As filed with the Securities and Exchange Commission on March 5, 1997
Registration No. 333-15011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 to
FORM SB-2
REGISTRATION STATEMENT
Under THE SECURITIES ACT OF 1933
GENISYS RESERVATION SYSTEMS, INC.
(Name of small business issuer in charter)
New Jersey 7872 22-2719541
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification I.D. Number)
incorporation Code Number)
or organization)
(Address and telephone number, of registrant's
principal executive offices)
2401 Morris Avenue, 3rd Floor
Union, NJ 07083
(908) 810-8767
(Address of principal place of business or
intended principal place of business)
(Name, address and telephone number, of agent for service)
JOHN H. WASKO
c/o Genisys Reservation Systems, Inc.
2401 Morris Avenue, 3rd Floor
Union, NJ 07083
(908) 810-8767
Please send a copy of all communications to:
DAVID W. SASS, ESQ. William J. Davis
McLaughlin & Stern, LLP Scheichet & Davis, P.C.
260 Madison Avenue 505 Park Avenue, 20th Floor
New York, New York 10016 New York, New York 10022
(212) 448-1100 (212) 688-3200
Fax(212) 448-0066 Fax(212) 371-7634
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. []_____
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
[]---
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act of 1933, check the following box [x]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. []
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Security Being Offering Price Aggregate Offering
Registration
Being Registered Registered Per Unit/Share (1) Price Fee
- --------------------------------------------------------------------------------------------------
Shares of Common Stock 1,035,000 $5.00 $5,175,000 $1,568.18
$.0001 par value(2)(3) Shares
Class A Common Stock 1,725,000 $0.20 $ 345,000 $ 104.55
Warrants(2)(3) Warrants
Shares of Common Stock 1,725,000 $5.75 $9,918,750 $3,005.68
underlying the Class A Shares
Warrants(2)(3)(4)
Class B Common Stock 1,035,000 $0.10 $ 103,500 $ 31.36
Warrants(2)(3) Warrants
Shares of Common Stock 1,035,000 $6.75 $6,986,250 $2,117.05
underlying the Class B Shares
Warrants(2)(3)(4)
Class A Common Stock
Warrants(5) 287,500 $ .01 $ 2,875 $ .87
Shares of Common Stock 287,500 $5.75 $1,653,125 $ 500.95
underlying Class A
Warrants issued in a
private placement(5)
Underwriter's Warrant 90,000 $ .0001 $ 9 $ .01
to purchase Common Shares
Stock(2)
Class A Warrants(2) 150,000 $ .0001 $ 15 $ .01
Warrants
Class B Warrants(2) 90,000 $ .0001 $ 9 $ .01
Warrants
Underwriter's Shares 90,000 $6.00 $ 540,000 $ 163.64
of Common Stock(2) Shares
Shares of Common Stock 150,000 $6.90 $ 1,035,000 $ 313.64
Underlying Under- Shares
writer's Warrant to
Purchase Class A
Warrants(2)(3)
Shares of Common Stock 90,000 $8.10 $ 729,000 $ 220.91
Underlying Under- Shares
writer's Warrant to
Purchase Class B
Warrants(2)(3)
TOTAL $8,026.86
---------
Paid on Account 8,026.86
---------
Balance Due $ -0-
</TABLE>
3
<PAGE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Securities being registered for sale by the Company.
(3) Includes an additional 135,000 shares of Common Stock, 225,000 Class A
Warrants, 225,000 shares of Common Stock underlying the Class A
Warrants, 135,000 Class B Warrants and 135,000 shares of Common Stock
underlying the Class B Warrants as part of the Underwriter's
Overallotment Option.
(4) Pursuant to Rule 416 there are also being registered such additional
shares as may be issued as a result of the anti-dilution provisions of
the Common Stock Purchase Warrants and the Representative's Warrant.
(5) Securities being registered for resale only.
------------------------------
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
-----------------------------
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<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering of Common Stock
and Class A and Class B Redeemable Warrants by Genisys Reservation Systems, Inc.
("Company") and the offering of securities by certain selling stockholders
("Selling Stockholders"). The Company is registering under the primary
prospectus ("Primary Prospectus") 900,000 Shares of Common Stock, 1,500,000
Class A Redeemable Warrants, and 900,000 Class B Redeemable Warrants for sale by
the Underwriter. The Selling Stockholders are registering, under an alternate
prospectus ("Alternate Prospectus") 287,500 Class A Warrants and 287,500 shares
of Common Stock underlying outstanding Class A Warrants. The Alternate
Prospectus pages, which follow the Primary Prospectus, contain certain sections
which are to be combined with all of the sections contained in the Primary
Prospectus, with the exceptions of the front and back cover pages and the
section entitled "The Offering." Furthermore, all references contained in the
Alternate Prospectus to the "Offering" shall refer to the Company's offering
under the Primary Prospectus.
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<PAGE>
GENISYS RESERVATION SYSTEMS, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Item Caption Location
1. Forepart of Registration Statement Outside Front Cover
Page and Outside Front
Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Back
Outside Pages of Prospectus Cover Pages
3. Summary Information and Risk Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting; Risk
Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings Risk Factors; Business
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of
Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Underwriting-
Indemnification for Securities Act Indemnification
15. Organization Within Last Five Years Not Applicable
16. Description of Business Business; Risk
Factors; Financial
Statements; Selected
Financial Data;
Prospectus Summary;
Use of Proceeds
6
<PAGE>
17. Management's Discussion and Analysis Management's
or Plan of Operation Discussion and
Analysis of Financial
Condition and Results
of Operation
18. Description of Property Business-Properties
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Market Information;
Stockholder Matters Prospectus Summary
21. Executive Compensation Management-Executive
Compensation
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
7
<PAGE>
Subject to Completion dated March 5, 1997
PROSPECTUS
GENISYS RESERVATION SYSTEMS, INC.
900,000 Shares of Common Stock
1,500,000 Class A Redeemable Warrants
900,000 Class B Redeemable Warrants
Genisys Reservation Systems, Inc., a New Jersey corporation
("Company"), hereby offers through R.D. White & Co., Inc.
("Underwriter") 900,000 shares ("Shares") of Common Stock, par
value $.0001 per share ("Common Stock"), and 2,400,000 redeemable
warrants ("Redeemable Warrants"), 1,500,000 of which will be "Class
A Redeemable Warrants" and 900,000 of which will be "Class B
Redeemable Warrants," at an anticipated public offering price of
$5.00 per share of Common Stock, $.20 per Class A Redeemable
Warrant and $.10 per Class B Redeemable Warrant (the Common Stock
and Redeemable Warrants collectively referred to as the
"Securities"). The Common Stock, Class A Warrants and Class B
Warrants will be offered separately. See "Underwriting."
Each Redeemable Warrant shall be exercisable for a period of 48 months,
commencing six (6) months from the date on which the registration statement
("Registration Statement") of which this prospectus ("Prospectus") forms a part
is declared effective ("Effective Date") by the Securities and Exchange
Commission ("Commission"). Each Class A Redeemable Warrant shall entitle the
holder to acquire one share of Common Stock at a price equal to $5.75 per share.
Commencing 12 months after the Effective Date, the Company will have the right
at any time to redeem all, but not less than all, of the Class A Redeemable
Warrants at a price equal to twenty cents ($.20) per Class A per Redeemable
Warrant, provided that the closing bid price of the Common Stock equals or
exceeds $6.25 per share for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. Each Class B Redeemable Warrant shall
entitle the holder to acquire one share of the Common Stock at a price equal to
$6.75 per share. Commencing 12 months after the Effective Date, the Company will
have the right at any time to redeem all, but not less than all, of the Class B
Redeemable Warrants at a price equal to ten cents ($.10) per Class B Redeemable
Warrant, provided that the closing bid price of the Common Stock equals or
exceeds $7.25 per share for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. See "Descriptions of Securities."
8
<PAGE>
The Underwriting Agreement prohibits the Company from issuing any
capital stock or other securities without the Underwriter's prior consent for a
period of eighteen (18) months following the date of this Prospectus. This
provision may limit the Company's ability to raise additional equity capital.
AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN INVOLVES A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" AND "DILUTION."
SUCH SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Price to Public Underwriting Discounts Proceeds to
and Commissions (1) Company(2)
Per Share offered by $5.00 $.50 $4.50
Company............
Per Class A Redeemable $.20 $.02 $.18
Warrant offered by
Company..........
Per Class B Redeemable $.10 $.01 $.09
Warrant offered by
Company..........
Total(3)..... $4,890,000 $489,000 $4,401,000
- --------------------------- --------------------------- -------------------------- --------------------------
</TABLE>
R.D. White & Co., Inc.
-----------------
The Date of this Prospectus is _________, 1997
- ---------------
(1) Does not include additional underwriting compensation to be
paid by the Company to the Underwriter in the form of a non-
accountable expense allowance of $146,700 ("Non-Accountable
Expense Allowance") equal to 3% of the aggregate public
offering price of the Securities or $168,705 assuming exercise
in full of the Over-Allotment Option (as defined below),
$50,000 of which has been advanced to the Underwriter.
(2) Exclusive of exercise of the Over-Allotment Option (as defined
below) and before deducting expenses payable by the Company
9
<PAGE>
estimated at $381,700 (including the Underwriter's Non-Accountable
Expense Allowance of $146,700 payable by the Company). After deducting
such expenses and applicable underwriting discounts, the net proceeds
to the Company, exclusive of the exercise of the Over-Allotment Option
(as defined below), will be approximately $4,019,300.
(3) The Company has granted an option to the Underwriter to
purchase all or part of an additional 15% of the Shares of
Common Stock and Redeemable Warrants from the Company to cover
over-allotments for a period of forty five (45) days from the
Effective Date upon the same terms and conditions ("Over-
Allotment Option"). If the Over-Allotment Option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $5,623,500,
$562,350 and $5,061,150, respectively (exclusive of other
expenses payable by the Company of $235,000 and the Non-
Accountable Expense Allowance of $168,705). Assuming exercise
of the Over-Allotment Option and after deducting expenses and
applicable Underwriting Discounts, the net proceeds to the
Company will be approximately $4,657,445. See "Underwriting."
Prior to the Company's public offering as described herein, there has
been no active public market for the Common Stock or the Redeemable Warrants and
no assurance may be given that a public market will develop following the
completion of the offering or that, if any such market does develop, it will be
sustained. The Company has applied to have the Securities listed for quotation
on The NASDAQ SmallCap MarketSM ("NASDAQ") under the symbols: "GENS," "GENSW,"
and GENSZ," respectively. There can be no assurance given that the Company will
be able to satisfy on a continuing basis the requirements for quotation of such
securities on NASDAQ. See "Risk Factors - No Assurances of Public Market or
Continued NASDAQ Listing," and "Risk Factors - Risk of Penny Stock Regulations".
The Securities being offered for sale by the Company are being offered
on a firm commitment basis, subject to prior sale, when, as and if delivered to
and accepted by the Underwriter pursuant to the terms of the Underwriting
Agreement relating to the offering. See "Underwriting." It is expected that
delivery of certificates representing the securities being offered by the
Company will be made against payment therefor at the offices of the Underwriter
on or about ______, 1997. See "Available Information."
The Registration Statement of which this Prospectus forms a part but
with a different Prospectus cover page ("Alternate Prospectus") also relates to
the offer and sale of 287,500 Class A Redeemable Warrants and 287,500 shares of
Common Stock issuable upon exercise of 287,500 outstanding Class A Redeemable
Warrants which were previously issued by the Company to the holders thereof and
are to be offered and sold by such stockholders ("Selling Stockholders"). The
Class A Redeemable Warrants are exercisable at
10
<PAGE>
$5.75 per share. Such securities are subject to an 18 month lock-up by the
Underwriter. The shares are being offered by the Selling Stockholders and are
being registered for resale purposes only pursuant to the Alternate Prospectus.
Sales of the securities to be offered by the Selling Stockholders (or even the
potential of such sales) would likely have an adverse effect on the market
prices of the securities being offered by the Company. The Company will not
receive the proceeds of any sale of such securities by the Selling Stockholders
but may receive proceeds from the exercise of the Redeemable Warrants covered by
such shares if such Redeemable Warrants are exercised, as to which there can be
no assurance. The Selling Stockholders will receive the proceeds from the sale,
if any, of the securities to be offered by Selling Stockholders. Except as
otherwise set forth herein, the costs incurred in connection with the
registration of such securities are to be borne by the Company. See "Selling
Stockholders."
For a period of time, the Company was not in compliance with the filing
requirements of the Securities Exchange Act of 1934 ("Exchange Act") and may be
subject to legal liability as a result thereof. See "Risk Factors -
Non-Compliance with Exchange Act Reporting Requirements".
As of February 6, 1997 there were 771 shareholders of record of the
Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALTHOUGH IT HAS NO LEGAL OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM
TIME TO TIME ACT AS A MARKET-MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE
COMPANY'S SECURITIES. THE UNDERWRITER WILL NOT ACT AS A MARKET-MAKER UNTIL SUCH
TIME AS ITS PARTICIPATION IN THIS OFFERING IS COMPLETE. THE UNDERWRITER, IF IT
PARTICIPATES IN THE MARKET, MAY BE A DOMINATING INFLUENCE IN ANY MARKET THAT
MIGHT DEVELOP FOR ANY OF THE COMPANY'S SECURITIES. SUCH ACTIVITIES, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME OR FROM TIME TO TIME. THEREFORE,
THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREUNDER MAY BE
AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITER'S PARTICIPATION IN THE
MARKET. SEE "RISK FACTORS" AND "UNDERWRITING."
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act") and in accordance
therewith presently files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected at the Commission's public reference room located in Room 1024 at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials may also be obtained at prescribed
rates from the Public Reference Section of the Commission located in Room 1024
at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed a Registration Statement relating to the
securities offered hereby with the Commission pursuant to the provisions of the
Securities Act of 1933, as amended ("Securities Act"). Although this Prospectus
forms a part of the Registration Statement, it does not contain all of the
information set forth in the Registration Statement, the exhibits or the
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement, the
exhibits and the schedules thereto. All material elements of documents
referenced in the Registration Statement are set forth in the prospectus
disclosure herein. Reference is also made to the copy of such document which has
been filed as an exhibit to the Registration Statement.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
data (including any financial statements and the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share and per
share amounts set forth hereinafter have been adjusted to reflect the reverse
split on a one-for-two basis effectuated in July 1996. Each prospective investor
is urged to read this Prospectus in its entirety.
The Company
The principal business activity of Genisys Reservation Systems, Inc.
("Company") is developing a computerized limousine reservation and payment
system for the business traveler. The management of the Company anticipates that
the proprietary software that is being developed will enable limousine
reservations to be completely computerized i.e., be entirely automatic and
operate without human intervention except for the initial inputing of travel
information. Genisys Reservation Systems, Inc. is a development stage company
and has no commercially available products at the present time.
At the present time, there are four major airline computer reservation
systems in operation in the United States -- "Sabre", "Worldspan", "Apollo" and
"System One" (each reservation system referred to hereinafter as a "CRS"). Each
CRS allows a travel agency or corporate travel department to make an airline
reservation and receive instantaneously a confirmation and a printed airline
ticket on any airline. It is also possible to make a hotel reservation with any
of the major hotel chains through any CRS and receive an instantaneous
confirmation of room availability. Additionally, a travel agent or corporate
travel manager may make an automobile reservation with any of the major car
rental companies (Hertz, Avis and the like) through any CRS and receive an
immediate confirmation of the car rental reservation.
When it comes to limousine reservations, however, there is at present
no method for making a reservation through a CRS and receiving an immediate
guaranteed confirmation. The usual method of making a limousine reservation in a
destination city is to call a limousine company, if the corporate travel
department or travel agent knows of one. This use of the telephone, with its
attendant inconveniences such as "telephone tag" and missed communications,
13
<PAGE>
can make securing a confirmed limousine reservation inconvenient.
The Company seeks to solve this problem by:
1. developing a limousine reservation system that utilizes
the CRS` already in use;
2. developing a way to identify and qualify the best
limousine service providers in the cities that are the business
travelers most frequent destinations;
3. developing a way to disseminate reservation information to
corporate clients and to limousine service providers with no
errors, with immediate confirmation and without the need to utilize
the telephone;
4. developing an automated electronic payment system to
process all fees charged by the Company to its clients;
5. performing the above-described tasks with a high degree of
quality control; and
6. providing corporate clients with precise management and
financial information, to enable them to ascertain where their
money is being spent.
The Company was organized on April 25, 1986 under the name of
JEC02 Lasers, Inc. and changed its name to Robotic Lasers, Inc. on
December 22, 1987. It changed its name to Genisys Reservation
Systems, Inc. on July 16, 1996. The Company's executive offices
are at 2401 Morris Avenue, Union, NJ 07083, and its telephone
number is 908-810-8767.
14
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
The Offering
Securities Offered 900,000 shares of Common Stock, par
value $.0001, per share ("Common
Stock") and 2,400,000 redeemable
warrants ("Redeemable Warrants"),
1,500,000 of which will be "Class A
Redeemable Warrants" and 900,000 of
which will be "Class B Redeemable
Warrants."
Offering Price $5.00 per Share of Common Stock
$0.20 per Class A Redeemable Warrant
$0.10 per Class B Redeemable Warrant
The Redeemable Warrants Each Redeemable Warrant shall be
exercisable for a period of 48
months, commencing six (6) months
from the date on which the
registration statement
("Registration Statement") of which
this prospectus ("Prospectus") forms
a part is declared effective
("Effective Date") by the Securities
and Exchange Commission
("Commission"). Each Class A
Redeemable Warrant shall entitle the
holder to acquire one share of
Common Stock at a price equal to
$5.75 per share. Commencing 12
months after the Effective Date, the
Company will have the right at any
time to redeem all, but not less
than all, of the Class A Redeemable
Warrants at a price equal to ten
cents ($.10) per Redeemable Warrant,
provided that the closing bid price
of the Common Stock equals or
exceeds $6.25 per share for any
twenty (20) trading days within a
period of thirty (30) consecutive
trading days ending on the fifth
trading day prior to the date of the
notice of redemption. Each Class B
Redeemable Warrant shall entitle the
holder to acquire one share of the
Common Stock at a price equal to
$6.75 per share. Commencing 12
months after the Effective Date, the
15
<PAGE>
Company will have the right
at any time to redeem all,
but not less than all, of
the Class B Redeemable
Warrants at a price equal
to ten cents ($.10) per
Redeemable Warrant,
provided that the closing
bid price of the Common
Stock equals or exceeds
$7.25 per share for any
twenty (20) trading days
within a period of thirty
(30) consecutive trading
days ending on the fifth
trading day prior to the
date of the notice of
redemption.
