
for any tax, or other governmental charge imposed in connection
therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated: February 28, 1997 IFS INTERNATIONAL, INC.
By: Name:
Title:
Attest:
Name:
Title
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Redeemable
Warrants and herewith tenders in payment for such Redeemable Warrants
cash or a certified or official bank check payable in New York Clearing
House Funds to the order of in the amount of $
, all in accordance with the terms hereof. The undersigned requests that
a certificate for such Redeemable Warrants be registered in the name of
, whose address is and that such Certificate be
delivered to whose address is .
Dated: Signature:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
, Attorney, to transfer the within Warrant Certificate on the books of
the within-named Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate)
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
Exhibit 4.3
WARRANT AGREEMENT
AGREEMENT, dated as of February 21, 1997, by and among IFS
INTERNATIONAL, INC., a Delaware corporation (the "Company"), AMERICAN
STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant Agent
(the "Warrant Agent"), and DUKE & CO., INC., a Florida corporation (the
"Underwriter").
W I T N E S S E T H
WHEREAS, pursuant to an underwriting agreement (the
"Underwriting Agreement") dated February 21, 1997 between the Company and
the Underwriter, in connection with (i) a public offering pursuant to a
Registration Statement on Form SB-2 (Registration No. 333-11653) (the
"Registration Statement") filed pursuant to the Securities Act of 1933,
as amended (the "Act"), and declared effective by the Securities and
Exchange Commission on February 21, 1997 of 1,200,000 shares of its
Series A Convertible Preferred Stock (the "Preferred Stock") and
1,700,000 Redeemable Series A Convertible Preferred Stock Warrants (the
"Warrants") (and up to 180,000 additional shares of Preferred Stock and
up to 255,000 additional Warrants covered by an over-allotment option
granted by the Company to the Underwriter), and (ii) the issuance to the
Underwriter or its designees of warrants to purchase up to an aggregate
of 120,000 shares of Preferred Stock and/or 170,000 Warrants (the
"Underwriter's Warrants"), the Company will issue up to an aggregate of
2,095,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf
of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing
the Warrants and the respective rights and obligations thereunder of the
Company, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise
require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located on the date
hereof at 40 Wall Street, New York, New York 10005.
(b) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (i) the Warrant
Certificate representing such Warrant, with the exercise form thereon
duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (ii) payment in cash, or by official bank or
certified check made payable to the Warrant Agent, of an amount in lawful
money of the United States of America equal to the applicable Purchase
Price.
(c) "Initial Warrant Exercise Date" shall mean, as to each
Warrant, February 21, 1999, except that (i) in the event the Company
gives notice of redemption of the Warrants in accordance with Section 8
hereof prior to February 21, 1999 or (ii) in the event the Company gives
notice of the mandatory conversion of the Preferred Stock prior to
February 21, 1999 in accordance with the terms and conditions of the
Preferred Stock as set forth in the Certificate of Designations and
Preferences filed with the Secretary of State of Delaware with respect to
the Preferred Stock (the "Certificate of Designations"), the exercise
period of the Warrants will commence on the date on which notice of such
redemption or mandatory conversion is given by the Company.
(d) "Market Price" shall mean, if the Preferred Stock is
listed on a national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on The Nasdaq Stock
Market, the last reported sale price of the Preferred Stock on such
exchange or The Nasdaq Stock Market, as the case may be, on the
applicable day or, if no such sale is made on such day, the average of
the closing bid and asked prices for such day on such exchange or The
Nasdaq Stock Market, as the case may be.
(e) "Preferred Stock" shall mean Series A Convertible
Preferred Stock of the Company, $.001 par value; provided, however, that
the shares issuable upon exercise of the Warrants shall include (i) in
the case of any consolidation, merger, sale or conveyance of the
character referred to in Section 9(d) hereof, the stock, securities, or
property provided for in such section or (ii) in the case of any
reclassification or change in the outstanding shares of Preferred Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or consisting of a change in par value, or from par value to
no par value, or from no par value to par value, such shares of Preferred
Stock as so reclassified or changed.
(f) "Purchase Price" shall mean the price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price
shall be $6.25 per share, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof, and subject to the
Company's right to reduce the Purchase Price upon notice to all Warrant
Holders.
(g) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants in accordance with the
terms hereof, which price shall be $.10 per Warrant, subject to
adjustment from time to time pursuant to the provisions of Section 9
hereof.
(h) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(i) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(j) "Warrant Expiration Date" shall mean, with respect to each
Warrant, 5:00 p.m. (Eastern time) on February 20, 2002, or the Redemption
Date as defined in Section 8, whichever is earlier; provided that if such
date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (Eastern time) on the next
following day which in the State of New York is not a holiday nor a day
on which banks are authorized to close. Upon notice to all Warrant
Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) Each Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1)
share of Preferred Stock upon the exercise thereof, in accordance with
the terms hereof, subject to modification and adjustment as provided in
Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting
Agreement shall be executed by the Company and delivered to the Warrant
Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant
Secretary, the Warrant Certificates shall be countersigned, issued and
delivered by the Warrant Agent.
(c) From time to time up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing up to an aggregate of
2,095,000 shares of Preferred Stock, subject to adjustment as described
herein, upon the exercise of Warrants in accordance with this Agreement.
(d) From time to time up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those
initially issued hereunder, (ii) those issued on or after the Initial
Warrant Exercise Date upon the exercise of fewer than all Warrants
represented by any Warrant certificate to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued
upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Underwriter's
Warrants; and (vi) those issued at the option of the Company, in such
form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of
Preferred Stock purchasable upon exercise of the Warrants or the
Redemption Price therefor made pursuant to Section 9.
(e) Pursuant to the terms of the Underwriter's Warrants, the
Underwriter and its designees may purchase up to an aggregate of 170,000
Warrants.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A, and may have such letters, numbers or
other marks of identification or designation and such legends, summaries
or endorsements printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of
this Agreement or as may be required to comply with any law or with any
rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform
to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates) and issued in
registered form. Warrants shall be numbered serially with the letter W
on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and
by its Secretary or an Assistant Secretary, by mutual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. In case any officer of the Company who
shall have signed any of the Warrant Certificates shall cease to be such
officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue
and delivery thereof, such Warrant Certificates may nevertheless be
countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company. After
countersignature by the Warrant Agent, Warrant Certificates shall be
delivered by the Warrant Agent to the Registered Holder without further
action by the Company, except as otherwise provided by Section 4(a).
SECTION 4. EXERCISE
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the
close of business on the Exercise Date and the person entitled to receive
the securities deliverable upon such exercise shall be treated for all
purposes as the holder upon exercise thereof as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise
Date, the Warrant Agent shall deposit the cash or check received from the
exercise of a Warrant in an account for the benefit of the Company and
shall notify the Company in writing of the exercise of the Warrants.
Promptly following, and in any event within five (5) days after the date
of such notice from the Warrant Agent, the Warrant Agent, on behalf of
the Company, shall cause to be issued and delivered by the Transfer Agent
to the person or persons entitled to receive the same a certificate or
certificates for the securities deliverable upon such exercise (plus a
Warrant Certificate for any remaining unexercised Warrants of the
Registered Holder), provided that the Warrant Agent shall refrain from
causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Upon the exercise of any Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the Warrant
to the Company or as the Company may direct in writing. Notwithstanding
anything in the foregoing to the contrary, no Warrant will be exercisable
unless at the time of exercise the Company has filed with the Securities
and Exchange Commission a registration statement under the Act covering
the shares of Preferred Stock issuable upon exercise of such Warrant and
such shares have been so registered or qualified or deemed to be exempt
under the securities laws of the state of residence of the Registered
Holder of such Warrant. The Company shall use its best efforts to have
all shares so registered or qualified on or before the date on which the
Warrants become exercisable.
(b) If, on the Exercise Date in respect of the exercise of any
Warrant at any time on or after the first anniversary of the date hereof,
(i) the Market Price of the Preferred Stock is greater than the then
Purchase Price of the Warrant, (ii) the exercise of the Warrant was
solicited by the Underwriter at such time as the Underwriter is a member
of the National Association of Securities Dealers, Inc. ("NASD"), (iii)
the Warrant was not held in a discretionary account, (iv) disclosure of
the compensation arrangement was made both at the time of the original
offering and at the time of exercise, and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 or any
successor rule promulgated under the Securities Exchange Act of 1934, as
amended, which may be in effect as of such time of exercise, then the
Underwriter shall be entitled to receive, upon exercise of the
Warrant(s), a fee of five percent (5%) of the Purchase Price (the
"Solicitation Fee"). Within five days after the exercise, the Warrant
Agent shall send to the Underwriter a copy of the reverse side of the
Warrant certificate relating to each Warrant exercised. In the event the
Underwriter is entitled to a Solicitation Fee with respect to any such
exercise, the Underwriter shall deliver to the Company (i) a copy of the
reverse side of the Warrant(s) and (ii) a certificate, executed by the
President or Vice President of the Underwriter, certifying that the
conditions set forth above have been met with respect to such exercise.
Within five days after receipt thereof by the Company, the Company shall
remit to the Underwriter the Solicitation Fees to which the Underwriter
is entitled. The Underwriter shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this
Section 4(b). In addition, the Underwriter and the Company may, at any
time during business hours, examine the records of the Warrant Agent,
including its ledger of original Warrant certificates returned to the
Warrant Agent upon exercise of Warrants. The provisions of this
paragraph may not be modified, amended or deleted without the prior
written consent of the Underwriter and the Company.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES;
ETC.
(a) The Company has reserved, and covenants that it will at
all times reserve and keep available out of its authorized Preferred
Stock, solely for the purpose of issuance upon exercise of Warrants, such
number of shares of Preferred Stock as shall then be issuable upon the
exercise of all outstanding Warrants. The Company covenants that all
shares of Preferred Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof (other than those which the Company shall
promptly pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange, if any, on which the other
shares of outstanding Preferred Stock of the Company are then listed or,
if applicable, The Nasdaq Stock Market.
(b) The Company hereby agrees that, so long as any unexpired
Warrants remain outstanding, the Company will file such post-effective
amendments to the Registration Statement as may be necessary to permit it
to deliver to each person exercising a Warrant a prospectus meeting the
requirements of Section 10(a)(3) of the Act and otherwise complying
therewith, and will deliver such a prospectus to each such person.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants or the issuance or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of
Preferred Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant
being exercised, then no such delivery shall be made unless the person
requesting the same had paid to the Warrant Agent the amount of transfer
taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for
certificates representing shares of Preferred Stock issuable upon
exercise of the Warrants, and the Company will authorize the Transfer
Agent to comply with all such proper requisitions. The Company will file
with the Warrant Agent a statement setting forth the name and address of
the Transfer Agent of the Company for shares of Preferred Stock issuable
upon exercise of the Warrants, unless the Warrant Agent and the Transfer
Agent are the same entity.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent at
its Corporate Office, and upon satisfaction of all the terms and
provisions hereof, the Company shall execute and the Warrant Agent shall
countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with
its regular practice. Upon due presentment for registration of transfer
of any Warrant Certificate at such office, the Company shall execute and
the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing the
aggregate number of Warrants so transferred.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the "Election to
Purchase" form on the reverse thereof shall be duly endorsed, or be
accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent,
duly executed by the Registered Holder or his attorney-in-fact authorized
in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates
requested by a Registered Holder. In addition, the Company may require
payment by such Registered Holder of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
cancelled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or resignation as Warrant
Agent, or, with the prior written consent of the Underwriter, disposed of
or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than a
duly authorized officer of the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary. The
Warrants, which are being publicly offered with shares of Preferred Stock
pursuant to the Underwriting Agreement, may be purchased separately from
the shares and will be immediately transferable separately from the
Preferred Stock.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company
and the Warrant Agent of evidence satisfactory to them of the ownership
of and loss, theft, destruction or mutilation of any Warrant Certificate
and (in case of loss, theft or destruction) of indemnity satisfactory to
them, and (in the case of mutilation) upon surrender and cancellation
thereof, the Company shall execute and the Warrant Agent shall (in the
absence of notice to the Company and/or Warrant Agent that the Warrant
Certificate has been acquired by a bona fide purchaser) countersign and
deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply
with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe pursuant to Section 6(d) or
otherwise.
SECTION 8. REDEMPTION
(a) Commencing February 21, 1998, on prior written notice as
required pursuant to the provisions of paragraph (b) of this Section 8
below, the Warrants may, with the prior consent of the Underwriter, be
redeemed by the Company at the Redemption Price, provided the Market
Price of the Company's Preferred Stock equals or exceeds $8.00 per share,
subject to adjustment, for 20 consecutive trading days ending not more
than three days prior to the date on which the Company gives notice of
redemption. All Warrants must be redeemed if any of the Warrants are
redeemed.
(b) In case the Company shall desire to exercise its right to
so redeem the Warrants, it shall request the Warrant Agent, or the
Underwriter, to mail a notice of redemption to each of the Registered
Holders of the Warrants to be redeemed, first class, postage prepaid, not
earlier than the forty-fifth (45th) day before the date fixed for
redemption and not later than the thirtieth (30th) day before the date
fixed for redemption, at such Registered Holder's last address as it
shall appear on the records of the Warrant Agent. Any notice mailed in
the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificates shall be delivered and the Redemption Price paid,
(iv) that the Underwriter will assist each Registered Holder of a Warrant
in connection with the exercise thereof (if the Underwriter has
conducted, or caused to be conducted, the mailing) and (v) that the right
to exercise the Warrant shall terminate at 5:00 p.m. (Eastern time) on
the business day immediately preceding the date fixed for redemption (the
"Redemption Date"). No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice
was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the
Underwriter or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Warrant that has been called for
redemption shall terminate at 5:00 p.m. (Eastern time) on the business
day immediately preceding the redemption date. On and after the
Redemption Date, Holders of the redeemed Warrants shall have no further
rights except to receive, upon surrender of the redeemed Warrant, the
Redemption Price.
(e) From and after the date specified for redemption, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the
Registered Holder thereof of one or more Warrants to be redeemed, deliver
or cause to be delivered to or upon the written order of such Holder a
sum in cash equal to the Redemption Price of each such Warrant. From and
after the date fixed for redemption and upon the deposit or setting aside
by the Company of a sum sufficient to redeem all the Warrants called for
redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the Redemption Price, shall cease.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
OF COMMON STOCK OR WARRANTS.
(a) (i) In the event the Company shall, at any time or from
time to time after the date hereof, issue any shares of Preferred Stock
as a stock dividend to the holders of Preferred Stock, or subdivide or
combine the outstanding shares of Preferred Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the applicable Purchase
Price in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the total number
of shares of Preferred Stock outstanding immediately prior to such Change
of Shares and the denominator of which shall be the total number of
shares of Preferred Stock outstanding immediately after such Change of
Shares.
(ii) Subject to the exceptions referred to in Section
9(h), in the event that the Company shall at any time or from time to
time issue or sell any shares of its Common Stock for a consideration per
share of Common Stock less than the then applicable Purchase Price and
more than the then applicable Stated Price of the Preferred Stock (as
defined and determined pursuant to the terms of the Certificate of
Designation), the Purchase Price shall thereupon be reduced to a price
determined by dividing (x) an amount equal to the sum of (i) the number
of shares of Common Stock of the Company outstanding immediately prior to
such issue or sale multiplied by the then applicable Purchase Price plus
(ii) the consideration, if any, received by the Company upon such
issuance or sale by (y) the total number of shares of Common Stock of the
Company outstanding immediately after such issuance or sale. Subject to
the exceptions referred to in Section 9(h) hereof, in case the Company
shall, at any time after the date hereof, issue or sell any Derivative
Securities (as defined in Section C.8. of the Certificate of Designation)
for a consideration per share of Common Stock less than the then
applicable Purchase Price and more than the then applicable Stated Price
of the Preferred Stock, the Purchase Price in effect immediately prior to
the issuance of such Derivative Securities shall thereupon be reduced to
a price determined in accordance with this Section 9(a)(ii) hereof. For
purposes of determining the number of shares of Common Stock outstanding
before and after such issuance or sale, and the consideration received in
connection therewith, the provisions of Section C.8. of the Certificate
of Designation shall be deemed to apply in all respects.
(b) Upon each adjustment of the applicable Purchase Price
pursuant to this Section 9, the total number of shares of Preferred Stock
purchasable upon the exercise of each Warrant shall (subject to the
provisions contained in Section 9(c)) be such number of shares
(calculated to the nearest tenth) purchasable at the applicable Purchase
Price immediately prior to such adjustment multiplied by a fraction, the
numerator of which shall be the applicable Purchase Price in effect
immediately prior to such adjustment and denominator of which shall be
the applicable Purchase Price in effect immediately after such
adjustment.
(c) The Company may elect, upon any adjustment of the
applicable Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of adjusting the number of shares of Preferred Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so
that each Warrant outstanding after such adjustment shall represent the
right to purchase one share of Preferred Stock. Each Warrant held of
record prior to such adjustment of the number of Warrants shall become
that number of Warrants (calculated to the nearest tenth) determined by
multiplying the number one by a fraction, the numerator of which shall be
the applicable Purchase Price in effect immediately prior to such
adjustment and the denominator of which shall be the applicable Purchase
Price in effect immediately after such adjustment. Upon each such
adjustment of the number of Warrants, the Redemption Price in effect
immediately prior to such adjustment also shall be adjusted by
multiplying such Redemption Price by a fraction, the numerator of which
shall be the Purchase Price in effect immediately after such adjustment
and the denominator of which shall be the Purchase Price in effect
immediately prior to such adjustment. Upon each adjustment of the number
of Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 10, the number of additional Warrants, if
any, to which such Holder shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to
such Holder in substitution and replacement for the Warrant Certificates
held by such Holder prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing
the number of Warrants to which such Holder shall be entitled after such
adjustment.
(d) Unless there is a mandatory conversion of the Preferred
Stock in connection with any such transaction pursuant to the Certificate
of Designation, in the case of any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does not result
in any reclassification, capital reorganization or other change of
outstanding shares of Preferred Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or
other financing transaction), the Company shall cause effective provision
to be made so that each holder of a Warrant then outstanding shall have
the right thereafter, by exercising such Warrant, to purchase the kind
and number of shares of stock or other securities or property (including
cash) receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Preferred Stock that might have been
purchased upon exercise of such Warrant, immediately prior to such
consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 9.