Securities Outstanding Prior to the
Company's Offering
Common Stock 3,280,594 Shares
Class A Warrants 287,500
Securities Outstanding After the
Company's Offering:
Common Stock (1)(3) 4,195,594 Shares
Class A Warrants(2) 1,787,500 Warrants
Class B Warrants(2) 900,000 Warrants
Proposed NASDAQ SmallCap MarketSM
Symbols(4)
Common Stock GENS
Class A Warrants GENSW
Class B Warrants GENSZ
- ---------------
</TABLE>
(1) Does not include: (a) 2,400,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants; (b) 135,000
shares of Common Stock issuable upon exercise of the Over-
Allotment Option and 360,000 shares of Common Stock issuable
upon the exercise of the Redeemable Warrants contained
therein; and (c) 287,500 shares issuable upon exercise of
Class A Redeemable Warrants issued in a private placement in
May 1996. See "Description of Securities," and "Underwriting."
(2) Does not include the issuance of 360,000 Redeemable Warrants
issuable upon exercise of the Over-Allotment Option, but does
include 287,500 Class A Redeemable Warrants issued in a
private placement in May 1996. See "Underwriting" and
"Description of Securities."
(3) Includes 15,000 shares of Common Stock issuable upon the conversion of
two promissory notes at the completion of this Offering in the
principal amounts of $20,000 and $10,000,
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<PAGE>
respectively ("Convertible Notes").
(4) The Shares of Common Stock and the Class A Redeemable Warrants
and Class B Redeemable Warrants are expected to be listed for
quotation on NASDAQ under the symbols: "GENS", "GENSW" and
"GENSZ", respectively. There can be no assurance given that
the Company will be able to satisfy on a continuing basis the
requirements for quotation of such securities on NASDAQ. See
"Risk Factors" and "Market for the Company's Securities and
Other Related Stockholder Matters."
Risk Factors
An investment in any of the securities being offered hereby is
highly speculative and involves substantial risks including a
qualified independent auditors report, financial losses, limited
operations, early development stage of the Company, rapid
technological changes, market acceptance, dependence on existing
computer reservation systems, working capital, broad discretion in
application of proceeds, dependence upon a key individual, possible
need for additional financing, dependence on certain suppliers,
economic downturn, technological change, new product development,
product protection and infringement, and competition. See "Risk
Factors."
Use of Proceeds
The Company will receive the net proceeds of its offer and sale of the
Common Stock and Warrants of approximately $4,019,300 and intends to use the net
proceeds for the following: (i) approximately $850,000 for systems and
procedures development and additional equipment; (ii) approximately $563,500 for
repayment of outstanding indebtedness; and (iii) approximately $2,605,800 for
general working capital purposes. See "Risk Factors" and "Use of Proceeds."
17
<PAGE>
Summary Financial Information
The following summary of selected financial information concerning the
Company, other than the "As Adjusted" information reflecting the Company's
receipt and use of the net proceeds of its public offering (see "Use of
Proceeds"), have been derived from the financial statements (including the
related notes thereto) of the Company included elsewhere in this Prospectus
("Financial Statements").
SUMMARY STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Four Months Year Ended Period from
December 31, Ended December August 31, March 7, 1994
1996 31, 1996 1995 to August 31,
1994
Costs and $1,051,203 $ 293,210 $ 269,080 $ 31,510
Expenses
Net Loss $(1,051,203) $(293,210) $(269,080) $(31,510)
Net Loss Per $ (.36) $ (.11) $ (.16) $ (.02)
Share
SUMMARY BALANCE SHEET DATA:
December 31, 1996 December 31, 1996
December 31, As
1995 Adjusted(1)(2)
Working Capital $(814,504) $(600,043) $2,855,757
(Deficit)
Total Assets $ 352,685 $ 903,598 4,359,398
Long-term Debt $ 89,746 $ 1,603,257 1,009,757
Total Liabilities $ 927,566 $ 2,295,929 1,702,429
Stockholders' Equity $(574,881) $(1,392,331) 2,656,969
(Deficiency)
</TABLE>
(1) Includes the net proceeds (after Underwriting Commission,
Nonaccountable Expense Allowance and other estimated expenses) of the
offering contemplated herein of $4,019,300 and the repayment of
outstanding indebtedness of $563,500. See "Use of Proceeds".
(2) Includes the conversion of $30,000 of Convertible Notes payable into
15,000 shares of Common Stock upon the consummation of this Offering.
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<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK. SUCH SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE INVESTOR
SHOULD, PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS,
AS WELL AS ALL OF THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS
AND THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS, THE NOTES THERETO AND
THE DOCUMENTS REFERENCED HEREIN.
When used in this Prospectus, the words "may," "will," "expect", "anticipate,"
"continue," "estimate," "project," "intend" and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, operating results and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors are described under the headings "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "The Company," "Business" and
in the risk factors set forth below.
Qualified Independent Auditor's Report - Financial Losses and Going
Concern.
The financial statements have been prepared assuming that the Company
will continue as a going concern. At December 31, 1996, the Company had incurred
an accumulated deficit of ($1,645,003)as well as a working capital deficit of
($600,043). There is therefore substantial doubt as to the Company's ability to
continue as a going concern. Furthermore, no assurance can be given that the
Company's business strategy will prove successful or that the Company will
operate profitably. See "Business", "Financial Statements" and "Management's
Discussion and Analysis".
Limited Operations - No Revenues to Date
To date, the operations of the Company have been limited to market
research and development of a software and hardware system for computerizing the
limousine reservation and payment process. The Company has not yet generated any
revenues and will require further technical development within a period of the
next twelve months, as well as an additional investment of the proceeds from
this Offering before a determination of the system's commercial feasibility can
be made. No assurance can be given that the
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<PAGE>
Company's reservation and payment system will achieve commercial
feasibility. See "Business."
Development Stage of the Company
The Company is not sufficiently established to fully evaluate
or forecast its prospects. The Company is thus subject to all the
risks associated with the creation of a new business and there is
no assurance that it will be able to continue to function as a
viable entity. See "Business."
Rapid Technological Changes - Cost and Competition
The computer hardware and software industry is relatively new and has
undergone, and is expected to continue to undergo, significant and rapid
technological changes. Market penetration and customer acceptance of the
Company's system will depend upon the Company's ability to develop and maintain
a technically competent marketing force as well as its ability to adapt to rapid
technological changes in its industry. The Company also expects that new
competitors may introduce systems or services that are directly or indirectly
competitive with those of the Company. Such competitors may succeed in
developing systems and services that have greater functionality or are less
costly than the Company's systems and services and may be more successful in
marketing such systems and services. The Company is still developing its
products and none are currently available. See "Business."
No Assurance of Market Acceptance
The Company believes that its computerized limousine
reservation and payment system will gain acceptance among corporate
travel departments, however, there can be no assurance that a
sufficient number of corporate travel departments will be willing
to utilize the Company's system to enable the Company to achieve
profitable operations. See "Business."
Dependence on Existing Computer Reservation Systems
The Company is dependent on access to existing computer reservation
systems. If such systems were to experience technical difficulties or be unable
to operate for a period of time, the Company's business would be adversely
affected. In addition, the Company has agreements with three of the four CRS`.
There can be no assurance that such agreements will be renewed or renewed on
favorable terms after their expiration. Moreover, if such agreements were to
terminate and the Company were to lose access to such systems, its business
would be materially and adversely affected. See "Business."
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<PAGE>
Broad Discretion by Management in Application of Proceeds; Funding of Day to Day
Operations and Officers' Salaries; Repayment of Debt.
A portion (approximately $2,605,800 or 64.9%) of the net proceeds
derived from the sale of the Securities offered hereby will be added to the
Company's general working capital. Management will have complete discretion as
to the application of such funds, including payment of executive salaries and
fees relating to the day to day operations. In addition, $563,500, or 14% of the
net proceeds of the Offering will be used to repay certain debt of the Company.
See "Use of Proceeds."
The management of the Company also has broad discretion as to the
application and allocation of up to $16,353,125 of gross proceeds that may be
received upon exercise of the Redeemable Warrants. As a result of the foregoing,
the success of the Company will be substantially dependent upon the discretion
and judgment of the management of the Company with respect to the application
and allocation of the net proceeds hereof. Pending use of such proceeds, the net
proceeds of this offering will be invested by the Company in temporary,
short-term investment grade interest-bearing obligations. See "Use of Proceeds,"
"Business" and "Management."
Dependence Upon Key Individual; Thin Executive Management; Lack of
Independent Directors
The Company has only 2 executive officers and 3 non-executive employees
and has no independent Directors. Its success is dependent upon the activities
of Joseph Cutrona, its President. The loss of Mr. Cutrona's services through
death, disability or resignation would have a material and adverse effect on the
business of the Company. See "Management."
Non-Compliance with Exchange Act Reporting Requirements
Between November 1988 and December 1995, the Company was not in
compliance with the filing requirements of the Exchange Act. During such period,
the Company filed unaudited financial statements rather than the audited
financial statements required by the Exchange Act because it was unable to pay
for audited financial statements. The Company may be subject to legal liability
as a result thereof. If necessary, the Company may in the future use a portion
of the proceeds from this offering allocated to working capital to pay for
audited financial statements. See "Use of Proceeds."
Possible Need for Additional Financing
The Company intends to fund its operations and other capital needs for
the next twelve (12) months from the date of this offering substantially from
revenues generated by the Company's planned operations and the proceeds of this
offering, but there can
21
<PAGE>
be no assurance that such funds will be sufficient for these
purposes. There can be no assurance that such financing will be
available, or that it will be available on acceptable terms. See
"Use of Proceeds."
Dependence on Certain Suppliers
The Company is dependent on certain of its suppliers who are involved
with the development of the Company's system. Should the Company lose any such
suppliers, it would cause a delay in the Company's bringing its system to
market. The Company is dependent on two key suppliers who provide software
development services to the Company. Travel Automation Management provides the
"script" software programs which enable the Company's program to interact with
each of the airline computer reservation systems. Prosoft, Inc. has written all
the proprietary custom software for the Company's reservation system and is
presently completing the Company's payment system. Travel Automation
Management's services are provided on a purchase order/contract basis with
progress payment terms. Prosoft's services are provided under various formal
written consulting agreements. No assurance can be given that the Company will
be able to adequately replace these two suppliers in the event of a termination
of services by the suppliers to the Company. See "Business."
Adverse Effect of Economic Downturn
The Company's system, when operable, will be dependent on the
travel habits of its customers. In the event there is an economic
downturn or change in travel patterns, the Company's business could
be adversely affected. See "Business."
Continuing Voting Control by Current Officers and Directors
As of the date hereof, the management of the Company owns 2,684,627
shares of Common Stock. Consequently, immediately upon completion of the
Company's public offering of the Securities, the officers and directors of the
Company will own or control the voting of 63.99% of the Company's issued and
outstanding Common Stock, assuming no exercise of the Over-Allotment Option and
no exercise of the Redeemable Warrants. There are no cumulative voting rights
and directors must be elected by a plurality of the outstanding voting
securities entitled to vote. Therefore management of the Company will be in a
position to control the actions of the Company. See "Principal Stockholders" and
"Certain Transactions."
Limitations on Product Protection and Possibility of Infringement
The Company does not have any patents on any of its technology and
relies largely on copyright, its license agreements with customers and its own
security systems, confidentiality procedures
22
<PAGE>
and employee nondisclosure agreements to maintain the trade secrecy of its
proprietary information. There can be no assurance that the legal protections
and precautions taken by the Company, or available remedies, will be adequate to
prevent misappropriation of the Company's proprietary information. In addition,
these protections do not prevent independent third-party development of
functionally equivalent or superior systems, products or methodologies.
Moreover, there can be no assurance that third parties will not assert
infringement claims against the Company.
See "Business."
Likely Competition
Although, to the best of the knowledge of the management of the
Company, there are as yet no competitors, it must be assumed that if the
Company's efforts are successful, other companies will begin to offer competing
systems. These future competitors may well be companies which have substantially
greater research, development, marketing and financial resources than the
Company. Moreover, customers seeking limousine service will be able to reserve
such service through existing telephone based systems or alternative methods
which may indirectly compete with the Company.
See "Business."
Need for Highly Qualified Personnel
The success of the Company's business will depend upon its
ability to attract and retain personnel with a wide range of
technical capabilities. Competition for such personnel is intense,
and is expected to increase in the future. No assurance can be
given that the Company will be able to attract and retain such
personnel. See "Business."
Limited Lock-Up Agreement for Selling Stockholders.
The Registration Statement of which this Prospectus forms a part also
covers the registration of 287,500 Class A Redeemable Warrants and 287,500
shares of Common Stock issuable upon their exercise. These Warrants were issued
by the Company in a private placement. While these securities may not be sold
for eighteen (18) months from the date hereof pursuant to an agreement with the
Underwriter, such restriction may be released in the Underwriter`s sole
discretion at any time after all of the Securities offered hereby have been
sold. No assurance can be given that the Underwriter will not release this
lock-up before the eighteen (18) month period has expired.
Arbitrary Determination of Offering Price of Securities
The public offering price of the Securities and the exercise price of
the Redeemable Warrants were determined by negotiation between the Company and
the Underwriter and do not necessarily bear
23
<PAGE>
any relationship to the Company's assets, book value, net worth or any other
established criteria of value. Among the factors considered in determining such
prices were the Company's historical performance and growth, management's
assessment of the Company's business potential and earning prospects, the
prospects for growth in the industry in which the Company operates, market
prices and prevailing market conditions generally. Neither the offering price of
the Securities nor the exercise price of the Redeemable Warrants should be
regarded as indicative of the actual value of any of the securities being
offered by the Company. The trading price of the securities and/or exercise
price of the Redeemable Warrants could also be subject to significant
fluctuations in response to variations in quarterly results of operations,
announcements of new contracts or services by the Company or its competitors,
government regulatory action, general trends in the industry and other actions,
including extreme price and volume fluctuations which have been experienced by
the securities markets from time to time in recent years. See "Underwriting."
Immediate and Substantial Dilution
This Offering involves an immediate and substantial dilution of $4.49
or 89.8% per share between the net tangible book value per share of Common Stock
upon consummation of this Offering and the public offering price. To the extent
that any future financing involves the sale of the Company's equity securities,
the interests of the Company's then existing stockholders, including investors
in this Offering, could be substantially diluted. See "Dilution" and "Possible
Adverse Effect of Future Sales of Stock by Stockholders."
Absence of Dividends on Common Stock
The Company has not paid any dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, working capital
and earnings, if any, will be retained for use in the Company's business
operations and in the expansion of its business. The Company has no present
intention to pay cash dividends on its Common Stock. See "Dividend Policy" and
"Description of Securities."
Potential Presence of Non-Voting Observer at Directors` Meetings
The Underwriting Agreement grants the Underwriter the right to appoint
a designee to attend all of the Company's Directors` meetings for a period of
five (5) years. Such person would not owe the Company or its stockholders any
fiduciary duty under state law as would the Company's actual Directors and
executive officers. No assurance can be given that the Company or its
stockholders would have any legal remedy against such potential designee if such
person were to take any action that might be found to be a breach of fiduciary
duty had such action been taken by an actual Director.
24
<PAGE>
Possible Adverse Effect of Future Sales of Stock by Stockholders
Of the Company's 3,280,594 outstanding shares of Common Stock prior to
the Offering contemplated hereby, 3,084,784 shares are "restricted securities"
as that term is defined under the Securities Act and in the future may only be
sold in compliance with Rule 144 promulgated under the Securities Act or
pursuant to an effective registration statement. Rule 144 provides, in essence,
that a person (including a group of persons whose shares are aggregated) who has
satisfied a two-year holding period for such restricted securities may sell
within any three-month period, under certain circumstances, an amount of
restricted securities which does not exceed the greater of 1% of that class of
the Company's outstanding securities or the average weekly trading volume of
that class of securities during the four calendar weeks prior to such sale. In
addition, pursuant to Rule 144, persons who are not affiliated with the Company
and who have held their restricted securities for at least three years are not
subject to the quantity limitations or the manner of sale restriction of the
rules. As of the date hereof, no shares of Common Stock are available for resale
pursuant to Rule 144. Pursuant to an agreement with the Underwriter, the
officers, directors and holders of 5% or more of the Company's equity
securities, other than Steven Pollan and other than 200,000 shares of common
stock held by Loeb are restricted from selling their respective securities for a
period of 18 months from the Effective Date, absent waiver of such restriction
by the Underwriter. See "Certain Transactions" and "Underwriting."
In the event that shares of Common Stock which are not currently
salable become salable by means of registration, eligibility for sale under Rule
144 or otherwise and the holders of such shares of Common Stock elect to sell
such shares of Common Stock in the public market, there is likely to be a
negative effect on the market price of the Company's securities and on the
ability of the Company to obtain additional equity financing. In addition, to
the extent that such shares of Common Stock enter the market, the value of the
Common Stock in the over-the-counter market may be reduced. No predictions can
be made as to the effect, if any, that sales or availability for sale of the
Securities will have on the market price of any such securities, which may
prevail from time to time. Nevertheless, the foregoing could adversely affect
such prevailing market prices. See "Principal Stockholders," "Certain
Transactions" and "Description of Securities."
Potential and Pending Litigation
In August 1996, the Company gave notice to one of its former officers,
Mr. Steven E. Pollan, that it was canceling 333,216 shares of Common Stock
issued to him for services he was to have provided at the inception of Corporate
Travel Link, Inc. The Company believes that Mr. Pollan never provided such
services; Mr.
25
<PAGE>
Pollan has informed the Company, however, that he will contest any attempt to
cancel his shares. No assurances can be given that the Company would prevail if
any legal proceeding is commenced by Mr.
Pollan.
On February 20, 1997, two individuals filed an action against the
Company, Travel Link and Robotic Lasers in the Superior Court of New Jersey
seeking, among other things, damages in the amount of 8% of any financing
secured by Travel Link resulting from Plaintiffs' efforts and 5% of the
Company`s Common Stock allegedly due for services rendered in connection with
the Company`s acquisition of Travel Link in 1995. The claim for money damages is
based upon an alleged written agreement between Travel Link and plaintiffs while
the claim for the shares of Common Stock is based upon alleged oral
representations and promises made by an officer of Travel Link. While the
Company believes that the plaintiffs` claims are without merit and intends to
vigorously defend the action, no assurances can be given that the Company will
prevail in this matter. See "Business-Litigation."
Possible Adverse Effects of Authorization of Preferred Stock; Anti-
Takeover Effects.
The Company's Certificate of Incorporation authorizes the issuance of a
maximum of 25,000,000 shares of preferred stock, $.0001 par value ("Preferred
Stock"), on terms which may be fixed by the Company's Board of Directors without
further stockholder action. None of such Preferred Stock has been designated or
issued. The terms of any series of Preferred Stock, which may include priority
claims to assets and dividends, and special voting rights, could adversely
affect the rights of holders of the Common Stock. The issuance of Preferred
Stock could make the possible takeover of the Company or the removal of
management of the Company more difficult, discourage hostile bids for control of
the Company in which stockholders may receive premiums for their shares of
Common Stock or otherwise dilute the rights of holders of Common Stock and the
market price of the Common Stock. See "Description of Securities - Preferred
Stock."
Capital-Raising Restrictions
The Underwriting Agreement prohibits the Company from issuing any
capital stock or other securities without the Underwriter's prior consent for a
period of eighteen (18) months following the date of this Prospectus. This
provision may limit the Company's ability to raise additional equity capital.
Greater Share of Financial Risk to Investors in Public Offering
Upon completion of the Company's public offering, the Company's current
stockholders will have paid $618,600 for 3,295,594 shares of Common Stock, or
78.5% of the Company's then
26
<PAGE>
outstanding shares of Common Stock, and purchasers of the Securities in the
Company's public offering will have paid $4,500,000 for 900,000 shares of Common
Stock, or 21.5% (exclusive of related warrants) of the Company's then
outstanding shares of Common Stock, assuming no exercise of the Over-Allotment
Option and no exercise of the Redeemable Warrants being offered by the Company
pursuant thereto. Therefore, investors purchasing Securities in the Company's
public offering will bear a substantially greater financial risk than the
Company's current stockholders. See "Dilution."
No Assurance of Public Market or NASDAQ Listing
Prior to the Company's public offering, there has been no public market
for any of the Company's securities, and there can be no assurance given that a
regular trading market for the Securities will develop after the completion of
the Company's public offering. If a trading market does in fact develop for any
of the foregoing securities, there can be no assurance given that it will be
sustained. In connection with the Company's public offering, the Company applied
for inclusion of the Common Stock and the Redeemable Warrants for quotation on
NASDAQ under the symbols: GENS, GENSW, and GENSZ, respectively. While such
securities are expected to be listed for quotation on NASDAQ, there can be no
assurance given that the Company will be able to satisfy the requirements for
continued quotation on NASDAQ or that such quotation will otherwise continue.
If, for any reason, any of such securities become ineligible for continued
listing and quotation or a public trading market does not develop, purchasers of
such securities may have difficulty selling their securities should they desire
to do so. See "Market Information."
Risk of "Penny Stock" Regulations
The Commission has adopted regulations which define a "penny stock" to
be any equity security that has a market price (as defined) of less than $5.00
per share, subject to certain exceptions. The Company believes that, as of the
date of this Prospectus, the Common Stock and/or the Redeemable Warrants may be
deemed to be "penny stocks" as defined by the Exchange Act and the rules and
regulations promulgated thereunder. For any transaction involving a penny stock,
unless exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities, information on the limited market in penny stocks and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. In addition, the
broker-dealer must obtain a written acknowledgment from the customer that such
disclosure information was provided and must retain such acknowledgment from the
customer for at least three years.
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<PAGE>
Further, monthly statements must be sent to the customer disclosing
current price information for the penny stock held in the account. While many
NASDAQ-listed securities would otherwise be covered by the definition of penny
stock, transactions in a NASDAQ-listed security would be exempt from all but the
sole market-maker provision for: (i) issuers who have $2,000,000 in tangible
assets ($5,000,000 if the issuer has not been in continuous operation for three
years); (ii) transactions in which the customer is an institutional accredited
investor; and (iii) transactions that are not recommended by the broker-dealer.
In addition, transactions in a NASDAQ-listed security directly with a NASDAQ
market-maker for such securities would be subject only to the sole market-maker
disclosure, and the disclosure with respect to commissions to be paid to the
broker-dealer and the registered representative.
The above-described rules may materially adversely affect the liquidity
for the market of the Company's securities. Such rules may also affect the
ability of broker-dealers to sell the Company's securities and may impede the
ability of holders (including, specifically, purchasers in this offering) of the
Common Stock, the Class A Redeemable Warrants, the Common Stock underlying the
Class A Redeemable Warrants, the Class B Redeemable Warrants and the Common
Stock underlying the Class B Redeemable Warrants to sell such securities in the
secondary market.
Underwriter's Influence on the Market; Possible Restrictions on
Market-Making Activities during Warrant Solicitation
Although it has no legal obligation to commence or continue to do so,
the Underwriter may from time to time act as a market-maker and otherwise effect
transactions in the Company's securities. To the extent the Underwriter acts as
a market-maker in the Common Stock or Redeemable Warrants it may be a dominating
influence in that market inasmuch as a significant amount of such securities may
be sold to customers of the Underwriter.
To the extent that the Underwriter solicits the exercise of the
Redeemable Warrants from the holders thereof, it may be prohibited pursuant to
the requirements of Rule 10b-6 under the Exchange Act from engaging in
market-making activities during such solicitation and for a period of up to nine
(9) days preceding such solicitation. See "Underwriting."
Risk of Blue Sky Restrictions on Exercise of the Redeemable
Warrants
The Company has qualified the sale of the securities being offered
hereby in a limited number of states. Although certain exemptions in the Blue
Sky laws of certain states, other than those states in which such securities are
initially qualified, may permit such securities, including the Redeemable
Warrants, to be transferred to purchasers in such states, the Company will be
28
<PAGE>
prevented from issuing Common Stock upon exercise of the Redeemable Warrants in
such states unless an exemption from registration or qualification is available
or unless the issuance of Common Stock upon the exercise of the Redeemable
Warrants is qualified and a current registration statement is in effect. The
Company may decide not to seek or may not be able to obtain qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Redeemable Warrants reside. In such case, the Redeemable
Warrants of such purchasers will expire and have no value if such warrants
cannot be exercised. Accordingly, the market for the Redeemable Warrants may be
limited. See "Underwriting."
Current Prospectus Requirement to Exercise Warrants
During the exercise period of the Redeemable Warrants, the Company must
maintain and make available a current prospectus. This Prospectus will no longer
be current after _________, 1997 (or earlier upon the occurrence of a material
event or change which would render the information herein inaccurate or
otherwise misleading). There can be no assurance given that the Company will not
be prevented by financial or other considerations from maintaining a current
prospectus. In the event that a current prospectus is not available, the
Redeemable Warrants may not be exercisable and the Company will be precluded
from redeeming the Redeemable Warrants. See "Underwriting."
Adverse Effects of Possible Redemption of the Redeemable Warrants
Each Class A Redeemable Warrant shall entitle the holder to acquire one
share of the Common Stock at a price equal to $5.75 per share. Commencing 12
months after the Effective Date, the Company will have the right at any time to
redeem all, but not less than all, of the Class A Redeemable Warrants at a price
equal to ten cents ($.10) per Redeemable Warrant, provided that the closing bid
price of the Common Stock equals or exceeds $6.25 per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. Each Class
B Redeemable Warrant shall entitle the holder to acquire one share of the Common
Stock at a price equal to $6.75 per share. Commencing 12 months after the
Effective Date, the Company will have the right at any time to redeem all, but
not less than all, of the Class B Redeemable Warrants at a price equal to ten
cents ($.10) per Redeemable Warrant, provided that the closing bid price of the
Common Stock equals or exceeds $7.25 per share for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. See "Descriptions of
Securities." Although holders of the Redeemable Warrants will have the right to
exercise their Redeemable Warrants through the date of redemption, they may be
unable to do so because they lack sufficient funds at the time of
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<PAGE>
redemption, or they may simply not wish to invest any more money in shares of
the Common Stock at that time. Should a holder of the Redeemable Warrants fail
to exercise such Redeemable Warrants or to sell such Redeemable Warrants on or
prior to the redemption date, such Redeemable Warrants will have no value beyond
their redemption value. The Company may not redeem the Redeemable Warrants
unless the Company has available a current prospectus with respect to the
Redeemable Warrants. See "Risk Factors-Current Prospectus Requirement" above and
"Description of Securities-Redeemable Warrants."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities being
offered by the Company, after deducting expenses and other costs of the
offering, are estimated to be approximately $4,019,300 (or $4,657,445 if the
Over-Allotment Option is exercised in full). The Company intends to use the net
proceeds of its offering substantially as follows:
Proposed Use of Proceeds Approximate Amount Percentage
System Procedures Development
and additional equipment(1) $850,000 21.1%
Repayment of Debt (2) 563,500 14.0%
Working Capital (3) 2,605,800 64.9%
--------- -----
Total $4,019,300 100%
---------
- ----------------------------
(1) To be utilized for (a) completion of software development and acquisition of
computer hardware needed to complete development of the Genisys Payment System
(hereinafter defined) ($560,000) and (b) completion of software development and
acquisition of computer hardware necessary to complete integration of the
Genisys Reservation System (hereinafter defined) with the Apollo CRS ($290,000).
(2) The total of $563,500 bears interest at 10% per annum and is payable to 16
unaffiliated parties and matures upon the earlier to occur of May 29, 1997 or
thirty days after the closing date of the first underwritten public offering of
the Company's securities.
(3) General working capital contemplates, among other things, the use for
general corporate purposes, including funding day to day operations of the
Company such as executive salaries, compliance with reporting requirements and
the Company's future development.
The amounts set forth above are estimates developed by management of
the Company based upon the Company's current plans and prevailing economic and
industry conditions. Although the Company does not currently contemplate
material changes in the proposed use of proceeds set forth above, to the extent
that management of the Company finds that adjustment thereto is required, the
amounts shown may be adjusted among the uses indicated above. The Company's
proposed use of proceeds is subject to changes in general, economic and
competitive conditions, timing and management discretion, each of which may
change the amount of proceeds expended for the purposes intended. The proposed
application of proceeds is also subject to changes in market conditions and the
Company's financial condition in general. Changes in general, economic,
competitive and market conditions and
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the Company's financial condition would include, without limitation, the
occurrence of an economic slowdown or recession and changes in the competitive
environment in which the Company operates. While management of the Company is
not currently aware of the existence or pending threat of any of the foregoing
events, there can be no assurance given that one or more of such events will not
occur. See "Risk Factors" generally, including specifically, "Broad Discretion
by Management in Application of Proceeds; Funding of Day to Day Operations and
Officer's Salaries"; "Adverse Effect of Economic Downturn" and "Likely
Competition". Any additional proceeds received upon exercise of the
Over-Allotment Option or Redeemable Warrants will be added to working capital
and used as management, in its sole discretion, deems appropriate.
While no assurance can be given, the Company believes that the net
proceeds from its public offering and revenues generated by the Company's
planned operations will be adequate to satisfy the Company's working capital
needs for the next 12 months. The Company does not currently anticipate that it
will need the proceeds from the potential exercise of Redeemable Warrants to
fund its working capital needs or to maintain its operations over the next
twelve (12) months. However, the Company may require additional financing in the
future in order to expand its business. The Company is not able at this time to
predict the amount or potential source of such additional funds and has no
current commitments to obtain such funds, other than relating to the potential
exercise of outstanding Warrants. There can be no assurance that additional
financing on acceptable terms will be available to the Company when needed, if
at all. See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Pending use of the net proceeds from the
Company's public offering, the Company may make temporary investments in
short-term investment grade interest-bearing instruments.
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- ----------------------------------------------------------------
CAPITALIZATION
- -----------------------------------------------------------------
The following table sets forth as of December 31, 1996 the Company's
capitalization on a historical basis and as adjusted to give effect to this
Offering and its net proceeds, assuming the Over-Allotment Option is not
exercised. The information below should be read in conjunction with the
Financial Statements contained in this Prospectus, which should be read in their
entirety.
Historical As Adjusted(1)(2)
Short-term debt:
Current maturities
of long-term debt 161,282 161,282
Total Short-term debt 161,282 161,282
------- -------
Long-term debt:
10% Promissory notes payable 563,500 -
Convertible notes payable(3) 30,000 -
Long-term debt, less current
maturities 1,009,757 1,009,757
--------- ----------
Total long-term debt 1,603,257 1,009,757
--------- ----------
Stockholders' equity (deficiency):
Preferred stock, $.0001 par value;
25,000,000 shares authorized;
None outstanding - -
Common stock, $.0001 par value;
75,000,000 shares authorized;
3,280,594 shares issued and
outstanding (proforma) 328 -
4,195,594 shares outstanding,
as adjusted - -
Paid in capital 252,344 4,301,552
Deficit accumulated during the
development stage (1,645,003) (1,645,003)
----------- ------------
Total stockholders' equity
(Deficiency) (1,392,331) 2,656,969
----------- ----------
Total Capitalization
Debt and stockholders' equity
$ 903,598 $3,828,008
-------------- ----------
- -------------
(1) Gives effect to the anticipated net public offering proceeds
of $4,019,300 and repayment of debt in the amount of $563,500.
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<PAGE>
(2) Does not include: (a) 287,500 shares of Common Stock issuable
upon exercise of the Class A Redeemable Warrants issued in a
private placement; (b) 135,000 shares of Common Stock issuable
upon exercise of the Over-Allotment Option; (c) 360,000 shares
of Common Stock issuable upon exercise of the Redeemable
Warrants made part of the Over-Allotment Option; or (d) 90,000
shares of Common Stock issuable upon exercise of the
Underwriter's Purchase Option. In the event all outstanding
options (excluding 360,000 options covering the Over-Allotment
Option but including 90,000 shares covered by the Underwriters
Purchase Option) were exercised there would be 4,708,094
shares of Common Stock outstanding. See "Description of
Securities," "Certain Transactions," "Management" and
"Underwriting."
(3) Includes the conversion of $30,000 of Convertible Notes into
15,000 shares of Common Stock upon consummation of this
Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
DILUTION
As of December 31, 1996, the Company had an aggregate of 3,280,594 shares of
Common Stock outstanding and a net tangible book value of $(1,903,105) or $(.58)
per share of Common Stock,. (See December 31, 1996 Financial Statements). "Net
Tangible Book Value Per Share" represents the total amount of the Company's
tangible assets, less the total amount of its liabilities, divided by the total
number of shares of Common Stock outstanding.
After giving effect to the sale of 900,000 shares of Common Stock at
the offering price of $5.00 per share and the proceeds from the sale of the
Class A and Class B Redeemable Warrants and the deduction of offering expenses
in the amount of $235,000 and Underwriting Discounts and commissions estimated
at $635,700 (which amounts include payment of the Underwriter's Non-Accountable
Expense Allowance but without taking into account exercise of the Over-Allotment
Option), the net tangible book value of the Company would be $.51 per share of
Common Stock. This amount represents an immediate dilution (the difference
between the attributed price per share of Common Stock to purchasers in the
Company's offering and the net tangible book value per share of Common Stock as
of December 31, 1996, of approximately $4.49 per share of Common Stock, or
approximately 89.8% to new investors and an immediate increase (the difference
between the net tangible book value per share of Common Stock as of December 31,
1996 and the net tangible book value per share of Common Stock as of December
31, 1996 after giving effect to the issuance of 900,000 shares of Common Stock
and
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<PAGE>
related Redeemable Warrants) of $1.09 per share of Common Stock, or
approximately 287.9% to the Company's stockholders. Such increase to the
Company's current stockholders is solely attributable to the cash price paid by
purchasers of the Securities offered hereby.
The following table illustrates the per share dilution as of December 31, 1996:
Public offering price per share(1)................. $5.00
Net tangible book value per share
before giving effect to the Company's
offering(3)..................................... $(.58)
Increase per share attributable to the net proceeds
of the sale of 900,000 shares of Common Stock
and related warrants offered by the Company..... 1.09
Net tangible book value per share as of
December 31,1996 reflecting the Company's
Offering(2)........................................ .51
Dilution per share to purchasers in the Company's
offering........................................... 4.49
- ------------------------
(1) Attributes $5.00 of the public offering price to the shares of
Common Stock and none to the Redeemable Warrants. Represents
the public offering price before deduction of estimated
expenses of the Company's offering, underwriting discounts and
commissions. If the Underwriter's Over-Allotment Option is
exercised in full, the as adjusted net tangible book value per
share of Common Stock after this Offering would be
approximately $.64 representing an immediate increase of $1.22
per share, or approximately 310.3% to current stockholders and
an immediate dilution of $4.36 per share, or approximately
87.2% to new investors.
(2) Assumes no exercise of: (a) the Underwriter's Purchase Option
(or exercise of the Redeemable Warrants included therein); or
(b) the Over-Allotment Option (or exercise of the Redeemable
Warrants included therein). See "Capitalization,"
"Underwriting," "Certain Transactions" and "Description of
Securities."
(3) Includes the conversion of $30,000 of Convertible Notes into 15,000
shares of Common Stock upon the consummation of this Offering.
The following table sets forth, as of December 31, 1996 a comparison of
the number of shares of Common Stock acquired by current stockholders from the
Company, the total consideration paid for such shares of Common Stock and the
average price per share paid by current stockholders of Common Stock and to be
paid by the prospective purchasers of the shares of Common Stock offered for
sale by the Company (based upon the anticipated public offering price of $5.00
per share of Common Stock, before deducting
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<PAGE>
Underwriting Discounts and Commissions and estimated offering expenses).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Acquired Total Consideration Average Price
Number Percent Amount Percent Per Share
Current Stockholders..... 3,295,594 78.5% $ 618,600 12% $ .19
New Investors(1)(2)...... 900,000 21.5% $4,500,000 88% $5.00(3)
----------- ----- ----------- ----
Total(2)(3)(4)....... 4,195,594 100% $5,118,600 100%
</TABLE>
(1) Does not include 90,000 shares of Common Stock which may be
issued upon the exercise of an option granted to the
Underwriters to cover over-allotments. See "Underwriting".
(2) Assumes no exercise of: (a) the Underwriter's Purchase Option
(or exercise of the Redeemable Warrants included therein); or
(b) the Over-Allotment Option (or exercise of the Redeemable
Warrants included therein). See "Capitalization," "Management
Discussion and Analysis of Financial Conditions and Results of
Operations", "Underwriting," and "Description of Securities."
(3) Aggregate offering price before deduction of offering
expenses, underwriting discounts and commissions.
(4) Includes 15,000 shares of Common Stock issuable upon the
conversion of the Convertible Notes.
DIVIDEND POLICY
The Company has never paid and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The
Company currently intends to retain all working capital and
earnings, if any, for use in the Company's business operations and
in the expansion of its business. See "Description of Securities-
Common Stock."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The principal business activity of the Company is developing a
computerized limousine reservation and payment system for the business traveler.
The Company anticipates that the proprietary software that is being developed
will enable limousine reservations to be completely computerized i.e., be
entirely automated and operate without human intervention except for initial
input of travel information.