The foregoing provisions shall similarly apply to successive
consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Preferred Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and
thereafter issued shall, unless the Company shall exercise its option to
issue new Warrant Certificates, continue to express the applicable
Purchase Price per share, the number of shares purchasable thereunder and
the Redemption Price therefor as were expressed in the Warrant
Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly after the fiscal quarter in
which such adjustment was triggered prepare a certificate signed by the
Chairman or President, and by the Secretary or an Assistant Secretary, of
the Company setting forth: (i) the applicable Purchase Price as so
adjusted, (ii) the number of shares of Preferred Stock purchasable upon
exercise of each Warrant after such adjustment, and, if the Company shall
have elected to adjust the number of Warrants, the number of Warrants to
which the Registered Holder of each Warrant shall then be entitled, and
the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief
summary thereof to be sent by ordinary first class mail to the
Underwriter and to each Registered Holder of Warrants at his or her last
address as it shall appear on the registry books of the Warrant Agent.
No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity thereof except as to the holder to whom
the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent
or the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(g) For purposes of Section 9(a) and 9(c) hereof, the
following provisions (i) and (ii) shall also be applicable.
(i) The number of shares of Preferred Stock outstanding
at any given time shall include shares of Preferred Stock owned or held
by or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall not
be considered a Change of Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least
$0.05 in such price; provided that any adjustments which by reason of
this clause (ii) are not required to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried forward,
shall require an increase or decrease of at least $0.05 in the Purchase
Price then in effect hereunder.
(h) No adjustment to the Purchase Price or to the number of
shares of Preferred Stock purchasable upon the exercise of each Warrant
will be made, however, with respect to the issuance or sale of any
Excepted Security (as defined in the Certificate of Designation) or any
shares of Common Stock issuable upon exercise, conversion or exchange
thereof.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or
as to the amount of any such adjustment, if required, shall be binding
upon the holders of the Warrants and the Company if made in good faith by
the Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Preferred Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Preferred Stock or
securities convertible into or exchangeable for or carrying a right,
warrant or option to purchase Preferred Stock, the Company shall
concurrently therewith grant to each of the then Registered Holders of
the Warrants all of such rights, warrants or options to which each such
holder would have been entitled if, on the date of determination of
stockholders entitled to the rights, warrants or options being granted by
the Company, such holder were the holder of record of the number of whole
shares of Preferred Stock then issuable upon exercise (assuming, for
purposes of this Section 9(j), that the exercise of Warrants is
permissible during periods prior to the Initial Warrant Exercise Date) of
his Warrants. Such grant by the Company to the holders of the Warrants
shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
(k) In case the Company shall, at any time prior to the
exercise of a Warrant, make any distribution of its assets to holders of
the Preferred Stock, then the Registered Holder of such Warrant who
exercises his Warrant after the record date for determination of those
Registered Holders of Preferred Stock entitled to such distribution of
assets shall be entitled to receive, upon exercise of the Warrant, in
addition to Preferred Stock, the amount of such distribution which would
have been payable to such Registered Holder had he been the holder of
record of the Preferred Stock receivable upon exercise of such Warrant on
the record date for the determination of those entitled to such
distribution.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Preferred Stock purchasable
upon the exercise of each Warrant is adjusted pursuant to Section 9
hereof, the Company shall nevertheless not be required to issue fractions
of shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Preferred Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on The Nasdaq Stock Market, the current
value shall be the last reported sale price of the Preferred Stock on The
Nasdaq Stock Market or such exchange on the last business day prior to
the date of exercise of the Warrant, or if no such sale is made on such
day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Preferred Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the
last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise
of the Warrant; or
(iii) If the Preferred Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of the
Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No
holder of Warrants shall, as such, be entitled to vote or to receive
dividends or be deemed the holder of Preferred Stock that may at any time
be issuable upon exercise of such Warrants for any purpose whatsoever,
nor shall anything contained herein be construed to confer upon the
holder of Warrants, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such Holder shall have exercised
such Warrants and been issued shares of Preferred Stock in accordance
with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with
respect to this Agreement are vested in the respective Registered Holders
of the Warrants, and any Registered Holder of a Warrant, without consent
of the Warrant Agent or of the holder of any other Warrant, may, in his
own behalf and for his own benefit, enforce against the Company his right
to exercise his Warrants for the purchase of shares of Preferred Stock in
the manner provided in the Warrant Certificates and this Agreement.
SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company,
the Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent and the Company in their sole
discretion, together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder
and as the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and neither the Company nor the Warrant Agent
shall be affected by any notice or knowledge to the contrary, except as
otherwise expressly provided in Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon
be delivered to the Warrant Agent and cancelled by it and retired.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company,
and its duties shall be determined solely by the provisions of this
Agreement. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or
other property delivered upon exercise of any Warrant or whether any
stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to
be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which
may require any such adjustments, or with respect to the nature or extent
of any such adjustment, when made, or with respect to the method employed
in making the same. The Warrant Agent shall not (i) be liable for any
recital or statement of facts contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to
have been signed or presented by the proper party or parties, (ii) be
responsible for any failure on the part of the Company to comply with any
of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the
Underwriter) and shall incur no liability or responsibility for any
action taken, suffered or omitted by it in good faith in accordance with
the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not
be liable for any action taken, suffered or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or
demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the Warrant
Agent and save it harmless against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything
done or omitted by the Warrant Agent in the execution of its duties and
powers hereunder except loses, expenses and liabilities arising as a
result of the Warrant Agent's negligence or willful misconduct.
In the event of a dispute under this Agreement between the
Company and the Underwriter regarding proceeds received by the Warrant
Agent from the exercise of the Warrants, the Warrant Agent shall have the
right, but not the obligation, to bring an interpleader action to resolve
such dispute.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising
as a result of the Warrant Agent's own negligence or willful misconduct),
after giving 30 days' prior written notice to the Company. At least 15
days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be
mailed to the Registered Holder of each Warrant Certificate at the
Company's expense. Upon such resignation, or any inability of the
Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any
new warrant agent, whether appointed by the Company or by such a court
shall be a bank or trust company having a capital and surplus as shown by
its last published report to its stockholders, of not less than Ten
Million ($10,000,000.00) Dollars, or a stock transfer company. After
acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the
Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall
be a party or any corporation succeeding to the trust business of the
Warrant Agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the
Company and to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in
the same manner and to the same extent and with like effects as though it
were not Warrant Agent. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the
provisions of Section 4(b), the Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct
any defective or inconsistent provision or manifest mistake or error
herein contained or (ii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; PROVIDED, HOWEVER, that this Agreement shall not otherwise
be modified, supplemented or altered in any respect except with the
consent in writing of the Registered Holders of Warrant Certificates
representing not less than a majority of the outstanding Warrants, and
PROVIDED, FURTHER, that no change in the number of or nature of the
securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall
be made without the consent in writing of the Registered Holder of the
Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall be deemed to
have been made three days after such is mailed first class registered or
certified mail, postage prepaid as follows: if to the Registered Holder
of a Warrant Certificate, at the address of such holder as shown on the
registry books maintained by the Warrant Agent; if to the Company, at
Rensselaer Technology Park, 185 Jordan Road, Troy, New York 12180,
Attention: Frank A. Pascuito, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company, with a copy
sent to Parker Duryee Rosoff & Haft, P.C., 529 Fifth Avenue, New York,
New York 10017, Attention: Michael D. DiGiovanna, Esq.; if to the
Warrant Agent, at American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005; if to Duke & Co., Inc., at 909 Third
Avenue, 7th Floor, New York, New York 10022, Attention: President, with
a copy sent to Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, New
York, New York 10022, Attention: James Martin Kaplan, Esq.
SECTION 18. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the Company, the Warrant Agent and the
Underwriter, and their respective successors and assigns, and the holders
from time to time of the Warrant Certificates. Nothing in this Agreement
is intended or shall be construed to confer upon any other person any
right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate at
the close of business on the Warrant Expiration Date of all the Warrants
or such earlier date upon which all Warrants have been exercised and/or
redeemed, except that the Warrant Agent shall account to the Company for
cash held by it and the provisions of Section 15 hereof shall survive
such termination.
SECTION 21. COUNTERPARTS. This Agreement may be executed in
several counterparts, which taken together shall constitute a single
document.
IN WITNESS WHEREOF, the parties hereto have caused this warrant
Agreement to be duly executed as of the date first above written.
IFS INTERNATIONAL, INC.
By:
Authorized Officer
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:
Authorized Officer
DUKE & CO., INC.
By:
Authorized Officer
<PAGE>
EXHIBIT A
(FORM OF FACE OF WARRANT CERTIFICATE)
No. Warrants
VOID AFTER FEBRUARY 20, 2002
WARRANT CERTIFICATE FOR PURCHASE OF
SERIES A CONVERTIBLE PREFERRED STOCK
IFS INTERNATIONAL, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the
number of Redeemable Series A Convertible Preferred Stock Purchase
Warrants ("Warrants") specified above. Each Warrant initially entitles
the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one (1) fully paid and nonassessable share of Series A
Convertible Preferred Stock, $.001 par value (the "Preferred Stock"), of
IFS INTERNATIONAL, INC., a Delaware corporation (the "Company"), at any
time from February 21, 1999 (or earlier in certain circumstances as
provided in the Warrant Agreement referred to below) to the Expiration
Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Election to Purchase Form on the
reverse hereof duly executed, at the corporate office of AMERICAN STOCK
TRANSFER & TRUST COMPANY as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $6.25 (the "Purchase Price") in lawful
money of the United States of America in cash or by official bank or
certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement")
dated as of February 21, 1997, by and among the Company, the Warrant
Agent and Duke & Co., Inc. (the "Underwriter").
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of
Preferred Stock subject to purchase upon the exercise of each Warrant
represented hereby are subject to modifications or adjustments.
Each Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional shares of Preferred Stock will
be issued. In case of the exercise of less than all the Warrants
represented hereby, the Company shall cancel this Warrant Certificate
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant
Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time)
on February 20, 2002, or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a
day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 p.m. (New York time) on the next following day which in
the State of New York is not a holiday or a day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement
under the Securities Act of 1933, as amended, with respect to such
securities is effective. This Warrant shall not be exercisable by a
Registered Holder in any state in which it would be unlawful for the
Company to deliver the shares of Preferred Stock upon exercise of the
Warrants represented hereby.
The Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant
Agent, for a new Warrant Certificate or Warrant Certificates of like
tenor representing an equal aggregate number of Warrants, each of such
new Warrant Certificates to represent such number of Warrants as shall be
designated by such Registered Holder at the time of such surrender. Upon
due presentment of this Warrant Certificate at such office for
registration of transfer, together with any transfer fee and any tax or
other governmental charge imposed in connection with such transfer, a new
Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to vote or to
receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided
in the Warrant Agreement.
Commencing February 21, 1998, this Warrant may, with the prior
consent of the Underwriter, be redeemed at the option of the Company, at
a redemption price of $.10 per Warrant, provided the Market Price (as
defined in the Warrant Agreement) for the securities issuable upon
exercise of such Warrant shall exceed $8.00 per share (subject to
adjustment as set forth in the Warrant Agreement) for 20 consecutive
trading days ending not more than three days prior to the date on which
the Company gives notice of redemption. Notice of redemption shall be
given not later than the thirtieth day, and not earlier than the forty
fifth day, before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant
except to receive the $.10 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Warrant represented
hereby (notwithstanding any notations of ownership or writing hereon made
by anyone other than a duly authorized officer of the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice
to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price
to the Underwriter upon certain conditions as specified in the Warrant
Agreement upon the exercise of this Warrant.
This Warrant Certificate and each Warrant represented hereby
shall be governed by and construed in accordance with the laws of the
State of New York.
This Warrant Certificate shall not be valid unless
countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its
officers thereunto duly authorized, and a facsimile of its corporate seal
to be imprinted hereon.
IFS INTERNATIONAL, INC.
By
Its
By
Its
Date:
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By
Its
Authorized Officer
<PAGE>
(FORM OF REVERSE OF WARRANT CERTIFICATE)
ELECTION TO PURCHASE FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects
to exercise ( ) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise
of such Warrants, and requests that certificates for such securities
shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
and be delivered to
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance
of such Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
The undersigned represents that the exercise of the within
Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. ("NASD"). If not solicited by an NASD member,
please write "unsolicited" in the space below.
<PAGE>
Please indicate the name of the NASD member firm which solicited the
exercise of the Warrant.
Name of soliciting NASD Member
Dated:
Signature
Street Address
City, State and Zip Code
Taxpayer ID Number
Signature Guaranteed:
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
( ) of the Warrants represented
by this Warrant Certificate, and hereby irrevocably constitutes and
appoints Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution
in the premises.
Dated:
Signature Guaranteed:
THE SIGNATURE TO THE ASSIGNMENT OR THE ELECTION TO PURCHASE FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS
WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
MEDALLION BANK.
<PAGE>
EXHIBIT 10.1
IFS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
February 21, 1997
Duke & Co., 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 par 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 4.1 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 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 4.6 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 $6.25 per share
of Preferred Stock and $1.6875 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 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-
11653) 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
may 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 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 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, at the time of filing with the Commission, 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(e) 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) Each of the Company and the U.S. Subsidiary (as
defined in paragraph d of this Section 1 below) (i) has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, (ii) 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, and
(iii) has all requisite corporate power and authority, and all material
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 U.S. Subsidiary
is and has been doing business in material compliance with all such
authorizations, approvals, licenses, certificates, franchises and permits
and all federal, state and local laws, rules and regulations; and,
neither the Company nor the U.S. Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, 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 U.S. Subsidiary,
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 the U.S. Subsidiary as
currently conducted 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.
(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) IFS International,
Inc. (S) PTE Ltd., 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; (iii) there has not been any material adverse change in the
condition (financial or otherwise), 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); and (iv) 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 have been reserved for
issuance upon conversion of the Preferred Stock and, when issued in
accordance with the terms of the Certificate of Designation relating to
the Preferred Stock (hereinafter, the "Certificate of Designation"), 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 and the 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 Underwriter's Warrant Agreement. The Underwriter's Shares have
been reserved for issuance upon exercise of the Underwriter's Warrants
and, 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, when issued in accordance with the terms of the
Underwriter's Warrants and Underwriter's Warrant Agreement, will be duly
authorized and 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 have
been reserved for issuance upon exercise of the Underwriter's Redeemable
Warrants and, 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 have been reserved for issuance upon
conversion of the Preferred Stock issuable upon exercise of the
Underwriter's Warrants and Underwriter's Redeemable Warrants and, when
issued in accordance with the terms of the Certificate of Designation,
will be duly authorized, validly issued, fully paid and non-assessable.
Neither the issuance of any of the Public Securities nor 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 capital stock of the
Company has been duly authorized and validly issued and is fully paid and
non-assessable; the issuances and sales of all such capital stock
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 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, except where such conflict, breach, default,
lien, charge or an encumbrance would not have a material adverse effect
on the Company; nor will such actions 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) Except as set forth in the Prospectus, 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 greater than 5% 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 otherwise), 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 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, except as set forth in the Prospectus, 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
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 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
product liability insurance and 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 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.
(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 greater than 5% 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 (other than ownership of an immaterial number
of shares of capital stock of an entity whose securities are publicly
traded) 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.
(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 1,072,365 shares of Common Stock
shall be issued and outstanding, not including: (A) 3,335,000 Public
Conversion Shares reserved for issuance upon conversion of the Preferred
Stock; (B) the 290,000 Underwriter's Conversion Shares reserved for
issuance upon conversion of the Preferred Stock; (C) 8,819 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 1996 Stock
Option Plan ("New Option Plan"); (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"); (F) 59,524 shares of
Common Stock (subject to adjustment) reserved for issuance under the
Debenture Investment Agreement between the Company and New York State
Technology Foundation (the "NYS Foundation"), dated July 6, 1989 and as
amended May 6, 1993 and April 30, 1995 (the "Debenture Investment
Agreement"); and (G) options to purchase an aggregate of 150,000 of
Common Stock issued to Charles Caserta and Frank Pascuito pursuant to
employment agreements with the Company. Other than the shares of Common
Stock already issued (or reserved for issuance as described in the
immediately preceding sentence), the 1,955,000 Public Warrant Shares
reserved for issuance upon the Redeemable Warrants, the 120,000
Underwriter's Shares served for issuance upon exercise of the
Underwriter's Warrants, the 170,000 Underwriter's Warrant Shares reserved
for issuance upon exercise of the Underwriter's Redeemable Warrants, and
the Public Securities and 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 (i) under
the Underwriter's Warrant Agreement, (ii) to the holders of the Bridge
Warrants and (iii) under the Debenture Investment Agreement (each 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 other than the Underwriter and
the holders of the Bridge Warrants with registration rights has agreed
not to exercise any such rights within 24 months following the First
Closing Date and, in the case of the holder under the Debenture
Investment Agreement, to waive any right which it may have to include any
of such holder's securities in the Registration Statement.
(bb) Assuming that there will be two "market makers" for
the Preferred Stock, at least 300 beneficial owners of the Preferred
Stock and a sufficient "public float" of the Preferred Stock, 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 has been approved for listing on the Boston 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
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.
(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.
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 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) business 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 $6.25 per
Underwriter's Share and $1.6875 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 4.5 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 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
agrees 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.
(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, two (2) signed copies of the Registration Statement which has
been filed prior to the date of this Agreement, together with two (2)
copies of each exhibit filed therewith, and of five (5) conformed copies
of such Registration Statement (unsigned and exclusive of exhibits). 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 distributed to the public and 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 Public Warrant
Shares, 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.
(i) Except as otherwise provided in (iii) below, 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) during the period of two years from
the First Closing Date, 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
fiscal quarter, a statement of operations, and a statement of cash flows
covering such fiscal quarter, together with notes thereto, for such
fiscal quarter and, with respect to the statement of operations, 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.
(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, which consent shall not be
unreasonably withheld. 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 and Rule 158 of the Rules and Regulations 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. None of the
Proceeds will be used to pay outstanding loans from officers, directors
or greater than 5% stockholders or to pay any salaries or bonuses accrued
prior to the date hereof to any employees or former employees; provided,
however, that the Underwriter acknowledges that an aggregate of
$225,588.61 of accrued salaries and commissions will be paid to Frank
Pascuito, Charles Caserta and Simon Theobald prior to the Closing Date.
(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.