The Company, a New Jersey corporation, was organized on April 25, 1986,
under the name of JECO2 Lasers, Inc. and changed its name to Robotic Lasers,
Inc. on December 22, 1987. On August 11, 1995, Robotic Lasers acquired Corporate
Travel Link, Inc. (a development-stage enterprise) which was incorporated in New
Jersey on March 7, 1994. For accounting purposes, the share exchange transaction
and combination of Corporate Travel Link with the Company has been treated as a
reverse acquisition. The previous historical financial statements of Corporate
Travel Link (since its information in March 1994) are now reported as the
historical consolidated financial statements of the Company and its subsidiary.
Since August 11, 1995, the Company's business and operations have consisted
solely of the business and operations of Corporate Travel Link, which continues
to operate as a wholly-owned subsidiary of the Company. The Company changed its
name from Robotic Lasers, Inc. to Genisys Reservation Systems, Inc. on July 16,
1996.
The Company changed its fiscal year end from August 31 to December 31,
effective December 31, 1995.
Development of the Company's Systems
The development of the software program and the database for the Genisys
reservation system ("Genisys Reservation System") has been completed. All the
hardware elements of the Genisys computer system have been purchased and
integrated and the completed system is up and operating. The Worldspan "script"
computer software interface, which allows the Genisys Reservation System to
operate over the Worldspan CRS, has been completed. The completed Genisys
Reservation System and data base operating through the Worldspan CRS has been
"beta" tested with a major entertainment company and its travel agency in
Atlanta and with a limousine service provider in Los Angeles. Actual
reservations were booked, confirmed and limousine services were provided. At
that time, Worldspan could have been brought on-line but the management of the
Company decided
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<PAGE>
to wait until the payment system and the Sabre system could be brought on-line
at the same time.
The Sabre "script" computer software interface has also been completed and is
now undergoing preliminary or "alpha" testing, which the Company expects to be
completed shortly. The Company expects to begin "beta" testing the Sabre system
in February 1997.
The hardware and software development of the Genisys payment system ("Genisys
Payment System") has been completed and is currently undergoing "alpha" testing
in conjunction with the Sabre system. The Genisys Payment System will be "beta"
tested along with and integrated into the Sabre system. Upon completion of the
testing of the Sabre reservation/payment system, the Worldspan system will be
given a second "beta" test with the Genisys Payment System integrated within its
system as well. Upon completion of the Worldspan reservation/payment system
"beta" test, both the Sabre and Worldspan systems will be brought on-line.
Management expects this to occur in early 1997.
The "script" software program for Apollo is currently being developed and should
be ready for "alpha" testing in early 1997. Since by that time both the Genisys
Reservation and Payment Systems will be operating through the Sabre and
Worldspan CRSs, management expects that "beta" testing of the Apollo system can
be completed by mid 1997 and the Apollo system brought on-line in late 1997.
Components of Revenues and Expenses
Revenues. The Company is a development-stage company and has generated
no revenues and has no commercial operations to date. The Company did not
generate any revenues from operations during the fiscal year ending December 31,
1996. The Company does expect to bring its Genisys Reservation and Payment
Systems on-line through two of the four CRS` in existence (Sabre and Worldspan)
in early 1997, at which time the Company expects to generate revenues. The
Company anticipates completing development of and bringing a third CRS, Apollo,
on-line in late 1997, which it expects to increase revenues.
The Company anticipates that its Genisys Reservation and Payment
Systems will generate revenue from the following sources: (I) a booking fee
charged for use of the Genisys Reservation System and billed through the Genisys
Payment System, (ii) a processing fee generated by charges processed through the
Genisys Payment System, (iii) an annual software licensing fee charged to
limousine service providers who utilize the Genisys Reservation and Payment
Systems.
Expenses. Cost of service will include all costs directly
attributable to the Company's provision of services to its
corporate clients and the limousine service providers. The most
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<PAGE>
significant component of cost of service is the booking fee charged by the CRS
for reservations made by the Genisys systems utilizing the CRS. Booking fees are
a set amount charged by each CRS for transactions posted through the system.
Cost of service also includes the access and file fees charged by a commercial
bank acting as the Company's Automated Clearing House in distributing payments
made to limousine service providers through the Genisys Payment System.
General and administration expenses include salaries, commissions and
benefits, travel costs, professional fees, rent, telephone and other operating
costs of the Company. The Company has not capitalized any internal expenditures
with respect to the costs of developing and implementing the Genisys Reservation
and Payment Systems.
Results of Operations
The Company is in the development stage and has not yet generated any
revenues and has no commercial operations to date. The Company has been
unprofitable since inception and expects to incur additional operating losses
over the next several fiscal quarters. The Company does not expect to generate
any revenues from operations until mid 1997. As reflected in the accompanying
financial statements, the Company has incurred losses totaling $1,645,003 since
inception and at December 31, 1996, had a working capital deficit of $600,043.
Selling, general and administrative expenses were $819,205 for the year
ended December 31, 1996 as compared to $256,621 for the year ended August 31,,
1995. The primary reason for the difference between the two periods is the
commencement of operations during the earlier period when the Company had only 4
part-time employees for approximately half the period, while during the latter
period the Company was operational with 5 full-time employees. Payroll and
payroll-related costs increased approximately $229,000 during 1996. Other
approximate cost increases during the 1996 period consist of consulting fees
($54,000), travel costs ($23,000), marketing costs ($16,000), other
administrative costs ($83,000) and professional fees ($136,000). Professional
and consulting fees for the year ended December 31, 1996 totaled $237,000. Such
amount consisted of attorney's fees of $84,000, accounting fees of $42,000,
accrued consulting fees of $36,000 payable to Loeb Partners, $48,000 payable to
John H. Wasko (accrued prior to his becoming an employee of the Company),
$16,000 in consulting fees payable to Mark A. Kenny and miscellaneous fees of
$11,000. Loeb Partners, Mr. Kenny and Mr. Wasko are affiliates of the Company.
Liquidity and Capital Resources.
The Company's funds have principally been provided from Loeb Holding
Corporation, as escrow agent ("Loeb"), for Warren D.
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<PAGE>
Bagatelle, HSB Capital, trusts for the benefit of families of two principals of
Loeb Holding Corporation, and three unaffiliated individuals, LTI Ventures
Leasing Corporation and a private offering, as described below.
In February, 1995, Loeb agreed to loan the Company up to a maximum of
$500,000 as evidenced by Convertible Notes. In addition, pursuant to five
interim loan agreements, Loeb loaned the Company an additional $250,000 from
December 1995 thru March 1996. In November and December 1996, Loeb Holding
Corporation loaned the Company $210,000 evidenced by a series of eighteen month
term Promissory Notes bearing interest at the annual rate of 10%. Total loan
proceeds from Loeb and Loeb Holding Corporation to date are $960,000.
On September 30, 1995, the Company entered into a sale and lease-back
arrangement with LTI Ventures Leasing Corp. (LTI) whereby the Company sold the
bulk of its computer hardware and commercially purchased software to LTI. In
consideration for the sale, the Company received a total of $169,599 and agreed
to lease back the hardware and software for varying terms at a monthly rental
totaling $7,039.
During the quarter ended March 31, 1996, the Company sold 5,000 shares
of the Company's restricted Common Stock to a former officer and director of the
Company for $10,000. During the same period, the Company also sold 25,000 shares
of the Company's restricted Common Stock to an unaffiliated party for $50,000.
Pursuant to a private offering, the Company issued 11.5 units to
sixteen unaffiliated third parties in May and June 1996. The Underwriter acted
as placement agent for the private placement. Each $50,000 unit consists of a
$49,000 promissory note and a Class A Redeemable Warrant valued at $1,000 per
the unit. Each such warrant entitles the holder to purchase 25,000 shares of the
Company's Common Stock at $5.75 per share. The proceeds from this offering
totaled $575,000 and Class A Redeemable Warrants to purchase 287,500 shares of
Common Stock were issued by the Company.
In April and June 1996, the Company borrowed a total of $30,000 from
two unaffiliated third parties pursuant to two convertible notes. The maturity
date is the earlier of January 1, 1998, or the consummation of a public offering
of the Company's Common Stock. These notes bear interest at a rate of 7% per
annum, payable on the last day of each calendar quarter of each year, commencing
March 31, 1997, to the maturity date. If the maturity date of these notes shall
occur prior to January 1, 1998, in lieu of the $30,000 payment of the principal
amount due, the principal amount due shall be converted into 15,000 fully paid
and non-assessable shares of Common Stock of the Company.
In November, 1996, the Company sold 25,000 shares of the
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<PAGE>
Company's restricted Common Stock to an unaffiliated party for $50,000.
At December 31,1996, the Company had cash of $91,548 and a working
capital deficit of $600,043. The Company intends to fund its operations and
other capital needs for the next twelve (12) months from the date of this
offering substantially from revenues generated by the Company's planned
operations and the proceeds of this offering, but there can be no assurance that
such funds will be sufficient for these purposes. There can be no assurance that
such financing will be available, or that it will be available on acceptable
terms. See "Use of Proceeds."
During the quarters ended September 30, 1996 and December 31, 1996,
Joseph Cutrona, President of the Company made capital contributions to the
Company in the amounts of $41,700 and $35,000 respectively. In February 1997,
Mr. Cutrona made additional capital contributions totaling $15,700.
In February and March, 1997, the Company borrowed a total of $45,000
from two unaffiliated third parties pursuant to two eighteen (18) month
Promissory Notes bearing interest at 10% per annum payable at maturity. These
notes are secured by 11,250 shares of the Company`s restricted Common Stock
owned by Joseph Cutrona and 11,250 shares owned by Mark A. Kenny.
41
<PAGE>
- ------------------------------------------------------------
BUSINESS
- ------------------------------------------------------------
History
The Company was incorporated in New Jersey in April 1986 as a
wholly-owned subsidiary of JEC Lasers, Inc. ("JEC") to continue the research and
development of an ultra-compact, multi-kilowatt CO2 laser begun under an
agreement with Loughborough Consultants Ltd ("LCL"), which is affiliated with
Loughborough University of Technology, Loughborough, Leicestershire, England.
Due to the uncertain financial condition of JEC and, in order to
preserve the CO2 laser technology which management felt may have had some value,
the Board of Directors of JEC voted on May 30, 1996 to spin-off Robotic Lasers
into an independent, publicly-owned corporation by issuing a stock dividend of
one share of the Company's Common Stock for every four shares of JEC common
stock outstanding to all shareholders of record as of July 8, 1986. On September
23, 1988, the shares were registered for resale under the Securities Act of
1933, as amended. On June 25, 1986, the Company and JEC signed a Purchase
Agreement whereby the Company acquired all of the assets, rights and properties
relating to JEC's CO2 laser research and development agreement with LCL, subject
to certain liabilities.
On March 3, 1995, the Company sold all of the assets, rights and
properties relating to the C02 laser research and development agreement with
LCL, subject to certain liabilities, to JEC for $345,593 which generated a
profit of approximately $246,000.
On August 11, 1995, the Company acquired Corporate Travel Link, Inc. (a
development-stage enterprise) which was incorporated on March 7, 1994, by
issuing 1,682,924 shares of restricted New Common Stock of the Company (after
the July 16, 1996 one-for-two reverse split. See Notes 1 and 3 to December 31,
1995 financial statements) in exchange for 200 shares of the Common Stock of
Corporate Travel Link ("Travel Link"), which represented all of the authorized,
issued and outstanding shares of common stock of Travel Link.
Since August 11, 1995, the Company's business and operations have
consisted solely of the business and operations of Travel Link which continues
to operate as a wholly-owned subsidiary of the Company.
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<PAGE>
General
The principal business activity of the Company is developing a
computerized limousine reservation and payment system for the business traveler.
The management of the Company anticipates that the proprietary software that is
being developed will enable limousine reservations to be completely computerized
i.e., be entirely automatic and operate without human intervention, except for
initial inputing of travel information.
At the present time, there are four major airline computer
reservation systems in operation in the United States --"Sabre", "Worldspan",
"Apollo" and "System One"(each such system referred to hereinafter as a "CRS").
Each CRS allows a travel agency or corporate travel department to make an
airline reservation and receive instantaneously a confirmation and a printed
airline ticket on any airline. It is also possible to make a hotel reservation
with one of the major hotel chains through any CRS and receive an instantaneous
confirmation of room availability. Additionally, a travel agent or corporate
travel manager may make an automobile reservation with any one of the major car
rental companies (Hertz, Avis and the like) through any CRS and receive an
immediate confirmation of the car rental reservation.
When it comes to limousine reservations, however, there is at
present no method for making a reservation through one of the four CRS and
receiving an immediate guaranteed confirmation. The usual method of making a
limousine reservation in a destination city is to call a limousine company, if
the corporate travel department or travel agent knows of one. This use of the
telephone, with its attendant inconveniences such as "telephone tag" and missed
communications, can make securing a confirmed limousine reservation
inconvenient.
In today's cost-conscious business world, corporations must
explore every possible way to cut costs and save time. With the current CRS`
there is no quick, direct and efficient way to reserve limousine service. Today
reservations are still being booked, changed, canceled and reconfirmed largely
by telephone and telefax.
Computerized Limousine Reservation and Payment System
The Company proposes to work with travel agents and corporate
travel departments by providing a computerized system for securing limousine
reservations.
A typical reservation with the Company's proposed system may
be demonstrated as follows:
Assume that a corporate executive wishes to travel from
Newark, New Jersey to Phoenix, Arizona. The executive will contact
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the travel manager/agent with his or her travel plans. The travel manager/agent
will then determine which airline flies between Newark and Phoenix on the date
and at the time when the executive wishes to travel.
The travel manager/agent will then go to the airline
reservation computer to enter the information necessary to book the reservation.
The information originated by the travel manager/agent will be transmitted to
one or more CRS mainframe computers and, in turn, will be relayed to the
mainframe computer of the selected airline. The airline's computer will
ascertain seat availability and it will transmit a reservation back to the CRS'
mainframe computer. The CRS will then retransmit the information to the travel
manager/agent and a ticket will be issued.
If the corporate executive also decides that he wishes to stay
at a particular hotel while in Phoenix, this reservation, too, may be made
through the CRS. The travel manager/agent inputs the data already in the
computer pertaining to the airline reservation, and he adds the data necessary
to secure a hotel reservation. The information is transmitted to the CRS's
mainframe computer, and it is then relayed to the hotel's mainframe. The latter
computer searches to ascertain room availability and relays a confirmed
reservation to the CRS. The CRS then transmits the information to the travel
manager/agent and a confirmed reservation slip is printed.
Finally, the corporate executive advises his travel
manager/agent to obtain four limousine reservations: (a) from home to Newark
Airport; (b) from Phoenix Airport to the hotel; (c) from the hotel to the
Phoenix Airport at the end of the trip; and (d) from Newark Airport to the
executive`s home. The travel manager/agent, however, cannot presently effect
these reservations through the CRS or any of the other reservation systems and
receive an immediate, error-free confirmed limousine reservation.
Instead, the travel manager/agent must use the telephone or
telefax. While a corporate travel manager/agent based in Newark will undoubtedly
know of a limousine company in the Newark area to call, he may not know of any
in the Phoenix area.
The Company's system proposes to remedy this dilemma. The
Company proposes to create its own computerized system which will be linked with
one or more CRS`. Any limousine reservations made through any CRS will be
relayed instantaneously to the Company's computer and then to a service provider
of the clients choice -- all without human intervention -- and an immediate
limousine reservation will be confirmed. In the event that the client has no
relationship with a service provider or has no preference, they will be able to
access a national network service provider through the Genisys Reservation
System. The Company is in the process of arranging access to such national
network services.
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The Company's Computer System Defined
The Company's computer system would be made up of two main
systems, the Genisys Reservation System and the Genisys Payment System. The
Genisys Reservation System would be a fully automated computer system that
allows travel agents to make limousine bookings directly through any CRS, much
like hotel or car bookings. The Genisys Payment System is an automated
electronic payment and reporting system which will process and reconcile all
purchases made through the Genisys Reservation System. The Genisys Payment
System is not yet operational. All hardware required for development and
commercial operation of the Company's Reservation and Payment Systems are
purchased, off-the-shelf components and are not manufactured by the Company.
An Overview of the Genisys Reservation System
There are three main "components" that play a role in the
delivery of a limousine reservation; the CRS, the Genisys database, and the
Genisys computer terminals which must be purchased by the limousine service
provider. The Company's computer software will integrate these three components
into a fully functional, automated reservation delivery system.
CRS Interface Development
There are four main airline CRS` in existence today in the
U.S, Sabre, Worldspan, Apollo, and System One. These CRS` are the primary
technology tool utilized by travel managers/agents to make airline, hotel and
car rental reservations. The Company has contracts with Sabre, Worldspan and
Apollo which enabled the Company to develop an interface that will allow travel
managers/agents to make limousine reservations through the Genisys Reservation
System.
The Company has completed and tested the Genisys Reservation
System Worldspan interface, and will soon complete the Sabre interface. The
Company anticipates bringing Worldspan and Sabre on-line in mid 1997. Apollo
will be the third CRS brought on-line, and the Company anticipates completing
development and bringing Apollo on-line in late 1997.
The Company has contracts in place with Sabre, Apollo, and
Worldspan. Each contract requires the Company to pay a fee for each "booking"
processed by the CRS. A "booking" is broadly defined as a reservation that has
not been canceled prior to its effective date - in essence, a reservation where
service is performed. The "booking" fee charged to the Company varies by CRS
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<PAGE>
and is activity driven (no booking, no charge). Additionally, there are minimum
charges in each of the CRS agreements: Sabre - $2,000 / mo.; Apollo - $1,000 /
mo.; Worldspan - $350 / mo. These minimum payments will only apply if actual
booking fees do not
exceed monthly minimum.
Development of the Company's Systems
The development of the software program and the database for
the Genisys Reservation System has been completed. All the necessary hardware
elements of the Genisys computer system have been purchased and integrated and
the completed system is up and operating. The Worldspan "script" computer
software interface which allows the Genisys Reservation System to operate over
the Worldspan CRS has been completed. The completed Genisys Reservation System
and data base, operating through the Worldspan CRS, has been "beta" tested with
a major entertainment company and its travel agency in Atlanta and with a
limousine service provider in Los Angeles. Actual reservations were booked,
confirmed and limousine services were provided. At that time, Worldspan could
have been brought on-line but the management of the Company decided to wait
until the payment system and the Sabre system could be brought on-line at the
same time.
The Sabre "script" computer software interface has also been
completed and is now undergoing preliminary or "alpha" testing, which the
Company expects to be completed shortly. The Company began "beta" testing the
Sabre system in February 1997.