(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; PROVIDED,
HOWEVER, that the Company may require as a condition precedent that any
such observer shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information, including, but not
limited to, trade secrets, so received during such meetings and may
require that such observer sign a confidentiality agreement with the
Company; and, PROVIDED, FURTHER, that the Company reserves the right not
to provide information and to exclude such observer from any meeting or
portion there of if attendance at such meeting by such observer or
dissemination of any information at such meeting to such observer would
compromise or adversely affect the attorney-client privilege between the
Company and its counsel, or would, in the good faith judgment of the
Board of Directors, result in a conflict of interest situation. The
Company shall use its reasonable efforts to promptly bring to the
attention of such observer any agenda item that, in the good faith
judgment of the Board of Directors, would result in any trade secret,
privileged matter or conflict of interest arising during such meeting and
the Board of Directors may exclude such observer (or alternatively, the
observer shall be entitled to exclude himself or herself) from any
deliberation or discussion of the Board of Directors concerning such
trade secret (if the observer has not executed a confidentiality
agreement), privileged matter or conflict of interest matter and as a
recipient in the dissemination of such information. If such observer in
his or her good faith judgment believes that an item to be discussed by
the Board of Directors would result in any conflict of interest, such
observer shall promptly bring such conflict to the attention of the
Chairman of the Board. In no event shall any provision of this paragraph
waive any obligation of confidentiality to the Company owed by any such
observer or the Underwriter. 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 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 product liability insurance and
insurance for theft or destruction of its merchandise while in the
possession of its customers.
(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 and the Redeemable Warrants on NASDAQ and
the Boston 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 and Redeemable Warrants 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 Sections 12(b) and 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 life of Frank Pascuito and use its best efforts to
obtain such a policy on the life of Charles Caserta. Each 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.
(v) On the First Closing Date, the Company and the
Underwriter shall enter into a consulting agreement, substantially in the
form filed as Exhibit 10.9 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, options and convertible debt heretofore issued
and described in the Prospectus, and (iv) the issuance to employees,
officers, directors, advisors and consultants of stock options to
purchase a number of shares of Common Stock not to exceed 300,000 shares
pursuant to the New Option Plan and shares remaining available for grant
under the Company's other stock option plan existing on the date hereof
(provided that (A) the Company may not grant options for more than
100,000 of such shares prior to the First Closing Date, (B) any options
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
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.
(y) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, other
than a registration statement on Form S-8 relating to shares of Common
Stock issuable upon exercise of options granted only to employees, during
the twenty-four (24) 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 otherwise), 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
materially adversely affect the condition (financial or otherwise),
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 seventy-five
(75) 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.
(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) On or before the Effective Date, each of Charles
Caserta and Frank Pascuito will enter into employment agreements with the
Company of at least three years in length and with such other terms and
conditions as are acceptable to the Underwriter. 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) Sawchuk, Brown Associates is currently the public
relations firm for the Company. For a period of two years after the
Effective Date, any change of the financial public relations firm will be
reasonably acceptable to the Underwriter.
(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 greater than 5%
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 loans outstanding with the North Greenbush Industrial
Development Agency and the NYS Foundation, current trade payables which
arose in the ordinary course of business or loans and lines of credit
incurred after the Effective Date with financial institutions.
(hh) The Company agrees that for so long as the Preferred
Stock is registered under the 1934 Act, the Company will hold an annual
meeting of shareholders for the election of directors within 190 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 Redeemable Warrants, the Underwriter's Shares or the
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 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.
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 Section 15 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 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 Section 15 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.
(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 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) the Underwriter makes
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 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 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; 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; 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 suspending
effectiveness of such qualifications, nor shall any stop order
proceedings with respect thereto be instituted or pending or, to the
knowledge of the Company and the Underwriter, 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 a registration
statement on Form SB-2 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 included in the Registration
Statement;
(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 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 U.S. Subsidiary
(A) has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation, (B) to
the best of such counsel's knowledge, 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, and (C) has all
requisite corporate power and authority, and, to the best of such
counsel's knowledge, all material licenses, permits, certifications,
registrations, approvals, consents and franchises, to own or lease its
properties and conduct its business as described in the Prospectus. To
the best of such counsel's knowledge, each of the Company and the U.S.
Subsidiary is and has been doing business in material compliance with all
such licenses, permits, certifications, registrations, approvals,
consents and franchises and all federal, state and local laws, rules and
regulations; and, to the best of such counsel's knowledge, neither the
Company nor the U.S. Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such licenses, permits,
certifications, registrations, approvals, consents and franchises 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 U.S. Subsidiary, taken as a
whole. To the best of such counsel's knowledge, 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 the U.S.
Subsidiary as currently conducted 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.
(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 have been reserved for issuance upon conversion of the
Preferred Stock and, when issued in accordance with the terms of the
Certificate of Designation, 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 have been
reserved for issuance upon exercise of the Underwriter's Warrants and,
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, when issued in accordance with the terms of the Underwriter's
Warrants and Underwriter's Warrant Agreement, will be duly authorized and
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 have been reserved
for issuance upon exercise of the Underwriter's Redeemable Warrants and
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 have been reserved for issuance upon conversion of the
Preferred Stock and, when issued in accordance with the terms of the
Certificate of Designation, will be duly authorized, validly issued,
fully paid and non-assessable. To the best of such counsel's knowledge,
neither the issuance of any of the Public Securities nor 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) 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 Registration
Statement, to the best of such counsel's knowledge, the Company does not
own an interest in any corporation, partnership, joint venture, trust or
other business entity.
(iv) The Company has corporate 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, (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, except where the
failure to so comply would not 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, 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 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, or (C) the
consummation by the Company of any of its obligations under this
Agreement, the Public Warrant Agreement or the Underwriter's Warrant
Agreement.
(viii) 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, to the best knowledge
of such counsel, conflict with, or result in a material breach of, any of
the terms and provisions of, or constitute a material 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 material 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, to the best of such counsel's knowledge, have any
material adverse effect on any license, permit, certification,
registration, approval, consent, 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 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, 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) To the best of such counsel's knowledge,
except as set forth in the Prospectus 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 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, to the best of such counsel's
knowledge, in violation of any material franchise, license, permit,
judgment, decree, order, statute, rule or regulation, except as referred
to in the Prospectus.
(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 the U.S. Subsidiary
is a party or by which it is bound, including any document to which the
Company or the U.S. Subsidiary 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 NASDAQ and the Boston 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 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 which may be applicable under Delaware law or, to the best
knowledge of such counsel, which may be applicable under any contract or
agreement to which any holder of any security or interest of the Company
is a party.
(xvi) To the best of such counsel's knowledge, 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.
(xvii) To the best of such counsel's knowledge,
except as disclosed in the Prospectus, there is no 99action, suit or
proceeding pending, or threatened, against or affecting the Company or
the U.S. Subsidiary 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),
earnings or business prospects 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,
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.
(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 5 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, or to their knowledge,
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 2 hereof are true and
correct as if such representations and warranties were made in their
entirety on the date of such certificate, and further certifying as to
the matters referred to in Sections 9(h) and (i).
(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 other than in the ordinary course of business and
there has not been any change in the Common Stock or funded debt of the
Company or any material adverse change in the condition (financial or
otherwise), 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 Offered Securities.
(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.
(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 material 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, to the knowledge of the Company, threatened against the
Company which might be required to be set forth in the Registration
Statement, and no proceedings shall be pending or, to the knowledge of
the Company, 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 and/or the Redeemable Warrants
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.
(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 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.
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 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; BLUE SKY FILINGS AND 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 (up to a maximum of $500) expenses of the
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, except as provided in paragraph (c) of this Section 12.
(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.
(c) If, (i) the Company will not or cannot
expeditiously proceed with the sale of the Registered Securities,
including without limitation as a result of the Company taking or not
taking actions, or (ii) if the Underwriter terminates this Agreement
pursuant to clauses (ii) or (xii) of Section 11, then the Company shall
reimburse the Underwriter in full for its actual out-of-pocket expenses
(including, without limitation, its legal fees and disbursements), up to
$75,000 (in each case inclusive of any portion of the non-accountable
expense allowance paid pursuant to paragraph (b) above).
(d) 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 with such
transaction, less any payments previously made to the Underwriter
pursuant to paragraph (b). The Company and the Underwriter shall
negotiate in good faith the terms of an investment banking finders' fee,
if any, if the Underwriter is instrumental in arranging such transaction.
(e) 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 be
$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 (e) 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 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.
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.
<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 space provided below for that purpose,
whereupon this letter with the Underwriter's acceptance shall constitute
a binding agreement between 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
<PAGE>
IFS INTERNATIONAL, INC.
SELECTED DEALER AGREEMENT
February 21, 1997
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
$.25 per Share and $.005 per Redeemable Warrant. Such dealers may reallow out
of such selling concession not more than $.125 per Share and $.0025 per
Redeemable Warrant to members of the National Association of Securities
Dealers, Inc. ("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 Rule 2110 of the
NASD Rules of Conduct and the Interpretation with respect to free-riding and
withholding thereunder.
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 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 the event that within the
period ending 60 days from the date hereof we purchase or contract to
purchase, in the open market or otherwise, any of the Offered Securities
delivered to you hereunder, we reserve the right to charge you, and you agree
to repay us on demand, the amount of the dealer's selling concession allowed
to you on such Offered Securities.
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 $4.75 per Share and $.095 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 this Agreement will terminate at the close of
business 90 days after the Offered Securities are released by us for sale to
the public.
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:
<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 Rule 2110 of the NASD Rules of Conduct and the NASD's
Interpretation with respect to free-riding and withholding thereunder, and if
it is a foreign dealer and not a member of the NASD to comply as though it
were a member of the NASD with such Rule and Interpretation.
By:
Name:
Title:
Address:
Dated: February , 1997
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of
January 1, 1997 by and between IFS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and FRANK A. PASCUITO, residing at 1 Feather
Foil Way, Ballston Spa, New York 12020 (the "Executive").
The Executive is being employed by the Company as an executive
officer. The parties desire to enter into an employment agreement and to
set forth herein the terms and conditions of the Executive's continued
employment by the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and the mutual benefits to be derived
herefrom, the Company and the Executive agree as follows:
. EMPLOYMENT.
. DUTIES. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its Chairman of the Board of
Directors. The Executive accepts such employment with the Company and
shall perform and fulfill such duties as are assigned to him hereunder
consistent with his status as a senior executive of the Company, devoting
his best efforts and entire professional time and attention to the
performance and fulfillment of his duties and to the advancement of the
interests of the Company, subject only to the direction, approval,
control and directives of the Company's Board of Directors (the "Board").
Nothing contained herein shall be construed, however, to prevent the
Executive from trading in or managing, for his own account and benefit,
in stocks, bonds, securities, real estate, commodities or other forms of
investments (subject to law and Company policy with respect to trading in
Company securities). Without any additional consideration, Executive
shall also continue to serve as an employee and officer of any or all
subsidiaries of the Company. Unless otherwise indicated by the context,
the term "Company" shall include the Company and all its subsidiaries.
. PLACE OF PERFORMANCE. In connection with his employment by
the Company, the Executive shall be based at the Company's principal
place of business in the Albany metropolitan area except when required
for travel on Company business.
. TERM. The Executive's employment under this Agreement shall
commence as of January 1, 1997 (the "Commencement Date") and shall,
unless sooner terminated in accordance with the provisions hereof,
continue uninterrupted until December 31, 1999 (the "Term"). As used
herein "Year" shall refer to a twelve month period ending December 31st.
Unless notice of nonrenewal is given by either party at least sixty (60)
days prior to the end of the Term or prior to the end of any Year
thereafter, the Term of this Agreement shall be automatically extended
for an additional period of one year.
. COMPENSATION.
. BASE SALARY. During the first two (2) Years of the Term,
the Executive shall be entitled to receive an annual salary (the "Base
Salary") of One Hundred Ten Thousand Dollars ($110,000) payable in
installments at such times as the Company customarily pays its other
executive officers (but in any event not less often than monthly). For
each Year thereafter, the Company shall increase the Base Salary by an
amount to be determined by the Board of Directors.
. COMMISSIONS. Except as described hereinafter or in
Schedule A, during each year, Executive shall also receive a commission
of 8% of revenues in excess of $425,000 derived from installations of the
Company's products pursuant to license agreements obtained hereinafter
through the efforts of Executive. The board of directors shall resolve
any dispute with Executive concerning whether commissions shall be
credited to Executive as a result of his efforts in obtaining any license
agreement. The maximum commission payable to all personnel of the
Company on revenues derived from any agreement shall not exceed 8% of
such revenues.
. BONUS. The Board of Directors may at its sole discretion
grant bonuses to the Executive.
. HEALTH INSURANCE AND OTHER BENEFITS. During the Term, the
Executive shall be entitled to all employee benefits generally offered by
the Company to its executive officers and key management employees,
including, without limitation, all pension, profit sharing, retirement,
stock option, salary continuation, deferred compensation, disability
insurance, hospitalization insurance, major medical insurance, medical
reimbursement, survivor income, life insurance or any other benefit plan
or arrangement established and maintained by the Company, subject to the
rules and regulations then in effect regarding participation therein.
. OPTIONS. Executive shall receive stock options to
purchase 75,000 shares of the Company's Common Stock at an exercise price
of $5.00 per share at any time during the ten year period following the
commencement of this Agreement. Such options shall not be pursuant to
any stock option plan and shall be in a form mutually agreeable to the
Executive and the Company.
. REIMBURSEMENT OF EXPENSES. The Executive shall be reimbursed
for all items of travel, entertainment and miscellaneous expenses that
the Executive reasonably incurs in connection with the performance of his
duties hereunder, provided the Executive submits to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
. AUTOMOBILE ALLOWANCE. The Executive shall be reimbursed for the
expenses of owning or leasing an automobile suitable for his position
and consistent with Company practices during 1996, including the expenses
of operating, insuring and parking such automobile, provided the
Executive submits to the Company such statements and other evidence
supporting such expenses as the Company may require.
. VACATION. The Executive shall be entitled to not less than
three (3) weeks of vacation in any calendar year.
. TERMINATION OF EMPLOYMENT.
. DEATH OR TOTAL DISABILITY. In the event of the death of
the Executive during the Term, this Agreement shall terminate as of the
date of the Executive's death. In the event of the Total Disability (as
that term is defined below) of the Executive for sixty (60) days in the
aggregate during any consecutive nine (9) month period during the Term,
the Company shall have the right to terminate this Agreement by giving
the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty (30) day period, the Executive's employment
under this Agreement shall terminate. If the Executive shall resume his
duties within thirty (30) days after receipt of such a notice of
termination and continue to perform such duties for four (4) consecutive
weeks thereafter, this Agreement shall continue in full force and effect,
without any reduction in Base Salary and other benefits, and the notice
of termination shall be considered null and void and of no effect. Upon
termination of this Agreement under this Paragraph 7(a), the Company
shall have no further obligations or liabilities under this Agreement,
except to pay to the Executive's estate or the Executive, as the case may
be, (i) the portion, if any, that remains unpaid of the Base Salary for
the Year in which termination occurred, but in no event less than six (6)
months' Base Salary; and (ii) the amount of any expenses reimbursable in
accordance with Paragraph 4 above, and any automobile allowance due under
Paragraph 5 above; and (iii) any amounts due under any Company benefit,
welfare or pension plan. Except as otherwise provided by their terms,
any stock options not vested at the time of the termination of this
Agreement under this Paragraph 7(a) shall immediately become fully
vested.
The term "Total Disability," as used herein, shall mean a
mental or physical condition which in the reasonable opinion of an
independent medical doctor selected by the Company renders the Executive
unable or incompetent to carry out the material duties and
responsibilities of the Executive under this Agreement at the time the
disabling condition was incurred. In the event the Executive disagrees
with such opinion, the Executive may, at his sole expense, select an
independent medical doctor and, in the event that doctor disagrees with
the opinion of the doctor selected by the Company, they shall select a
third independent medical doctor, and the three doctors shall, by
majority vote, determine whether the employee has suffered Total
Disability. The expense of the third doctor shall be shared equally by
the Company and the Executive. Notwithstanding the foregoing, if the
Executive is covered under any policy of disability insurance under
Paragraph 3(d) above, under no circumstances shall the definition of
Total Disability be different from the definition of that term in such
policy.
. DISCHARGE FOR CAUSE. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement the
Company shall have "Cause" to terminate the Executive's employment if the
Executive, in the reasonable judgment of the Company, (i) materially
breaches any of his agreements, duties or obligations under this
Agreement and has not cured such breach or commenced in good faith to
correct such breach within thirty (30) days after notice; (ii) fails to
carry out a lawful directive of the Board; (iii) embezzles or converts to
his own use any funds of the Company or any client or customer of the
Company; (iv) converts to his own use or unreasonably destroys,
intentionally, any property of the Company, without the Company's
consent; (v) is convicted of a crime; (vi) is adjudicated an incompetent;
or (vii) is habitually intoxicated or is diagnosed by an independent
medical doctor to be addicted to a controlled substance (any disagreement
of Executive shall be resolved using the procedure provided in Paragraph
7(a) above).
. TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement for the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty
(30) days after notice ("Good Reason").
. RESTRICTIVE COVENANT.
. COMPETITION. Executive undertakes and agrees that during
the term of this Agreement and for a period of two (2) years after the
date of termination of this Agreement pursuant to Section 7(b) or for a
period of one (1) year after the date of termination if this Agreement is
not renewed, he will not compete, directly or indirectly, or participate
as a director, officer, employee, agent, consultant, representative or
otherwise, or as a stockholder (except as a stockholder in a corporation
whose shares are traded on The Nasdaq Stock Market or a national
securities exchange, provided that such ownership shall not exceed 3% of
the outstanding stock of such corporation), partner or joint venturer, or
have any direct or indirect financial interest, including, without
limitation, the interest of a creditor, in any business competing
directly or indirectly with the business of the Company or any of its
subsidiaries. Executive further undertakes and agrees that during the
term of the Agreement and for a period of two (2) years after the date of
termination of this Agreement pursuant to Section 7(b) or for a period of
one (1) year after the date of termination if this Agreement is not
renewed, he will not, directly or indirectly employ, cause to be
employed, or solicit for employment any of Company's or its subsidiaries'
employees. The provisions of this Section 8(a) shall not apply if the
Agreement is terminated by Executive pursuant to Section 7(c).
. SCOPE OF COVENANT. Should the duration, geographical area
or range or proscribed activities contained in Paragraph 8(a) above be
held unreasonable by any court of competent jurisdiction, then such
duration, geographical area or range of proscribed activities shall be
modified to such degree as to make it or them reasonable and enforceable.
. NON-DISCLOSURE OF INFORMATION.
() The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for
his own personal benefit, any "Confidential Information" (as hereinafter
defined) either during his employment with the Company or following
termination of that employment for any reason (ii) at all times take all
precautions necessary to protect from loss or disclosure by him of any
and all documents or other information containing, referring or relating
to such Confidential Information, and (iii) upon termination of his
employment with the Company for any reason, the Executive shall promptly
return to the Company any and all documents or other tangible property
containing, referring or relating to such Confidential Information,
whether prepared by him or others.