The hardware and software development of the Genisys Payment
System has been completed and is currently undergoing "alpha" testing in
conjunction with the Sabre system. The Genisys Payment System will be "beta"
tested along with and integrated into the Sabre system. Upon completion of the
testing of the Sabre reservation/payment system, the Worldspan system will be
given a second "beta" test with the payment system integrated within its system
as well. Upon completion of the Worldspan reservation/payment system "beta"
test, both the Sabre and Worldspan systems will be brought on-line. Management
reasonably expects this to occur in mid 1997.
The Apollo "script" computer software interface program is
currently being developed and should be ready for "alpha" testing in early 1997.
Management currently anticipates that the Genisys Reservation and Payment
Systems will be operating through the Sabre and Worldspan CRS by mid 1997; that
"beta" testing of the Apollo system can be completed by mid 1997 and that the
Apollo system can be brought on-line in late 1997.
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Genisys Database and Genisys Terminal Development
The Genisys Reservation System database was designed using
relational database technology which supports MPP (Massively Parallel
Processing), a technology that allows for much greater transaction processing
throughput through the use of additional low cost processors. The system, as
currently implemented, keeps a second server synchronized with the first to
continue operations in case of a server failure. The Company has developed
custom software applications to interact with the airline CRS (Apollo, Sabre and
Worldspan), the remote Genisys terminal ("Genisys Terminal") which will be
located at all limousine service provider locations, and the Genisys Payment
System.
The Genisys Terminal is a WindowsTM 3.1, 3.11 and Windows 95TM
compliant application, which has been built using technology purchased from a
leader in remote client/server communications. This technology is already in use
on more than 750,000 remote clients. Delivery of reservations and payment
information as well as the retrieval of completed trip information and their
associated costs are handled by clustered communications servers capable of
supporting over 5,000 Genisys Terminals in their current configuration. The
Genisys Terminal provides an easy to-use desktop with security for use by the
limousine service provider. Communications sessions with the limousine service
provider will always be initiated by the remote communications servers and
therefore will be transparent to the service provider. Communication sessions
will be supported via dedicated dial-up phone lines through the public switched
network to ensure availability. The limousine service provider will be
responsible for purchasing or leasing the Genisys Terminal, which the Company
estimates to cost approximately $2,000. The Company's database and terminal
software will be provided in accordance with licensing agreements entered into
with the limousine service providers.
An Overview of the Genisys Payment System
Currently under development, the Genisys Payment System will
provide an important addition to the Company's product package by performing two
key functions:
1. The Genisys Payment System will process all booking fees
charged by the Company for use of the Genisys Reservation System. This automated
collection of booking fees will eliminate billing and reduce accounts receivable
for the Company.
2. The Genisys Payment System will process payments for all
ground transportation purchases made through the Genisys Reservation System.
This functionality will allow the Company to become the "master merchant" for
all limousine purchases made through its Genisys Reservation System. By becoming
the "master merchant", the Company expects to create additional interest
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<PAGE>
revenue and processing fee revenue on the total dollar volume processed through
the Genisys Reservation and Payment Systems.
Revenue Sources
The Company anticipates generating revenue from the following
sources:
1. Booking Fee
The Company will charge a booking fee for the use of
the Genisys Reservation System. Booking fees will be processed daily through the
Genisys Payment System and will either be charged to the Company's corporate
customer via a centrally billed credit card account or deducted from the amount
wired to the limousine service providers bank account in settlement of the
services provided.
2. Processing Fee
The Company will charge service providers a
processing fee for limousine service transactions processed through the Genisys
Payment System. This processing fee will take the place of the merchant fee
currently charged to service providers by the credit card companies with whom
they do business. By processing payments for all ground transportation services
paid through the system, the Company becomes the "master merchant". The Company
has secured discounted merchant fees rates from the credit card companies and
will set its processing fee at a rate that is comparable to what limousine
service providers are currently paying in merchant fees. The difference between
the Company`s cost and the processing fee rate it charges is referred to as
processing fee revenue.
Competition
Although, to the best of the knowledge of the management of
the Company, there are as yet no competitors, it must be assumed that if the
Company's efforts are successful, other companies will begin to offer competing
systems. These future competitors may be companies which have substantially
greater research, development, marketing and financial resources than the
Company. Moreover customers seeking limousine service will be able to reserve
such service through existing methods such as direct contact with service
providers which may compete with the Company.
Employees
The Company presently employs 5 full-time employees; 2
executive officers, 2 marketing executives, and 1 office administrator. None of
these employees is covered by a collective bargaining agreement. The Company
utilizes several software and
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<PAGE>
marketing consultants on a part-time basis and one full-time ground
transportation industry consultant. The Company believes its personnel relations
to be satisfactory.
Properties
The Company presently leases approximately 1,500 square feet
of office space at 2401 Morris Avenue, Union, NJ 07083. The five-year lease
expires in November, 2000 and provides for a monthly rental of $2,125.00. This
property has been leased from unaffiliated third parties and adequately
satisfies the present needs of the Company. The Company anticipates that it will
need approximately 3,500 square feet in additional space in early 1997.
A portion of the additional space (approximately 1,500 square
feet) will be used to house the computer hardware system which runs the
Company's Reservation and Payment Systems' software programs. The balance of the
space will be used for additional corporate and sales offices. The Company
requires no manufacturing facilities since it has no present plans to
manufacture any hardware items. All hardware related to the Company's software
product is purchased commercially.
Government Regulation and Licensing
There are no special regulations which impact upon the Company
other than the usual statutes and regulations which govern businesses in
general.
Litigation
On February 20, 1997, two individuals filed an action against
the Company, Travel Link and Robotic Lasers in the Superior Court of New Jersey
seeking, among other things, damages in the amount of 8% of any financing
secured by Travel Link resulting from plaintiffs` efforts and 5% of the
Company`s Common Stock allegely due for services rendered in connection with the
Company's acquisition of Travel Link in 1995. The claim for money damages is
based upon an alleged written agreement between Travel Link and plaintiffs while
the claim for the shares of Common Stock is based upon alleged oral
representations and promises made by an officer of Travel Link. The Company
believes that the plaintiffs` claims are without merit and intends to vigorously
defend the action.
In August 1996, the Company gave notice to one of its former
officers, Mr. Steven E. Pollan, that it was canceling 333,216 shares of Common
Stock issued to him for services he was to have provided at the inception of
Corporate Travel Link, Inc. The Company believes that Mr. Pollan never provided
such services; Mr. Pollan has informed the Company, however, that he will
contest any attempt to cancel his shares.
49
<PAGE>
50
<PAGE>
-------------------------------------------------------
MANAGEMENT
---------------------------------------------------------
Directors and Officers
The following table sets forth certain information with respect to
each of the Company's directors and executive officers.
NAME AGE POSITION
Joseph Cutrona 59 President and Director
John H. Wasko 58 Chief Financial Officer,
Secretary, Treasurer
and Director
Mark A. Kenny 44 Director
Warren D. Bagatelle 58 Chairman and Director
The Company's Executive Committee is empowered to exercise
the full authority of the Board of Directors in circumstances when
convening the full Board is not practicable. Messrs. Warren D.
Bagatelle, John H. Wasko, and Joseph Cutrona currently serve as
members. All officers of the Company other than Mr. Bagatelle
devote their full time to the Company's business.
Upon the consummation of this offering, the Board of Directors of the
Company will appoint two independent Directors who will comprise the
Compensation Committee and Audit Committee. The Company's Compensation Committee
will be responsible for establishing executive salaries, bonuses and other
compensation and administering any stock option and other employee benefit plans
of the Company. The Company's Audit Committee will recommend the annual
appointment of the Company's auditors, with whom the Audit Committee will review
the scope of audit and non-audit assignments and related fees, accounting
principles used by the Company in financial reporting, internal auditing
procedures and the adequacy of the Company's internal auditing and control
procedures.
Joseph Cutrona has served the Company as President and as a
Director since August 1995, and has served as President and as a Director of
Travel Link since its inception on March 11, 1994. From 1992 to 1995, Mr.
Cutrona was engaged as a marketing consultant of Country Club Transportation
Services, Newark, New Jersey, a company providing limousine services. From 1990
to 1992, he served as Marketing Director of Gem Limousine, Edison, New
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<PAGE>
Jersey, a provider of limousine services. From 1978 to 1990, Mr.
Cutrona provided limousine consulting services to large
corporations in the tri-state area. Mr. Cutrona graduated from
Fairleigh Dickinson University, The University of Maryland and
Sophia University, Osaka Japan.
John H. Wasko has served the Company as a Director since
August 1995, as Secretary since September 1995, and as Treasurer and Chief
Financial Officer since April 1996. Mr. Wasko has also served the Company as
President and Chairman of the Board since its inception to August, 1995, and as
Treasurer from April 1986 to September 1987 and from May 1988 to August 1995.
Mr. Wasko has also served as Chairman of the Board, President and Director of
JEC since it was organized in September 1977. He was awarded a bachelor of
science degree in physics in 1963 and a master of science degree in physics
(summa cum laude) in 1965 from Fairleigh Dickinson University.
Mark A. Kenny, currently a consultant to the Company, served as
the Company's Executive Vice President from August 1995 to October 1996 and as a
Director since August 1995. He has also served as Executive Vice President of
Travel Link from inception, March 11, 1994 to October 1996 and as a Director
since inception. From 1974 to November, 1996 he was a partner of Country Club
Transportation Services, a provider of limousine services, which he co-founded
in 1974. Mr. Kenny is one of the original members of the New Jersey Business
Travel Association and attended Seton Hall Preparatory School and Seton Hall
University. He is also a member of the Association of Corporate Travel
Executives and a charter member of the New Jersey Limousine Association.
Warren D. Bagatelle has been a director of the Company since
August, 1995 and Chairman of the Board of Directors of the Company since
December, 1996. Since 1988 he has been a Managing Director at Loeb Partners
Corporation, a New York City investment banking firm and member of the New York
and American Stock Exchanges. Mr. Bagatelle is also a director of Energy
Research Corporation, a company engaged in the development and commercialization
of electrical storage and power generation equipment, principally fuel cells and
rechargeable storage batteries. From 1981 to 1987, he was head of Corporate
Finance and Chairman of Josephthal, Lyon & Ross Incorporated (formerly
Rosenkrantz, Lyon & Ross, Inc.) an investment banking firm. Mr. Bagatelle has a
B.A. in economics from Union College and an M.B.A.
from Rutgers University.
Executive Compensation
The following tabulation shows the total compensation paid by the Company
for services in all capacities during the years ended December 31, 1996 and 1995
and August 31, 1995 to the Officers of
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<PAGE>
the Company and total compensation for all Officers as a group for
such period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
Awards Payouts
Name and Other Annual Restricted All other
Principal Annual Compensation Compensation Stock Options LTIP Compen-
Position(1) Year Salary($) Bonus ($) Awards($) SARs Payouts(#) sation($)
Joseph Cutrona 1996 $73,500.00 $0 $5,000 0 0 0
President
1995 $45,000.00 $0 $3,840 0 0 0
1995 $28,000.00 $0 $3,840 0 0 0
Mark A. Kenny 1996 $42,000.00 $0 $16,250 0 0 0
1995 $44,795.00 $0 $3,840 0 0 0
1995 $28,000.00 $0 $3,840 0 0 0
John H. Wasko 1996 $10,000.00 $0 $48,000 0 0 0
Chief Financial
Officer
Secretary 1995 $0 $0 $2,500 0 0 0
Treasurer
1995 $0 $0 $2,500 0 0 0
</TABLE>
- -------
(1) See below "-Employment/Consulting Agreements," for a description of the
Company's employment agreements with Mr. Cutrona and Mr. Wasko.
Employment/Consulting Agreements.
The Company entered into an Employment Agreement with Joseph Cutrona
on September 5, 1995 which agreement was revised on October 17, 1996 for an
indefinite period of time, providing an annual salary of $75,000 for the period
from October 17, 1996 through December 31, 1996, and $100,000 thereafter until
modified by the Company. Mr. Cutrona is entitled to incentive bonuses in cash
and stock. Any incentive bonus paid to Mr. Cutrona shall be within the sole
discretion of the board of directors of the Company. The Company intends to
obtain key-man life insurance on the life of Mr.
Cutrona in the amount of $1,000,000.
The Company entered into an Employment Agreement on October 17, 1996
with John H. Wasko for an indefinite period of time, providing an annual salary
of $50,000 for the period from October 17, 1996 through December 31, 1996, and
$80,000 thereafter until modified by the Company. Mr. Wasko is entitled to
incentive bonuses in cash and stock in each year that the Company has net
profits in amounts to be determined by the Company. Any incentive bonus paid to
Mr. Wasko shall be within the sole discretion of the
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<PAGE>
board of directors of the Company.
The Company entered into a Consulting Agreement on October 18, 1996
with Mark A. Kenny for an indefinite period of time, providing a monthly fee of
$6,500.00 during the period from October 18, 1996 through and including February
28, 1997, and a monthly fee of $8,400.00 thereafter, in each case payable in
arrears on the last day of each month during the term of the Consulting
Agreement. Mr. Kenny is entitled to incentive bonuses in cash and stock. Any
incentive bonuses paid to Mr. Kenny shall be within the sole discretion of the
board of directors of the Company.
All officers other than Mr. Warren D. Bagatelle are full time
employees of the Company.
CERTAIN TRANSACTIONS
In August 1994 Joseph Cutrona and Mark A. Kenny each received a total
of 666,433 shares of the Company's common stock for services to be provided to
the Company.
During February 1995, the Company issued 45,765 shares of its Common
Stock in repayment of certain liabilities totaling $251,702. Those liabilities
include notes payable to Saddle Brook Investors of $149,633, note payable plus
accrued interest to an officer and Director of $34,273 and certain accounts
payable of $67,796.
In February 1995, Loeb Holding Corporation, as escrow agent ("Loeb"),
for Warren D. Bagatelle, HSB Capital, trusts for the benefit of families of two
principals of Loeb Holding Corporation and three unaffiliated individuals,
agreed to loan the Company $500,000 evidenced by a series of Convertible
Promissory Notes. In September, 1995, Loeb converted the Convertible Promissory
Notes into 841,455 common shares of the Company and two Term Promissory Notes,
one in the principal amount of $475,000 and the other in the principal amount of
$25,000.
The principal amount of the $475,000 Term Promissory Note is to be
repaid in twelve equal quarterly payments commencing two (2) years from the date
of said note. Prepayments may be made at any time without penalty. Interest is
accrued at a rate of 9% per annum and interest payments are to made quarterly at
the end of each calendar quarter, or at such earlier date that the Term
Promissory Note becomes due and payable as a result of acceleration, prepayment
or as otherwise provided therein. Interest began to run from the date that the
monies were advanced to the Company.
The Term Promissory Note in the amount of $25,000 and an additional
Note in the amount of $12,500 issued in December 1995 and discussed below have
been modified. Such Notes provide for accrued interest at the rate of 9% per
annum payable quarterly commencing September 1997 and unless previously
converted the
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<PAGE>
principal amount of each note is to be repaid in twelve equal quarterly
installments, commencing April 1, 1998, or on such earlier date as such notes
provide. The notes are convertible at the sole option of the holder into an
aggregate of 400,000 common shares of the Company.
During March 1995, John H. Wasko, then President of the Company, upon
exercise of his own option, acquired 70,520 shares of the Common Stock of the
Company at an exercise price of $0.02145 per share.
On March 3, 1995, the Company and JEC signed a purchase agreement
whereby JEC acquired all of the assets, rights and properties relating to the
Company's CO2 laser research and development agreement with LCL, subject to
certain liabilities, in full consideration for the forgiveness of the
indebtedness of the Company to JEC in the amount of $345,593 owed as of February
28, 1995.
On August 11, 1995, Robotic Lasers acquired Travel Link by issuing
1,682,924 shares of restricted new Common Stock of the Company in exchange for
the shares of the common stock of Travel Link owned by Joseph Cutrona, Mark A.
Kenny and Steven E. Pollan, which represented all the issued and outstanding
shares of common stock of Travel Link.
In August 1995 the Company granted Mr. Wasko a five (5) year option
to purchase 25,000 shares of Common Stock at a price of $0.60 per share and in
November, 1996 granted Mr. Wasko a five (5) year option to purchase 35,000
shares of Common Stock at a price of $2.00 per share.
On September 5, 1995 the Company entered into a three year consulting
and investment banking agreement with Loeb Partners Corporation. Under the terms
of the agreement the Company pays Loeb Partners Corporation $3,000 per month.
Loeb Partners Corporation will also receive a fee for arranging private
financing and acquisitions. Mr. Warren D. Bagatelle, a Director and Chairman of
the Company, is a Managing Director of Loeb Partners Corporation.
During December 1995, Loeb agreed to loan the Company $250,000
evidenced by a series of Convertible Promissory Notes ("Convertible Promissory
Notes"). In November 1996, Loeb converted the Convertible Promissory Notes into
(i) two Term Promissory Notes, one in the principal amount of $237,500 and the
other in the principal amount of $12,500 issued in December 1995 and discussed
below and (ii) 420,728 shares of Common Stock of the Company, of which 420,000
shares of Common Stock are owned by four unaffiliated parties. Loeb Holding
Corporation did not receive any shares of Common Stock in this transaction.
The principal amount of the $237,500 Term Promissory Note is to be
repaid in twelve equal quarterly payments commencing two (2) years from the date
thereof. Prepayments may be made at any time without penalty. Interest is
accrued at a rate of 9% per annum and interest payments are to be made quarterly
at the end of each calendar quarter, or at such earlier date that the Term
Promissory Note becomes due and payable as a result of acceleration,
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<PAGE>
prepayment or as otherwise provided therein. Interest began to run
from the date that the monies were advanced to the Company.
In August 1996, the Company gave notice to Mr. Pollan that it was
canceling the 333,216 shares of Common Stock which had been issued to him for
services to be provided to the Company. The reason for such cancellation related
to various claims made by the Company against Mr. Pollan that he failed to
provide services to the Company. Mr. Pollan has informed the Company that he
intends to legally contest any attempt by the Company to cancel his shares.
During the quarters ended September 30, 1996 and December 31, 1996,
in order to raise additional working capital for the Company, Joseph Cutrona,
President of the Company, sold a total of 37,600 shares of restricted Common
Stock of the Company owned by him to nineteen unaffiliated third parties at
prices ranging from $2.00 to $2.50 per share for total proceeds of $76,500 which
Mr. Cutrona remitted to the Company in the form of a capital contribution. In
February 1997 Mr. Cutrona sold an additional 7,850 shares of restricted Common
Stock to 5 unaffiliated third parties at a price of $2.00 per share for total
proceeds of $15,700, which Mr. Cutrona remitted to the Company in the form of an
additional capital contribution. Mr. Mark A. Kenny has agreed to use 22,450 of
his own shares of restricted Common Stock to reimburse Mr. Cutrona for one-half
of the number of shares recently sold by Mr. Cutrona.