() Notwithstanding any provision to the contrary in this
Paragraph 8(c), this paragraph shall not apply to information which the
Executive is called upon by legal process regular on its face (including,
without limitation, by subpoena or discovery requirement) to disclose or
to information which has become part of the public domain or is otherwise
publicly disclosed through no fault or action of the Executive.
() For purposes of this Agreement, "Confidential
Information" means any information relating in any way to the business of
the Company disclosed to or known to the Executive as a consequence of,
result of, or through the Executive's employment by the Company which
consists of technical and nontechnical information about the Company's
products, processes, computer programs, concepts, forms, business
methods, data, any and all financial and accounting data, marketing,
customers, customer lists, and services and information corresponding
thereto acquired by the Executive during the term of the Executive's
employment by the Company. Confidential Information shall not include any
of such items which are published or are otherwise part of the public
domain, or freely available from trade sources or otherwise.
() Upon termination of this Agreement for any reason,
the Executive shall turn over to the Company all tangible property then
in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of
computer programs, correspondence, memoranda, reports, notebooks,
drawings, photographs, or other documents which constitute Confidential
Information.
. INJUNCTIVE RELIEF. The parties hereto agree that the
remedy at law for any breach of the provisions of this Section 8 will be
inadequate and that the Company or any of its subsidiaries or other
successors or assigns shall be entitled to injunctive relief without
bond. Such injunctive relief shall not be exclusive, but shall be in
addition to any other rights and remedies Company or any of its
subsidiaries or their successors or assigns might have for such breach.
. MISCELLANEOUS.
. NOTICES. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth
below by registered or certified mail, return receipt requested or sent
by overnight express mail or courier or facsimile to such address, if a
party has a facsimile machine. Notice shall be deemed to have been given
and received when so hand-delivered or after three (3) business days when
so deposited in the U.S. Mail, or when transmitted and received by
facsimile or sent by express mail properly addressed to the other party.
The addresses are:
To the Company:
IFS International, Inc.
185 Jordan Road
Troy, New York 12180
Facsimile No.: (518) 283-7336 Attn: President
To the Executive:
Frank A. Pascuito
1 Feather Foil Way
Ballston Spa, NY 12020
The foregoing addresses may be changed at any time by notice given in the
manner herein provided.
. INTEGRATION; MODIFICATION. This Agreement constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its
subject matter. This Agreement may not be modified except by a written
agreement signed by the Executive and a duly authorized officer of the
Company.
. ENFORCEABILITY. If any provision of this Agreement shall
be invalid or unenforceable, in whole or in part, such provision shall be
deemed to be modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed
excised from this Agreement, as the case may require, and this Agreement
shall be construed and enforced to the maximum extent permitted by law as
if such provision had been originally incorporated herein as so modified
or restricted, or as if such provision had not been originally
incorporated herein, as the case may be.
. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective
heirs, executors, successors and assigns, except that this Agreement may
not be assigned by the Executive.
. WAIVER OF BREACH. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained
in this Agreement, whether by conduct or otherwise, in any one (1) or
more instances shall be deemed or construed as a further or continuing
waiver of any such condition or breach or a waiver of any other
condition, or the breach of any other term or covenant set forth in this
Agreement. Moreover, the failure of either party to exercise any right
hereunder shall not bar the later exercise thereof with respect to other
future breaches.
. GOVERNING LAW. This Agreement shall be governed by the
internal laws of the State of New York.
. HEADINGS. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not
be considered in interpreting this Agreement.
. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
. DUE AUTHORIZATION. The Company represents that all
corporate action required to authorize the execution, delivery and
performance of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and, on behalf of the Company, by its duly authorized officer
on the day and year first above written.
IFS INTERNATIONAL, INC.
By: /S/ CHARLES J. CASERTA
Charles J. Caserta, President
/S/ FRANK A. PASCUITO
Frank A. Pascuito, Executive
<PAGE>
SCHEDULE A
No commissions shall be paid on license agreements relating to
the first seven sites of the Visa Smart Card pilot program and thereafter
only if the license agreement was obtained through the efforts of
Executive.
Commissions may be reduced on designated house accounts. The
accounts and commissions shall be determined by the Board of Directors.
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of
January 1, 1997 by and between IFS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and CHARLES J. CASERTA residing at 17 Shadow
Wood Way, Ballston Lake, New York 12019 (the "Executive").
The Executive is being employed by the Company as an executive
officer. The parties desire to enter into an employment agreement and to
set forth herein the terms and conditions of the Executive's continued
employment by the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and the mutual benefits to be derived
herefrom, the Company and the Executive agree as follows:
. EMPLOYMENT.
. DUTIES. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its President. The Executive
accepts such employment with the Company and shall perform and fulfill
such duties as are assigned to him hereunder consistent with his status
as a senior executive of the Company, devoting his best efforts and
entire professional time and attention to the performance and fulfillment
of his duties and to the advancement of the interests of the Company,
subject only to the direction, approval, control and directives of the
Company's Board of Directors (the "Board"). Nothing contained herein
shall be construed, however, to prevent the Executive from trading in or
managing, for his own account and benefit, in stocks, bonds, securities,
real estate, commodities or other forms of investments (subject to law
and Company policy with respect to trading in Company securities).
Without any additional consideration, Executive shall also continue to
serve as an employee and officer of any or all subsidiaries of the
Company. Unless otherwise indicated by the context, the term "Company"
shall include the Company and all its subsidiaries.
. PLACE OF PERFORMANCE. In connection with his employment by
the Company, the Executive shall be based at the Company's principal
place of business in the Albany metropolitan area except when required
for travel on Company business.
. TERM. The Executive's employment under this Agreement shall
commence as of January 1, 1997 (the "Commencement Date") and shall,
unless sooner terminated in accordance with the provisions hereof,
continue uninterrupted until December 31, 1999 (the "Term"). As used
herein "Year" shall refer to a twelve month period ending December 31st.
Unless notice of nonrenewal is given by either party at least sixty (60)
days prior to the end of the Term or prior to the end of any Year
thereafter, the Term of this Agreement shall be automatically extended
for an additional period of one year.
. COMPENSATION.
. BASE SALARY. During the first two (2) Years of the Term,
the Executive shall be entitled to receive an annual salary (the "Base
Salary") of One Hundred Ten Thousand Dollars ($110,000) payable in
installments at such times as the Company customarily pays its other
executive officers (but in any event not less often than monthly). For
each Year thereafter, the Company shall increase the Base Salary by an
amount to be determined by the Board of Directors.
. COMMISSIONS. Except as described hereinafter or in
Schedule A, during each year, Executive shall also receive a commission
of 8% of revenues in excess of $425,000 derived from installations of the
Company's products pursuant to license agreements obtained hereinafter
through the efforts of Executive. The board of directors shall resolve
any dispute with Executive concerning whether commissions shall be
credited to Executive as a result of his efforts in obtaining any license
agreement. The maximum commission payable to all personnel of the
Company on revenues derived from any agreement shall not exceed 8% of
such revenues.
. BONUS. The Board of Directors may at its sole discretion
grant bonuses to the Executive.
. HEALTH INSURANCE AND OTHER BENEFITS. During the Term, the
Executive shall be entitled to all employee benefits generally offered by
the Company to its executive officers and key management employees,
including, without limitation, all pension, profit sharing, retirement,
stock option, salary continuation, deferred compensation, disability
insurance, hospitalization insurance, major medical insurance, medical
reimbursement, survivor income, life insurance or any other benefit plan
or arrangement established and maintained by the Company, subject to the
rules and regulations then in effect regarding participation therein.
. OPTIONS. Executive shall receive stock options to
purchase 75,000 shares of the Company's Common Stock at an exercise price
of $5.00 per share at any time during the ten year period following the
commencement of this Agreement. Such options shall not be pursuant to
any stock option plan and shall be in a form mutually agreeable to the
Executive and the Company.
. REIMBURSEMENT OF EXPENSES. The Executive shall be reimbursed
for all items of travel, entertainment and miscellaneous expenses that
the Executive reasonably incurs in connection with the performance of his
duties hereunder, provided the Executive submits to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
. AUTOMOBILE ALLOWANCE. The Executive shall be reimbursed for the
expenses of owning or leasing an automobile suitable for his position
and consistent with Company practices during 1996, including the expenses
of operating, insuring and parking such automobile, provided the
Executive submits to the Company such statements and other evidence
supporting such expenses as the Company may require.
. VACATION. The Executive shall be entitled to not less than
three (3) weeks of vacation in any calendar year.
. TERMINATION OF EMPLOYMENT.