On October 10, 1996, the Company, Joseph Cutrona, President of the
Company, Mark A. Kenny and Prosoft, Inc. signed an agreement whereby Mr. Cutrona
and Mr. Kenny each agreed to transfer 14,533 shares of restricted Common Stock
owned by them to Prosoft, Inc., or its designees, upon completion of the design
and satisfactory development of the Genisys Payment System. Prosoft agreed to
accept the 29,066 shares valued at $3.75 per share in satisfaction of
$108,997.50 which would be owed to Prosoft, Inc. by the Company upon completion
of the Genisys Payment System.
In October and November 1996, and February 1997 Joseph Cutrona, in
recognition of extensive valuable services rendered to the Company by three
employees of the Company, made gifts aggregating 35,000 shares of restricted
Common Stock owned by him to the three employees, including a gift of 20,000
shares of restricted Common Stock to John H. Wasko.
During November and December 1996, the Company and Loeb Holding
Corporation signed four eighteen (18) month Promissory Notes whereby Loeb
Holding Corporation loaned the Company the sums of $75,000, $30,000, $10,000 and
$95,000 (totaling $210,00). The Promissory Notes which bear interest at 10%,
mature on May 11, 1998, May 25, 1998, June 2, 1998 and June 9, 1998.
The Company believes that each of these transactions was entered into
on terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties.
The transactions described above involve actual or potential
conflicts of interest between the Company and its officers or directors. In
order to reduce the potential for conflicts of interest between the Company and
its officers and directors, prior
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<PAGE>
to entering into any transaction in which a potential material conflict of
interest might exist, the Company's policy has been and will continue to be,
that the Company does not enter into transactions with officers, directors or
other affiliates unless the terms of the transaction are at least as favorable
to the Company as those which would have been obtainable from an unaffiliated
source. As of the date of this Prospectus, the Company has no plans to enter
into any additional transactions which involve actual or potential conflicts of
interest between the Company and its officers or directors. Should the Company
enter into any such transaction in the future, it will not do so without first
obtaining at least one fairness opinion from, depending on the nature of the
transaction, either its own independent directors or from an independent
investment banking firm.
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- ----------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
The following tabulation shows the security ownership as of December 31, 1996 of
(I) each person known to the Company to be the beneficial owner of more than 5%
of the Company's outstanding Common Stock,(not including 333,216 shares issued
to Steven Pollan which the Company has given notice of cancellation of as a
result of certain disputes between Mr. Pollan and the Company) (ii) each
Director and Officer of the Company, and (iii) all Directors and Officers as a
group.
NUMBER OF PERCENT PERCENT
NAME & ADDRESS SHARES OWNED OF CLASS AFTER OFFERING
Loeb Holding Corporation
As Escrow Agent (1)
61 Broadway
New York, NY 10006 1,242,183 37.86% 29.61%
Warren D. Bagatelle(2)
Loeb Partners Corp.
61 Broadway
New York, NY 100061 1,271,155 38.75% 30.30%
Joseph Cutrona(5)
Genysis Reservation Systems
2401 Morris Avenue
Union, NJ 07083 611,133 18.63% 14.57%
Mark A. Kenny(5)
10 Lisa Drive
Chatham, NJ 07928 646,133 19.70% 15.40%
John H. Wasko(3)(4)
Genysis Reservation Systems
2401 Morris Avenue
Union, NJ 07083 176,206 5.37% 4.20%
All Officers and Directors
as a group (4 persons) 2,704,627 82.44% 64.46%
(1) Includes 842,183 shares of Common Stock purchased by Loeb Holding
Corporation as escrow agent for Warren D. Bagatelle, Managing Director of Loeb
Partners Corp., HSB Capital of which Warren Bagatelle is a partner, and trusts
for the benefit of families of two principals of Loeb Holding Corporation and
three unaffiliated persons and 400,000 shares of Common Stock issuable
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<PAGE>
upon conversion of two Convertible Notes aggregating $37,500. Loeb Holding
Corporation disclaims any beneficial interest in these shares.
(2) Includes 842,183 shares of Common Stock purchased by Loeb Holding
Corporation as escrow agent for Warren D. Bagatelle, Managing Director of Loeb
Partners Corp., HSB Capital of which Warren D. Bagatelle is a partner, and
trusts for the benefit of families of two principals of Loeb Holding Corporation
and three unaffiliated individuals; 6,739 shares of Common Stock owned directly
by Warren D. Bagatelle; 2,233 of shares Common Stock owned directly by HSB
Capital; 20,000 shares of Common Stock pledged by Joseph Cutrona to Warren D.
Bagatelle as security and 400,000 shares of Common Stock issuable upon
conversion of two Convertible Notes aggregating $37,500.
(3) Includes 29,383 shares of Common Stock owned of record
by Joan E. Wasko, John Wasko's wife, of which Mr. Wasko disclaims
beneficial ownership, but of which he may be deemed beneficial
owner.
(4) Includes a five (5) year option to purchase 25,000 shares of
Common Stock at a price of $0.60 per share granted to Mr. Wasko by the Company
on August 11, 1995, a five (5) year option to purchase 35,000 shares of the
Company's Common Stock at a price of $2.00 per share granted to Mr. Wasko by the
Company on November 1, 1996 and 5,333 shares of Common Stock issuable upon
conversion of two Convertible Notes aggregating $37,500.
(5) Does not give effect to 14,533 shares of Common Stock to
be transferred to ProSoft, Inc. upon successful completion of the
Genisys Payment System.
Messrs. Cutrona and Kenny may be deemed to be "parents" and
"promoters" of the Company, as those terms are defined in the rules
and regulations of the Securities Act of 1933, as amended. In
August 1994 Messrs. Cutrona and Kenny each received their Common
Stock in the Company for services to be provided to the Company.
For accounting purposes the value of these shares was recorded at
$7,840 for each individual. Mr. Pollan received his Common Stock
in August 1994 for services to be provided. See "Certain
Transactions".
SELLING STOCKHOLDERS
In addition to the Securities, the Registration Statement, of which
this Prospectus forms a part, also covers the registration of an aggregate of
287,500 Class A Redeemable Warrants and 287,500 shares of Common Stock issuable
upon the exercise of the Class A Redeemable Warrants, which were issued by the
Company in a private
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placement. The terms and conditions of the Common Stock Purchase Warrants issued
by the Company in the private placement are identical to the terms and
conditions of the Class A Redeemable Warrants being offered pursuant to this
Prospectus. The costs of qualifying these 287,500 Class A Redeemable Warrants
and 287,500 shares of Common Stock under federal and state securities laws,
together with legal and accounting fees, printing and other costs in connection
with this offering, will be paid by the Company.
Pursuant to an agreement with the Underwriter, the Class A Redeemable
Warrants and the 287,500 shares of Common Stock registered in the Registration
Statement, of which this Prospectus forms a part, may not be sold for eighteen
(18) months from the date of this Prospectus, subject, however, to earlier
release at the sole discretion of the Underwriter. Such shares are being
registered for resale purposes only and will be offered pursuant to an alternate
prospectus. The certificates representing the 287,500 Class A Redeemable
Warrants and 287,500 shares of Common Stock issuable on exercise of the Class A
Redeemable Warrants will have legends affixed setting forth such restrictions.
The Underwriter may release these securities from this eighteen (18) month
restriction at any time after the Securities offered hereby have been sold. See
"Underwriting."
The resale of securities by the Selling Stockholders are subject to
prospectus delivery and other requirements of the Securities Act. Sales of these
securities, or even the potential for such sales at any time, would likely have
an adverse effect on the market prices of the Common Stock and the Redeemable
Warrants.
The Company will not receive any proceeds from the sale of the
securities by the Selling Stockholders. If all of the Class A Redeemable
Warrants issued in the private placement are exercised, of which there is no
assurance, the Company will receive gross proceeds therefrom aggregating up to
an additional $1,653,125.
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Set forth below is a list of the Selling Stockholders and the number
of Class A Redeemable Warrants and shares of Common Stock issuable upon their
exercise which are being registered pursuant to the Registration Statement, of
which this Prospectus forms a part:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
No. of Shares No. of Shares
Percentage Owned Before issuable upon
owned after
Name (1) Offering exercise of Offering(3)
- -------- -------- ----------- ------------
Class A Redeemable No. Of
------------------ ------
Warrants (2) Warrants
Steven C. Wright 0 12,500 12,500 0
Keith C. Kammer 0 12,500 12,500 0
Paul W. Leblanc 0 12,500 12,500 0
Mildred J. Geiss 0 12,500 12,500 0
Terry Nash 0 12,500 12,500 0
Joel B. Pipe 0 25,000 25,000 0
Theodore E. Hanson 0 25,000 25,000 0
Dennis Lafer 0 25,000 25,000 0
Vincent A. Ferranti 0 25,000 25,000 0
Jason J. Leinwand 0 12,500 12,500 0
James R. Welch 0 12,500 12,500 0
Daniel Churchill 0 25,000 25,000 0
Glen Cadrez, Jr. 0 12,500 12,500 0
John Albanese Numismatics 0 12,500 12,500 0
Giuseppe Pappalardo 0 25,000 25,000 0
Joseph Perri 0 25,000 25,000 0
- --------------------------
</TABLE>
(1) The persons named in the above table have sole voting and investment power
with respect to all of the Common Stock shown as beneficially owned by them,
except as otherwise indicated.
(2) Pursuant to an agreement with the Underwriter, the Class A Redeemable
Warrants and underlying shares may not be sold for eighteen (18) months from the
date of this prospectus, subject, however, to earlier release at the sole
discretion of the Underwriter.
(3) Assumes all Class A Redeemable Warrants and underlying
shares held by the Selling Stockholders are sold.
After making the investment in the private placement, the investors
did not own, nor did any of them have any right to acquire, any other securities
of the Company. None of the investors were affiliated with the Company at the
time of making their investment, at the time of this offering, or at any other
time.
Plan of Distribution
Subject to the eighteen (18) month restriction on the offer and sale
of the 287,500 Class A Redeemable Warrants and the 287,500
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shares of Common Stock issuable on their exercise the securities offered hereby
may be sold from time to time directly by the Selling Stockholders.
Alternatively, the Selling Stockholders may, from time to time, offer such
securities through underwriters, dealers and/or agents. The distribution of
securities by the Selling Stockholders may be effected in one or more
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Stockholders in
connection with such sales. The Selling Stockholders, and intermediaries through
whom such securities are sold, may be deemed "underwriters" within the meaning
of the Securities Act with respect to the securities offered, and any profits
realized or commissions received may be deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf
of the Selling Stockholders to the extent required, a prospectus will be
distributed which will set forth the number of securities being offered and the
terms of the offering, including the name or names of any underwriter, dealer or
agent, the purchase price paid by the underwriter for securities purchased from
the Selling Stockholders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers and the proposed selling price to the public.
Under the Exchange Act and the regulations promulgated thereunder,
any person engaged in the distribution of the securities of the Company offered
by this Prospectus may not simultaneously engage in market-making activities
with respect to such securities of the Company during the applicable "cooling
off" period (which is nine (9) days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act, and
the rules and regulations promulgated thereunder, including without limitation,
Rules 10b-6 and 10b-7 in connection with transactions in such securities, which
provisions may limit the timing of purchases and sales of such securities by the
Selling Stockholders.
Sales of securities by the Selling Stockholders or even the potential
of such sales, would likely have an adverse effect on the market prices of the
securities offered hereby. Following the closing of this offering, the freely
tradeable securities of the Company ("public float"), including this offering,
will be 1,159,101 shares of Common Stock, 1,500,000 Class A Redeemable Warrants
and 900,000 Class B Redeemable Warrants. This does not including an aggregate of
287,500 Class A Redeemable Warrants and the 287,500 shares of Common Stock
issuable upon exercise of the
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Class A Redeemable Warrants owned by the Selling Stockholders, which are not
transferable for eighteen (18) months commencing on the date of this Prospectus
or at such earlier date as may be permitted by the Underwriter, which may
release such securities at any time after all securities subject to this
offering have been sold and assuming no exercise of the Underwriter's Purchase
Option. See "Descriptions of Securities" and "Underwriting".
DESCRIPTION OF SECURITIES
Common Stock
The Company is currently authorized to issue 75,000,000 shares of
Common Stock, having a par value of $.0001 per share of which 3,280,594
(including 333,216 shares issued to Mr. Pollan) are outstanding prior to the
offering contemplated hereby. Each share of Common Stock entitles the holder
thereof to one vote on each matter submitted to the stockholders of the Company
for a vote thereon. The holders of Common Stock: (I) have equal ratable rights
to dividends from funds legally available therefor when, as and if declared by
the Board of Directors; (ii) are entitled to share ratably in all of the assets
of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights, or redemption or sinking
fund provisions applicable thereto; and (iv) as noted above, are entitled to one
non-cumulative vote per share on all matters submitted to stockholders for a
vote at any meeting of stockholders. The Company has not paid any dividends on
its Common Stock to date. The Company anticipates that, for the foreseeable
future, it will retain earnings, if any, to finance the continuing operations of
its business. The payment of dividends will depend upon, among other things,
capital requirements and operating and financial conditions of the Company.
Redeemable Common Stock Purchase Warrants
The Company is offering 2,400,000 Redeemable Warrants, 1,500,000 of
which will be "Class A Redeemable Warrants" and 900,000 of which will be "Class
B Redeemable Warrants," at an anticipated public offering price of $.20 per
Class A Redeemable Warrant and $.10 per Class B Redeemable Warrant. Each
Redeemable Warrant shall be exercisable for a period of 48 months, commencing
six (6) months from the date hereof.
Class A Redeemable Warrants
Each Class A Redeemable Warrant shall entitle the holder to acquire
one share of Common Stock at a price equal to $5.75 per share. Commencing twelve
months after the Effective Date, the
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Company will have the right at any time to redeem all, but not less than all, of
the Class A Redeemable Warrants at a price equal to twenty cents ($.20) per
Redeemable Warrant, provided that the closing bid price of the Common Stock
equals or exceeds $6.25 per share for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption.
Class B Redeemable Warrants
Each Class B Redeemable Warrant shall entitle the holder to acquire
one share of the Common Stock at a price equal to $6.75 per share. Commencing
twelve months after the Effective Date, the Company will have the right at any
time to redeem all, but not less than all, of the Class B Redeemable Warrants at
a price equal to ten cents ($.10) per Redeemable Warrant, provided that the
closing bid price of the Common Stock equals or exceeds $7.25 per share for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the
issuance of up to 25,000,000 shares of Preferred Stock, $.0001 par value per
share. None of such Preferred Stock has been designated or issued. The Board of
Directors is authorized to issue shares of Preferred Stock from time to time in
one or more Class and, subject to the limitations contained in the Certificate
of Incorporation and any limitations prescribed by law, to establish and
designate any such Class and to fix the number of shares and the relative
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights. If
the Board of Directors authorizes the issuance of shares of Preferred Stock with
conversion rights, the number of shares of Common Stock outstanding could
potentially be increased by up to the authorized amount. Issuance of shares of
Preferred Stock could, under certain circumstances, have the effect of delaying
or preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock. Also, the Preferred Stock could have
preferences over the Common Stock (and other series of preferred stock) with
respect to dividends and liquidation rights.
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Private Placement
The terms and conditions of the Common Stock Purchase Warrants issued
by the Company in the private placement are identical to the terms and
conditions of the Class A Redeemable Warrants. All of the securities issued in
the private placement are being registered in the Registration Statement, of
which this Prospectus forms a part. Pursuant to an agreement with the
Underwriter, such warrants and shares of Common Stock may not be sold until
eighteen (18) months from the date of this Prospectus, subject, however, to
earlier release at the sole discretion of the Underwriter. The certificates
representing the 287,500 Class A Warrants and the 287,500 shares of Common Stock
issuable on exercise of the Class A Redeemable Warrants will have legends
affixed setting forth such restrictions. The Underwriter may release these
securities from this eighteen (18) month restriction at any time after all of
the Securities offered hereby have been sold. See "Underwriting."
Transfer and Warrant Agent
Continental Stock Transfer & Trust Company is the Registrar
and Transfer Agent for the Common Stock and the Registrar and
Warrant Agent for the Redeemable Warrants.
MARKET INFORMATION
The Common Stock and Class A Redeemable Warrants and Class B
Redeemable Warrants are expected to be listed for quotation on NASDAQ under the
symbols: "GENS," "GENSW" and "GENX" respectively. In order to maintain such
listings, the Company must have under the current rules of the National
Association of Securities Dealers, Inc. ("NASD"),among other things, $2,000,000
in total assets, $1,000,000 in total capital and surplus, $1,000,000 in market
value of public float and a minimum bid price of $1.00 per share. Should the
Company be unable to satisfy the requirements for continued quotation, trading,
if any, in the Securities would be conducted in the over-the-counter market in
what are commonly referred to as the "pink sheets" of the National Quotation
Bureau, Inc. or on the NASD OTC Electronic Bulletin Board. If this were to
occur, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the price of such securities.
On November 6, 1996, NASDAQ approved changes to its listing
requirements which will be submitted to the Securities and Exchange Commission
("Commission") for final approval. If the current proposal is approved without
modification, continued listing on NASDAQ would require that the Company meet
certain more stringent qualifications with respect to either market value or net
income as
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<PAGE>
well as criteria regarding the number of shares of Common Stock in the public
float and the bid price per share of Common Stock. The Company must also have a
minimum of two independent directors and meet other corporate governance
criteria. The Company intends to nominate two independent directors and believes
that it will be able to meet the remaining criteria for continued listing.
UNDERWRITING
General
Subject to the terms and conditions set forth in the Underwriting
Agreement by and between the Company and the Underwriter ("Underwriting
Agreement"), the Underwriter has agreed to purchase on a "firm commitment"
basis, an aggregate of 900,000 shares of Common Stock and 2,400,000 Redeemable
Warrants (exclusive of the 135,000 shares of Common Stock and 360,000 Redeemable
Warrants subject to the Over-Allotment Option).
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Redeemable Warrants to the public at the public offering price
set forth on the cover page of this Prospectus. The Securities are offered by
the Underwriter subject to: (I) approval of certain legal matters by counsel to
the Underwriter; and (ii) certain other conditions typical of such agreements
specified in the Underwriting Agreement.
The Company has agreed to sell the Securities to the Underwriter at a
discount of 10% of the public offering price thereof. The Company has also
agreed to pay the Underwriter the Non-Accountable Expense Allowance (as
previously defined) equal to 3% of the aggregate offering price of the
Securities ($50,000 of which was advanced to the Underwriter). Pursuant to the
provisions of the Underwriting Agreement, in the event that the Company's public
offering is terminated for any reason, the Underwriter shall be reimbursed for
all its accountable expenses. Any amounts previously paid shall be credited
against any amounts due.
The Underwriter has informed the Company that it does not intend to
confirm sales to any accounts over which it exercises discretionary authority.
Prior to the Company's public offering, there has been no public
trading market for the Securities. The offering price of the Common Stock and
the offering and exercise prices of the Redeemable Warrants were determined by
negotiation between the Company and the Underwriter. The factors considered by
the Company and the Underwriter in determining the public offering price of the
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<PAGE>
Common Stock and the offering and exercise prices of the Redeemable Warrants, in
addition to prevailing market conditions, were management's assessment of the
Company's business potential and earning prospects and the prospects for growth
in the industry in which the Company operates. The public offering price may not
bear any relationship to the Company's assets, book value, net worth or other
criteria of value applicable to the Company.
The Underwriter has required that all officers and directors and
holders of 5% or more of the issued and outstanding shares of Common Stock and
securities exercisable, convertible or exchangeable for shares of Common Stock,
other than Mr. Pollan and 200,000 of the shares held by Loeb, agree to a lock-up
of their securities for a period of not less than eighteen (18) months in order
for the Underwriter to engage in the Offering as well as in order to maintain a
more orderly trading market. Such shares will have a legend placed on the
certificates to express the lock-up.
The Underwriting Agreement prohibits the Company from issuing any
capital stock or other securities without the Underwriter`s prior consent for a
period of eighteen (18) months following the Effective Date of the Registration
Statement. The Underwriter has no present intention of waiving such restriction.
This provision may limit the Company's ability to raise additional equity
capital.
The Over-Allotment Option
The Company has granted to the Underwriter the Over-Allotment Option
which is exercisable for a period of forty-five(45) days from the date hereof to
purchase up to an additional 135,000 shares of Common Stock and 360,000
Redeemable Warrants (equal to an aggregate of up to 15% of the number of shares
of Common Stock and Redeemable Warrants offered by the Company to the public)
for the purpose of covering over-allotments. The Over-Allotment Option is
exercisable upon the same terms and conditions as are applicable to the sale of
the Securities.
The Underwriter's Purchase Option
As part of the consideration to the Underwriter for its services in
connection with the public offering described herein, the Company has agreed to
issue and sell to the Underwriter, at the closing, for nominal consideration,
five (5) year warrants to purchase such number of shares of Common Stock and
Redeemable Warrants as shall equal 10% of the number of shares of Common Stock
and Redeemable Warrants (excluding the Over-Allotment Option) being underwritten
for the account of the Company at a price of $.0001 per warrant ("Warrants").
The Warrants shall be exercisable at any time during a period of four(4) years
commencing at the beginning of the second year after their issuance and sale at
a price
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equaling 120% of the public offering price of the shares of Common Stock and
Redeemable Warrants.
During the period in which the Underwriter's Purchase Option is
exercisable, the holders thereof are given the opportunity to profit from a rise
in the market price of the Securities which may result in a dilution of the
interest of the stockholders. The Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Underwriter's Purchase Option is outstanding. At any time when the
holders thereof might be expected to exercise such Warrants, the Company would
probably be able to obtain additional equity capital on terms more favorable
than those provided by the Underwriter's Purchase Option. Any profit realized on
the sale of securities issuable upon the exercise of the Underwriter's Purchase
Option may be deemed additional underwriter compensation.
Registration Rights
In connection with the underwriting of the Company's public offering,
the Company has granted to the Underwriter certain "piggy back" and "demand"
registration rights. Pursuant to the terms of the Underwriting Agreement, the
Company agrees that, for a period of seven (7) years from the effective date of
the public offering of the shares of Common Stock and Redeemable Warrants, if
the Company intends to file a Registration Statement or Statements for the
public sale of securities for cash (other than a Form S-8, Form S-4 or
comparable Registration Statement), it will notify all of the holders of the
Warrants and/or underlying securities and if so requested it will include
therein material to permit a public offering of the securities underlying the
Warrants at the expense of the Company (excluding fees and expenses of the
holder's counsel and any underwriting or selling commissions). In addition, for
a period of five (5) years from such effective date, upon the written demand of
holder(s) representing a majority of the Warrants, the Company agrees, on one
occasion, to promptly register the underlying Securities at the expense of the
Company (excluding fees and expenses of the holder's counsel and any
underwriting or selling commissions).
Finder's Fees
The Company believes that no finder has been associated with the
Company's public offering as described herein and that the Company does not have
any obligation to pay a finder's fee to anyone in connection with this Offering
or any of its other pending transactions. A action has been commenced against
the Company seeking such a fee, however. See "Business-Litigation."
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<PAGE>
Warrant Solicitation Fee
Pursuant to the Underwriting Agreement, the Company has agreed that
the Underwriter shall act as the Company's exclusive agent with respect to the
solicitation of the Redeemable Warrants, and receive from the Company a
commission equal to 4% of the exercise price of the Redeemable Warrants
("Warrant Solicitation Fee") commencing twelve (12) months after the effective
date of the Registration Statement, payable upon exercise, if; (I) the market
price of the Common Stock on the date that any such Redeemable Warrant is
exercised is greater than the exercise price of the Redeemable Warrant; (ii) the
exercise of such Redeemable Warrant was solicited by a member of the National
Association of Securities Dealers, Inc.; (iii) the Redeemable Warrant is not
held in a discretionary account; (iv) disclosure of this compensation
arrangement is made both at the time of the public offering and at the time of
the exercise of such Redeemable Warrant; and (v) solicitation of the exercise is
not in violation of Rule 10b-6 of the Exchange Act. No commission will be paid
to the Underwriter on Redeemable Warrants voluntarily exercised within one (1)
year of the Effective Date or on Redeemable Warrants voluntarily exercised at
any time without solicitation by the Underwriter.
In addition, unless granted an exemption by the Commission from Rule
10b-6 under the Exchange Act, the Underwriter will be prohibited from engaging
in any market making activities or solicited brokerage activities with respect
to the Company's securities for the period from nine business days prior to any
solicitation of the exercise of any Redeemable Warrant or nine (9) business days
prior to the exercise of any Redeemable Warrant based on a prior solicitation
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Underwriter may have to
receive such a fee for the exercise of the Redeemable Warrants following such
solicitation. As a result, the Underwriter may be unable to continue to provide
a market for the Company's securities during certain periods while the
Redeemable Warrants are exercisable.
Other Terms of the Underwriting
The Company has agreed not to issue, sell, offer to sell, grant any
option relating to the sale of or otherwise dispose of (directly or indirectly)
any of the Company's equity securities (including securities convertible into,
exercisable for or exchangeable into equity securities) without the
Underwriter's prior written consent, except for issuances pursuant to: (I) the
exercise of the Underwriter's Purchase Option; (ii) the Company's public
offering of securities as described herein; (iii) a declaration of dividends,
recapitalization, reorganization or similar transaction; or (iv) a currently
existing stock incentive or option plan, for eighteen (18) months from the
Effective Date.
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In addition, each officer, director and stockholder who owns 5% or more of the
Company's equity securities, other than Mr. Pollan and other than 200,000 of the
shares held by Loeb has agreed not to sell, transfer, convey, pledge,
hypothecate or otherwise dispose of any of the respective securities of the
Company owned by them for a period of eighteen (18) months from the Effective
Date without the Underwriter's prior approval.
In connection with and as consideration for the Underwriter's
participation in the Company's public offering, the Company has given the
Underwriter the right, upon completion of such public offering, to designate a
person to attend all meetings of the Company's Board of Directors for a period
of five (5) years. Such person need not be a director but shall be entitled to
attend all such meetings and to receive all notices and other correspondence and
communications sent by the Company to members of its Board of Directors. As of
the date hereof, the Underwriter has not identified a designee nor has it
expressed to the Company the desire to exercise its right to select such a
designee.
The Company has agreed to retain the Underwriter as its financial
consultant for a period of twenty-four (24) months commencing upon consummation
of this Offering at a monthly retainer of $2,000, all of which is payable in
advance upon such consummation.
Loeb Holding Corporation made a short-term subordinated loan to the
Underwriter in the principal amount of $1,500,000 in order for the Underwriter
to meet its net capital requirements under applicable Commission and NASD
regulations.
Indemnification
The Company has agreed to indemnify the Underwriter and others
against certain liabilities, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be provided to officers, directors or persons controlling the Company, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy and is therefore unenforceable. The
Underwriter has agreed to indemnify the Company, its directors, and each person
who controls it within the meaning of Section 15 of the Securities Act with
respect to any statement in or omission from the Registration Statement, the
Prospectus or any amendment or supplement thereto if such statement or omission
was made in reliance upon information furnished in writing to the Company by the
Underwriter specifically for or in connection with the preparation of the
Registration Statement, the Prospectus, or any such amendment or supplement
thereto.
The foregoing summaries of certain terms and conditions of
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<PAGE>
the Underwriting Agreement and the Underwriter's Purchase Option
state all the material elements of such documents. Copies of the
foregoing documents have been filed with the Commission as exhibits
to the Registration Statement of which this Prospectus forms a part
and are also on file at the offices of the Underwriter and the
Company. Reference is hereby made to each such exhibit for a
detailed description of the provisions thereof which have been
summarized above. See "Available Information."
LEGAL MATTERS
Certain legal matters in connection with the issuance of the
securities being offered by the Company will be passed upon for the Company by
McLaughlin & Stern, LLP, New York, New York. A member of the firm of McLaughlin
& Stern, LLP owns 5,000 shares of the Company's Common Stock. Legal matters for
the Underwriter will be passed upon by Scheichet & Davis, P.C., New York, New
York.
EXPERTS
The Financial Statements of the Company included in this Prospectus
to the extent and for the periods indicated in their report have been reported
on by Wiss & Company, LLP, independent certified public accountants, as stated
in their report appearing herein in reliance upon such report given on the
authority of that firm as experts in accounting and auditing.
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<PAGE>
No dealer, salesperson or other
person has been authorized to give any
information or to make any representations
in connection with this Offering
other than those contained in this
Prospectus and, if given or made, such
information or representations must not
be relied on as having been
authorized by the Company. This GENISYS RESERVATIONS
Prospectus does not constitute an offer SYSTEMS, INC.
to sell or a solicitation of an offer to
buy any security other than the
securities offered by this Prospectus,
or an offer or solicitation of an offer
to buy any securities by any person in
any jurisdiction in which such offer or
solicitation is not authorized or is
unlawful. The delivery of this
Prospectus shall not, under any circum
stances, create any implication that the
information herein is correct as of any
time subsequent to the date of this
Prospectus.
- ----------------------------
TABLE OF CONTENTS Page
Available Information
Prospectus Summary
Risk Factors 900,000 Shares Of Common Stock
Use of Proceeds 1,500,000 Class A Redeemable Warrants
Capitalization 900,000 Class B Redeemable Warrants
Dilution
Dividend Policy R.D. WHITE & CO., INC.
Management's Discussion
and Analysis of
Financial Condition
and Results of
Operations
Business
Management
Certain Transactions
Principal Stockholder
Selling Stockholders
Description of Securities
Market Information
Underwriting
Legal Matters
Experts
Financial Statements
Until _________, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Securities offered hereby, whether or not
participating in the distribution, may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with regard to their unsold allotments or subscription.
<PAGE>
Alternate Cover Page - The Offering
SUBJECT TO COMPLETION, DATED MARCH , 1997
PROSPECTUS
287,500 Class A Redeemable Warrants and
287,500 Shares of Common Stock Underlying such Warrants
GENISYS RESERVATION SYSTEMS, INC.
This Prospectus relates to the offering of 287,500 Class A Redeemable
Warrants and 287,500 shares of common stock ("Common Stock"), par value $.0001
per share, of Genisys Reservation Systems, Inc. a New Jersey corporation
("Company") issuable upon exercise of Class A Redeemable Warrants issued in a
private placement. The securities offered hereby may not be transferred for
eighteen (18) months from the date hereof, subject to earlier release at the
sole discretion of R.D. White & Co., Inc. which is acting as the underwriter in
connection with a public offering of the Company's securities ("Underwriter").
The certificates evidencing such securities include a legend with such
restrictions. The Underwriter may release the securities held by the Selling
Stockholders at any time.
The Securities offered by this Prospectus may be sold from time to time
by the Selling Stockholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Stockholders. The
distribution of the securities by the Selling Stockholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders in connection with sales of such securities. Transfers of the
securities may also be made pursuant to applicable exemptions under the
Securities Act of 1933 ("Securities Act") including but not limited to sales
under Rule 144 under the Securities Act.
The Selling Stockholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act.
On the date hereof, the Company commenced pursuant to the Registration
Statement of which this Prospectus is a part of a public offering of 900,000
shares of Common Stock, 1,500,000 Class A Redeemable Warrants, and 900,000 Class
B Redeemable Warrants. (Collectively "Redeemable Warrants") See "Concurrent
Sales."
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Stockholders, but will receive proceeds upon the
exercise of the Class A Redeemable Warrants included herein. All costs in
incurred in the registration of the securities of the Selling Stockholders are
being borne by the Company. See "Selling Stockholders."
The Company intends to furnish its security holders with annual reports
containing audited financial statements and the audit report of the independent
certified public accountants and such interim reports as it deems appropriate or
as may be required by law. The Company's fiscal year ends December 31.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS", WHICH BEGINS ON PAGE , AND "DILUTION" PAGE .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------------
The date of this Prospectus ______ __ , 1997
72
<PAGE>
The Offering
Securities Offered by
Selling Stockholders............287,500 Class A Redeemable Warrants
and 287,500 Shares Issuable
upon exercise of outstanding
Class A Redeemable Warrants
Securities Outstanding
Prior to the Company`s
Offering:
Common Stock(3).............. 4,195,594 Shares
Series A Warrants............ 1,787,500 Warrants
Series B Warrants............ 900,000 Warrants
Securities Outstanding
After the Company`s
Offering:
Common Stock(1)(3)............ 4,483,094 Shares
Series A Warrants(2).......... 1,500,000 Warrants
Series B Warrants(2).......... 900,000 Warrants
Use of Net Proceeds........... See "Use of Proceeds"
Proposed Symbol(4)
Common Stock.................GENS
Class A Warrants..... .......GENSW
Class B Warrants.............GENSZ
- ------------------------------
(1) Does not include: (a) 2,400,000 shares of Common Stock issuable upon
exercise of the Redeemable Warrants; (b) 135,000 shares of Common Stock
issuable upon exercise of the Over-Allotment Option and 360,000 shares
of Common Stock issuable upon the exercise of the Redeemable Warrants
contained therein. See "Description of Securities," "Principal
Stockholders," and "Underwriting."
(2) Does not include the issuance of 360,000 Redeemable Warrants issuable
upon exercise of the Over-Allotment Option. See "Underwriting" and
"Description of Securities."
(3) Includes 15,000 shares of Common Stock issuable upon the conversion of
two promissory notes at the completion of this Offering in the
principal amounts of $20,000 and $10,000 respectively ("Convertible
Notes").
(4) The Shares of Common Stock and the Redeemable Warrants and are expected
to be listed for quotation on NASDAQ under the symbols: "GENS", "GENSW"
and "GENSZ", respectively. There can be no assurance given that the
Company will be able to satisfy on a continuing basis the requirements
for quotation of such securities on NASDAQ. See "Risk Factors" and
"Market for the Company's Securities and Other Related Stockholder
Matters."
73
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus and, if given or made, such
information or representations must
not be relied on as having been GENISYS RESERVATIONS
authorized by the Company. This SYSTEMS, INC.
Prospectus does not constitute an
offer to sell or a solicitation of
an offer to buy any security other
than the securities offered by this
Prospectus, or an offer or solicita
tion of an offer to buy any securities
by any person in any jurisdiction in
which such offer or solicitation is
not authorized or is unlawful. The
delivery of this Prospectus shall not,
under any circumstances, create any
implication that the information
herein is correct as of any time
subsequent to the date of this
Prospectus.
____________________________ 287,500 Class A Warrants
TABLE OF CONTENTS Page and
287,500 Shares Of
Available Information Common Stock Issuable
Prospectus Summary upon exercise of
Risk Factors outstanding Class A
Use of Proceeds Warrants
Capitalization
Dilution
Dividend Policy
Management's Discussion
and Analysis of
Financial Condition
and Results of
Operations
Business
Management
Certain Transactions
Principal Stockholder
Selling Stockholders
Description of Securities
Market Information
Underwriting
Legal Matters
Experts
Financial Statements
Until _________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Securities offered hereby, whether or
not participating in the distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with regard to their unsold
allotments or subscription.