. DEATH OR TOTAL DISABILITY. In the event of the death of
the Executive during the Term, this Agreement shall terminate as of the
date of the Executive's death. In the event of the Total Disability (as
that term is defined below) of the Executive for sixty (60) days in the
aggregate during any consecutive nine (9) month period during the Term,
the Company shall have the right to terminate this Agreement by giving
the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty (30) day period, the Executive's employment
under this Agreement shall terminate. If the Executive shall resume his
duties within thirty (30) days after receipt of such a notice of
termination and continue to perform such duties for four (4) consecutive
weeks thereafter, this Agreement shall continue in full force and effect,
without any reduction in Base Salary and other benefits, and the notice
of termination shall be considered null and void and of no effect. Upon
termination of this Agreement under this Paragraph 7(a), the Company
shall have no further obligations or liabilities under this Agreement,
except to pay to the Executive's estate or the Executive, as the case may
be, (i) the portion, if any, that remains unpaid of the Base Salary for
the Year in which termination occurred, but in no event less than six (6)
months' Base Salary; and (ii) the amount of any expenses reimbursable in
accordance with Paragraph 4 above, and any automobile allowance due under
Paragraph 5 above; and (iii) any amounts due under any Company benefit,
welfare or pension plan. Except as otherwise provided by their terms, any
stock options not vested at the time of the termination of this Agreement
under this Paragraph 7(a) shall immediately become fully vested.
The term "Total Disability," as used herein, shall mean a
mental or physical condition which in the reasonable opinion of an
independent medical doctor selected by the Company renders the Executive
unable or incompetent to carry out the material duties and
responsibilities of the Executive under this Agreement at the time the
disabling condition was incurred. In the event the Executive disagrees
with such opinion, the Executive may, at his sole expense, select an
independent medical doctor and, in the event that doctor disagrees with
the opinion of the doctor selected by the Company, they shall select a
third independent medical doctor, and the three doctors shall, by
majority vote, determine whether the employee has suffered Total
Disability. The expense of the third doctor shall be shared equally by
the Company and the Executive. Notwithstanding the foregoing, if the
Executive is covered under any policy of disability insurance under
Paragraph 3(d) above, under no circumstances shall the definition of
Total Disability be different from the definition of that term in such
policy.
. DISCHARGE FOR CAUSE. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement the
Company shall have "Cause" to terminate the Executive's employment if the
Executive, in the reasonable judgment of the Company, (i) materially
breaches any of his agreements, duties or obligations under this
Agreement and has not cured such breach or commenced in good faith to
correct such breach within thirty (30) days after notice; (ii) fails to
carry out a lawful directive of the Board; (iii) embezzles or converts to
his own use any funds of the Company or any client or customer of the
Company; (iv) converts to his own use or unreasonably destroys,
intentionally, any property of the Company, without the Company's
consent; (v) is convicted of a crime; (vi) is adjudicated an incompetent;
or (vii) is habitually intoxicated or is diagnosed by an independent
medical doctor to be addicted to a controlled substance (any disagreement
of Executive shall be resolved using the procedure provided in Paragraph
7(a) above).
. TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement for the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty
(30) days after notice ("Good Reason").
. RESTRICTIVE COVENANT.
. COMPETITION. Executive undertakes and agrees that during
the term of this Agreement and for a period of two (2) years after the
date of termination of this Agreement pursuant to Section 7(b) or for a
period of one (1) year after the date of termination if this Agreement is
not renewed, he will not compete, directly or indirectly, or participate
as a director, officer, employee, agent, consultant, representative or
otherwise, or as a stockholder (except as a stockholder in a corporation
whose shares are traded on The Nasdaq Stock Market or a national
securities exchange, provided that such ownership shall not exceed 3% of
the outstanding stock of such corporation), partner or joint venturer, or
have any direct or indirect financial interest, including, without
limitation, the interest of a creditor, in any business competing
directly or indirectly with the business of the Company or any of its
subsidiaries. Executive further undertakes and agrees that during the
term of the Agreement and for a period of two (2) years after the date of
termination of this Agreement pursuant to Section 7(b) or for a period of
one (1) year after the date of termination if this Agreement is not
renewed, he will not, directly or indirectly employ, cause to be
employed, or solicit for employment any of Company's or its subsidiaries'
employees. The provisions of this Section 8(a) shall not apply if the
Agreement is terminated by Executive pursuant to Section 7(c).
. SCOPE OF COVENANT. Should the duration, geographical area
or range or proscribed activities contained in Paragraph 8(a) above be
held unreasonable by any court of competent jurisdiction, then such
duration, geographical area or range of proscribed activities shall be
modified to such degree as to make it or them reasonable and enforceable.
. NON-DISCLOSURE OF INFORMATION.
() The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for
his own personal benefit, any "Confidential Information" (as hereinafter
defined) either during his employment with the Company or following
termination of that employment for any reason (ii) at all times take all
precautions necessary to protect from loss or disclosure by him of any
and all documents or other information containing, referring or relating
to such Confidential Information, and (iii) upon termination of his
employment with the Company for any reason, the Executive shall promptly
return to the Company any and all documents or other tangible property
containing, referring or relating to such Confidential Information,
whether prepared by him or others.
() Notwithstanding any provision to the contrary in this
Paragraph 8(c), this paragraph shall not apply to information which the
Executive is called upon by legal process regular on its face (including,
without limitation, by subpoena or discovery requirement) to disclose or
to information which has become part of the public domain or is otherwise
publicly disclosed through no fault or action of the Executive.
() For purposes of this Agreement, "Confidential
Information" means any information relating in any way to the business of
the Company disclosed to or known to the Executive as a consequence of,
result of, or through the Executive's employment by the Company which
consists of technical and nontechnical information about the Company's
products, processes, computer programs, concepts, forms, business
methods, data, any and all financial and accounting data, marketing,
customers, customer lists, and services and information corresponding
thereto acquired by the Executive during the term of the Executive's
employment by the Company. Confidential Information shall not include any
of such items which are published or are otherwise part of the public
domain, or freely available from trade sources or otherwise.
() Upon termination of this Agreement for any reason,
the Executive shall turn over to the Company all tangible property then
in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of
computer programs, correspondence, memoranda, reports, notebooks,
drawings, photographs, or other documents which constitute Confidential
Information.
. INJUNCTIVE RELIEF. The parties hereto agree that the
remedy at law for any breach of the provisions of this Section 8 will be
inadequate and that the Company or any of its subsidiaries or other
successors or assigns shall be entitled to injunctive relief without
bond. Such injunctive relief shall not be exclusive, but shall be in
addition to any other rights and remedies Company or any of its
subsidiaries or their successors or assigns might have for such breach.
. MISCELLANEOUS.
. NOTICES. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth
below by registered or certified mail, return receipt requested or sent
by overnight express mail or courier or facsimile to such address, if a
party has a facsimile machine. Notice shall be deemed to have been given
and received when so hand-delivered or after three (3) business days when
so deposited in the U.S. Mail, or when transmitted and received by
facsimile or sent by express mail properly addressed to the other party.
The addresses are:
To the Company:
IFS International, Inc.
185 Jordan Road
Troy, New York 12180
Facsimile No.: (518) 283-7336 Attn: President
To the Executive:
Charles J. Caserta
17 Shadow Wood Way
Ballston Lake, New York 12019
The foregoing addresses may be changed at any time by notice given in the
manner herein provided.
. INTEGRATION; MODIFICATION. This Agreement constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its
subject matter. This Agreement may not be modified except by a written
agreement signed by the Executive and a duly authorized officer of the
Company.
. ENFORCEABILITY. If any provision of this Agreement shall
be invalid or unenforceable, in whole or in part, such provision shall be
deemed to be modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed
excised from this Agreement, as the case may require, and this Agreement
shall be construed and enforced to the maximum extent permitted by law as
if such provision had been originally incorporated herein as so modified
or restricted, or as if such provision had not been originally
incorporated herein, as the case may be.
. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective
heirs, executors, successors and assigns, except that this Agreement may
not be assigned by the Executive.
. WAIVER OF BREACH. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained
in this Agreement, whether by conduct or otherwise, in any one (1) or
more instances shall be deemed or construed as a further or continuing
waiver of any such condition or breach or a waiver of any other
condition, or the breach of any other term or covenant set forth in this
Agreement. Moreover, the failure of either party to exercise any right
hereunder shall not bar the later exercise thereof with respect to other
future breaches.
. GOVERNING LAW. This Agreement shall be governed by the
internal laws of the State of New York.
. HEADINGS. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not
be considered in interpreting this Agreement.
. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
. DUE AUTHORIZATION. The Company represents that all
corporate action required to authorize the execution, delivery and
performance of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and, on behalf of the Company, by its duly authorized officer
on the day and year first above written.
IFS INTERNATIONAL, INC.
By: /S/ FRANK A. PASCUITO
Frank A. Pascuito,
Chief Executive Officer
/S/ CHARLES J. CASERTA
Charles J. Caserta, Executive
<PAGE>
SCHEDULE A
No commissions shall be paid on license agreements relating to
the first seven sites of the Visa Smart Card pilot program and thereafter
only if the license agreement was obtained through the efforts of
Executive.
Commissions may be reduced on designated house accounts. The
accounts and commissions shall be determined by the Board of Directors.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 414,487
<SECURITIES> 0
<RECEIVABLES> 746,192
<ALLOWANCES> 7,900
<INVENTORY> 0
<CURRENT-ASSETS> 1,400,307
<PP&E> 655,980
<DEPRECIATION> 444,988
<TOTAL-ASSETS> 2,228,203
<CURRENT-LIABILITIES> 2,255,095
<BONDS> 0
0
0
<COMMON> 10,610
<OTHER-SE> (465,694)
<TOTAL-LIABILITY-AND-EQUITY> 2,228,203
<SALES> 2,658,201
<TOTAL-REVENUES> 2,658,201
<CGS> 621,982
<TOTAL-COSTS> 1,664,040
<OTHER-EXPENSES> 153,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,312
<INCOME-PRETAX> 218,867
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,867
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