74
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1996 F-3
Consolidated Statements of Operations for the
Year Ended December 31, 1996, the
Four Months Ended December 31, 1995, the Year
Ended August 31, 1995, and the
Period From March 7, 1994 (commencement of
development stage activities) to
December 31, 1996
F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for the Year Ended December 31, 1996,
the Four Months Ended December 31, 1995, and Year
Ended August 31, 1995
Consolidated Statements of Cash Flows for the Year
Ended December 31, 1996, the Four Months Ended
December 31, 1995, the Year Ended August 31, 1995,
and the Period From March 7, 1994 (commencement
of development stage activities) to December 31 ,1996
Notes to Consolidated Financial Statements F-7 to F-16
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Genisys Reservation Systems, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Genisys
Reservation Systems, Inc. and Subsidiary (formerly Robotic Lasers, Inc. and a
Development Stage Company) as of December 31, 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1996, the four months ended December 31, 1995, the year
ended August 31, 1995, and for the period from March 7, 1994 (commencement of
development stage activities) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Genisys Reservation
Systems, Inc. and Subsidiary (formerly Robotic Lasers, Inc. and a Development
Stage Company) at December 31, 1996 and the results of their operations and
their cash flows for the year ended December 31, 1996, the four months ended
December 31, 1995, the year ended August 31, 1995 and for the period from March
7, 1994 (commencement of development stage activities) to December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage company and has
suffered recurring losses from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WISS & COMPANY, LLP
Woodbridge, New Jersey
January 31, 1997 (except as to the waiver of default described in Note 3, for
which the date is February 21, 1997)
F-2
<PAGE>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 91,548
Prepaid expenses 1,081
--------------
Total Current Assets $ 92,629
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF $65,102
235,285
OTHER ASSETS:
Computer software costs, less accumulated amortization of $35,215
312,171
Deferred offering costs 153,210
Debt issue costs, less accumulated amortization
of $10,957 45,393
Deposits and other 64,910
-------------
575,684
$ 903,598
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 161,282
Accounts payable and accrued expenses 304,490
Due to related parties 29,652
Accrued interest payable - related parties 95,748
Accrued consulting fees - related parties 101,500
-----------
Total Current Liabilities $ 692,672
LONG-TERM DEBT:
Long-term debt, less current maturities 1,009,757
10% Promissory notes payable 563,500
Convertible notes payable 30,000
-------------
1,603,257
Total Liabilities 2,295,929
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.0001 par value: 25,000,000 shares authorized; none
outstanding -
Common stock, $.0001 par value: 75,000,000 shares authorized; 3,280,594
shares issued and outstanding 328
Additional paid-in capital 252,344
Deficit accumulated during development stage (1,645,003)
Total Stockholders' Equity (Deficiency) (1,392,331)
$ 903,598
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARY
(Formerly Robotic Lasers, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Period From
March 7, 1994
Year Four Months Year (Commencement of
Ended Ended Ended Development
December 31, December 31, August 31, Stage Activities) to
1996 1995 1995 December 31, 1996
----------------- ---------------- --------------- --------------------
REVENUES AND EXPENSES DURING THE DEVELOPMENT
STAGE:
Revenues $ - $ - $ - $ -
---------------- ---------------- ---------------- -----------
Expenses:
General and administrative 819,205 250,454 256,621 1,357,696
Depreciation and 97,721 18,453 240 116,508
amortization
Interest expense 134,277 24,303 12,219 170,799
------------ ------------- ------------- ------------
1,051,203 293,210 269,080 1,645,003
----------- ------------ ------------ -----------
NET LOSS INCURRED DURING THE
DEVELOPMENT STAGE $(1,051,203) $ (293,210) $ (269,080) $(1,645,003)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE $(.36) $(.11) $(.16) $(.74)
===== ===== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,904,482 2,594,503 1,694,611 2,230,821
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Total Shares Par Value Capital Stage
BALANCE, AUGUST 31, 1994 $ (21,510) 1,682,924 $ - $ 10,000 $ (31,510)
YEAR ENDED AUGUST 31, 1995:
Contribution of services rendered 9,600 - - 9,600 -
Net assets received (liabilities assumed)
in reverse acquisition of Robotic Lasers, Inc. (14,087) 280,487 28 (14,115) -
Change in par value - - 168 (168) -
Net loss (269,080) - - - (269,080)
---------- ---------------- ------------- -------------- ----------
BALANCE, AUGUST 31, 1995 (295,077) 1,963,411 196 5,317 (300,590)
PERIOD ENDED DECEMBER 31, 1995:
Conversion of related party debt into
term note and common stock 13,406 841,455 84 13,322 -
Net loss (293,210) - - - (293,210)
---------- ---------------- ------------- ----------- -----
BALANCE, DECEMBER 31, 1995 (574,881) 2,804,866 280 18,639 (593,800)
YEAR ENDED DECEMBER 31, 1996:
Issuance of common stock:
For cash 110,000 55,000 6 109,994 -
For conversion of stockholder note
into term note
and common stock 6,703 420,728 42 6,661 -
Contribution to capital by
stockholder/officer 76,700 - 76,700 -
Issuance of warrants, less
related costs of $1,150 10,350 - 10,350 -
Common stock (15,000 shares)
transferred to certain
employees by a stockholder in
consideration of services rendered
30,000 - - 30,000 -
Net loss (1,051,203) - - (1,051,203)
----------- ------------------ ---------------- ------------------
BALANCES, DECEMBER 31, 1996 $(1,392,331) 3,280,594 $ 328 $ 252,344 $(1,645,003)
See accompanying notes to consolidated financial statements.[
</TABLE>
F-5
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARY
(Formerly Robotic Lasers, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
Period from
March 7, 1994
Four Months Year (Commencement of
Year Ended Ended Ended Development
December 31, December 31, August 31, Stage Activities) to
1996 1995 1995 December 31, 1996
-------------- -------------- ------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,051,203) $ (293,210) $ (269,080) $(1,645,003)
Adjustment to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 97,721 18,453 240 116,508
Contribution of services
rendered 30,000 - 9,600 49,600
to capital
Changes in operating assets
and liabilities:
Prepaid (378) 3,031 (3,734) (1,081)
expenses
Other assets (38,162) 218,053 (243,255) (65,564)
Accounts
payable and accrued expenses 365,630 27,649 94,372 487,651
------------ ----------- ----------- ------------
Net cash flows from operating activities (596,392) (26,024) (411,857) (1,057,889)
----------- ----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Acquisition of equipment and software (327,999) (319,774) - (647,773)
------------ ---------- ----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans and advances from related parties 10,526 7,506 (12,001) 29,652
Proceeds from issuance of notes payable 305,000 215,000 435,000 955,000
Payments under computer equipment leases (53,352) (9,724) - (63,076)
Proceeds from sale and lease-back 150,162 144,482 - 294,644
Proceeds from issuance of convertible notes 30,000 - _ 30,000
Proceeds from sale of common stock 110,000 - - 110,000
Contribution to capital - stockholder/officer 76,700 - - 76,700
Proceeds from issuance of 10% promissory notes
and related warrants 575,000 - - 575,000
Costs paid upon issuance of promissory notes
and warrants (57,500) - - (57,500)
Deferred offering costs (153,210) - - (153,210)
----------- ----------------- ---------------------------
Net cash flows from financing activities 993,326 357,264 422,999 1,797,210
----------- ----------- ---------- -----------
NET CHANGE IN CASH 68,935 11,466 11,142 91,548
CASH, BEGINNING OF PERIOD 22,613 11,147 5 -
------------ ------------ ------------- -----------
CASH, END OF PERIOD $ 91,548 $ 22,613 $ 11,147 $ 91,548
=========== =========== ========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 37,250 $ 8,426 $ - $ 45,676
=========== ============ ============== ============
Net liabilities assumed in reverse acquisition
$ - $ - $ 14,087 $ 14,087
=============== =============== ========== ============
Conversion of related party debt into common
stock
$ 6,703 $ 13,406 $ - $ 20,109
============ =========== ============== ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
GENISYS RESERVATION SYSTEMS, INC. AND SUBSIDIARY
(Formerly Robotic Lasers, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - History of the Company, Nature of the Business and Summary of
Significant Accounting Policies:
History of the Company and Nature of the Business - Genisys
Reservation Systems, Inc. (the "Company") was originally
incorporated in April 1986 as JECO2 Lasers, Inc., changed its
name to Robotic Lasers, Inc. in December 1987 and further
changed to its current name in July 1996. In March 1995, the
Company sold all of its assets, rights and properties relating
to a certain laser research and development agreement (subject
to certain liabilities). On August 11, 1995, the Company
acquired Corporate Travel Link, Inc. ("Travel Link") a
development stage company, by issuing 1,682,924 shares of its
restricted common stock in exchange for all of the then issued
and outstanding shares of common stock of Travel Link. For
accounting purposes, the share exchange transaction and
combination of Travel Link with the Company has been treated as
a reverse acquisition by, and a recapitalization of, Travel
Link. The net assets of the Company of $(14,000) consisted
primarily of accounts payable of $14,000. The previous
historical financial statements of the Company are no longer
reported and the financial statements of Travel Link (since its
formation in March 1994) are now reported as the historical
consolidated financial statements of the Company and its
subsidiary.
The Company is a development stage company and is developing
computerized limousine reservation and payment systems for the
business traveler. The Company anticipates that the proprietary
software being developed will enable a system of limousine
reservations to be completely computerized and operate without
human intervention.
The Company has generated no revenues and has no commercial
operations to date. The Company has been unprofitable since
inception and expects to incur additional operating losses over
the next several quarters. The Company expects to commence
generating revenue from operations during the fiscal year ending
December 31, 1997.
Estimates and Uncertainties - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results, as
determined at a later date, could differ from those estimates.
Principles of Consolidation - As indicated above, the
consolidated financial statements include the accounts of the
Company's wholly-owned subsidiary, Travel Link and, since August
11, 1995, those of the Company. Retroactive effect has been
given to the exchange of shares for Travel Link to March 7,
F-7
<PAGE>
1994. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Financial Instruments - Financial instruments include cash and
equivalents, other assets, accounts payable, accrued expenses
and long-term debt. The amounts reported for financial
instruments are considered to be reasonable approximations of
their fair values, based on market information available to
management.
Cash and Equivalents - The Company considers all highly liquid
debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Concentration of Credit Risk - The Company maintains its cash
balances in several financial institutions. The accounts at each
institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1996, there were no
uninsured balances.
Property and Equipment - Property and equipment is stated at
cost and depreciated using the straight-line method over
an estimated useful life of 5 years.
Computer Software Costs Relating to Reservation and Payment
Systems - The Company capitalizes the external direct costs of
materials and services and interest consumed in the development
of the Genisys Reservation and Payment Systems (no internal
direct costs are anticipated). Such costs will be amortized on a
straight-line basis over three years, subject to periodic
evaluation for impairment.
Deferred Offering Costs - Offering costs have been deferred,
pending the outcome of the offering contemplated herein. If the
offering is successful, these costs will be charged against
additional paid-in capital, otherwise, they will be charged to
expense.
Debt Discount and Debt Issue Costs - Costs related to the
issuance of debt are capitalized. Such costs and any related
debt discount are amortized over the term of the related debt.
Income Taxes - Deferred tax assets and liabilities are computed
annually for temporary differences between the financial
statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which
the temporary differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
F-8
<PAGE>
Stock Options - The Company accounts for stock option grants
using the intrinsic value based method prescribed by APB Opinion
No. 25. Since the exercise price equalled or exceeded the
estimated fair value of the underlying shares at the date of
grant, no compensation was recognized in 1996 and 1995.
Had compensation cost been based upon the fair value of the
option on the date of grant, as prescribed by Statement of
Financial Accounting Standards No. 123, the Company's proforma
net loss and net loss per share would have been approximately
$(1,086,000) ($.37 per share) in 1996 and $(313,000) ($.12 per
share) for the period ended December 31, 1995, using the Black
Sholes option pricing model.
Fiscal Year - In December 1995, the Board of Directors voted to
change the Company's fiscal year to a calendar year, effective December 31,
1995.
Net Income (Loss) Per Common Share - Net income (loss) per
common share is based upon the weighted average number of
outstanding common shares. The shares issuable upon the exercise
of outstanding warrants and options or upon conversion of
outstanding debt have been excluded since the effect would be
antidilutive, due to net losses for all periods presented.
Note 2 - Operating and Liquidity Difficulties and Management's Plans to
Overcome:
The accompanying financial statements of the Company have been
presented on the basis that it is a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has
reported net losses since inception and expects to incur
additional operating losses over the next several quarters. The
Company has also experienced liquidity difficulties since
inception, and in order to continue the development of the
Company's reservation and payment system, needs significant
additional financing. The Company has financed its operations
since inception with the proceeds from the issuance of long-term
debt.
Since inception, the operations of the Company have been limited
to market research and developing a software and hardware system
for computerizing the limousine reservation and payment system.
The development of both the reservation and payment systems have
been completed and are currently undergoing testing. No
assurance can be given that the Company's reservation and
payment system will achieve commercial feasibility.
The Company's working capital and its capital requirements will
depend upon numerous factors, including, without limitation, the
progress of the Company's system development and testing,
competition, industry technological advances and the ability of
the Company to market its limousine reservation system. The
Company will require additional significant financing to
complete the system development and testing, cover anticipated
F-9
<PAGE>
losses and sustain operations in 1997 and beyond and, in
addition, to satisfy the repayment of long-term debt. There can
be no assurance that the financing needed for attaining
commercial viability of the Company's reservation and payment
system will be obtained. If the Company is unable to raise
sufficient capital, it will delay and could prevent the
Company's ability to bring the reservation and payment systems
on-line.
The Company intends to fund its operations and other capital
needs for the next twelve months substantially from the net
proceeds of additional borrowings and a contemplated public
offering, but there can be no assurance that the net proceeds of
such contemplated offering, if successful, will be sufficient
for these purposes. There is also no assurance that such
financing will be available, or that it will be available on
acceptable terms.
Reference should be made to "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included elsewhere herein for additional information.
Note 3 - Long-term Debt:
Notes Payable - Stockholder - In February 1995, the Company
signed an agreement with a then unrelated party pursuant to
which the Company borrowed $500,000 as evidenced by a series of
Convertible Promissory Notes. In September 1995, the Convertible
Promissory Notes were converted into 841,455 shares of the
Company's common stock and two Promissory Notes with principal
amounts of $475,000 and $25,000, respectively. Such 841,455
shares had been contributed back to the Company by its original
stockholders who acquired the shares in March 1994, For
accounting purposes, such transaction has been treated as a 2
for 3 reverse stock split. The common stock issued upon
conversion and the related debt discount ($13,406) have been
recorded based upon their estimated fair values and that of the
notes.
The $475,000 note is to be repaid in twelve equal quarterly
installments commencing two years from the date of such note.
This note bears interest at nine percent (9%) per annum payable
quarterly. The $25,000 promissory note accrues interest at nine
percent (9%) per annum (payable quarterly) and is convertible at
the sole option of the note holder into 266,667 shares of common
stock of the Company. Unless previously converted, this $25,000
note will be repaid by the Company in twelve equal quarterly
installments commencing on April 1, 1998.
In December 1995, the Company and this stockholder signed an
additional loan agreement whereby the stockholder agreed to loan
the Company up to an additional $250,000. In December 1995, the
stockholder loaned the Company $150,000 and, during the first
quarter of 1996, the stockholder loaned the Company an
F-10
<PAGE>
additional $100,000. In November 1996, the stockholder converted
these additional loans, totaling $250,000, into two 9% term
notes ($237,500 and $12,500) and 420,728 shares of common stock
of the Company. The common stock issued upon conversion and the
related debt discount ($6,703) have been recorded based upon
their estimated fair values and that of the notes. The $237,500
note is to be repaid in 12 equal quarterly installments
commencing two (2) years from the date of such note. The $12,500
note is convertible into 133,333 shares of common stock of the
Company. Unless previously converted, this $12,500 note will be
repaid by the Company in twelve equal quarterly installments
commencing on April 1, 1998.
Total borrowings from the stockholder totalled $750,000 at
December 31, 1996 and accrued interest was $94,003. The Company
has not paid any interest under these loan agreements to date.
In February 1997, the stockholder agreed that interest payments
on its notes, which are currently in default, would be deferred
until September 1997. The stockholder also waived any defaults
on the notes through February 1997.
Notes Payable - Related Party - During November and December
1996, the Company and the investment banking firm described in
Note 4 signed four 18 month Promissory Notes whereby the
investment banking firm loaned the Company a total of $210,000,
of which $205,000 was received by December 31, 1996. Such Notes
bear interest at 10% and mature in May and June 1998. Accrued
interest totalled $1,745 at December 31, 1996.
Capital Leases - In September 1995, January 1996 and December
1996, the Company entered into sale and lease-back arrangements
whereby the Company sold the bulk of its computer hardware and
commercially purchased software to a lessor for amounts
totalling $295,000 and agreed to lease back such equipment for
initial terms ranging from 24 to 30 months. The obligations
under these leases at December 31, 1996 are summarized as
follows:
Imputed
Interest
Description Rate
Capital leases payable in monthly
installments totalling
$11,960 through various expiration dates,
collateralized by the computer equipment 25.4% to
and software 26.6% $321,670
Less: Amount representing interest 90,102
Present value of minimum lease payments 231,568
Less: Current maturities 88,515
----------
$143,053
F-11
<PAGE>
A summary of long-term debt follows:
Notes payable - stockholder, less unamortized
debt discount of $15,529 $ 734,471
Notes payable - related party 205,000
Capital leases 231,568
------------
1,171,039
Less: Current maturities 161,282
$1,009,757
Long-term debt matures as follows:
Year Ending December 31,
1997 $ 161,282
1998 465,557
1999 296,259
2000 186,045
2001 61,896
------------
$1,171,039
Convertible Notes Payable - In April and June 1996, the Company
borrowed a total of $30,000 from two unaffiliated parties. These
notes bear interest at 7% per annum, payable on the last day of
each calendar quarter, commencing March 31, 1997. The maturity
dates are the earlier of January 1, 1998 or upon the
consummation of a public offering of the Company's common stock.
If the maturity dates of these notes occur prior to January 1,
1998, the notes will be converted into 15,000 shares of the
Company's common stock.
Note 4 - Commitments:
Leases - The Company leases its administrative facilities under
a five-year lease expiring in November 2000. The lease provides
for annual rent of $25,500.
Rent expense totalled $26,000, $7,000, $14,000 and $54,000 for
the year ended December 31, 1996, the four months ended December
31, 1995, the year ended August 31, 1995 and the period from
March 7, 1994 (date of commencement of development stage
activities) to December 31, 1996, respectively.
F-12
<PAGE>
Employment Agreements - The Company entered into employment
agreements with its President in September 1995 (modified in
October 1996), and with its Secretary/Treasurer in October 1996.
The agreements provide for aggregate annual compensation of
$125,000 effective October 1996 and $180,000 effective January
1997, until modified by the Company.
Consulting Agreements - In October 1996, the Company executed a
consulting agreement to develop software to operate the Genisys
Payment system for a total price of $218,000 of which $109,000
would be paid in cash and $109,000 in shares of the Company's
common stock at an estimated fair value of $3.75/share. The
shares are to be transferred by two stockholders and,
accordingly, will be considered a contribution to capital. The
stockholders may obtain one-sixth of the shares contributed if
certain events occur upon each of six specified dates.
The Company entered into a consulting agreement in October 1996
with a director, who formerly served as the Company's Executive
Vice-President. The agreement provides for monthly consulting
fees of $6,500 through February 1997 and $8,400 per month
thereafter, until modified by the Company. Fees accrued during
1996 pursuant to this agreement totalled $16,000.
In September 1995, the Company entered into a three year
consulting agreement with an investment banking firm whose
managing director is a stockholder and the Chairman of the Board
of Directors of the Company. The agreement provides for a
consulting fee of $3,000 per month. During 1996, fees totalled
$36,000 and are included in accrued consulting fees at December
31, 1996. Also included in accrued consulting fees is $49,500 of
fees for consulting services provided to the Company in 1996 by
its current Chief Financial Officer.
Note 5 - Income Taxes:
Deferred income taxes reflect the net effects of temporary
differences between the amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The principal temporary difference arises from the net
operating loss carryforwards and results in a deferred tax asset
of approximately $600,000 at December 31, 1996.
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company has determined, based on its recurring net
losses, lack of a commercially viable product or system and it
being a development stage company, that a full valuation
allowance is appropriate at December 31, 1996.
F-13
<PAGE>
A reconciliation of the provision (benefit) for income taxes
computed at the federal statutory rate of 34% and the effective
tax rate of income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Period Ended Year Ended
December 31, December 31, August 31,
1996 1995 1995
----------------- ---------------- ---------
Computed tax benefit on net loss at federal statutory rate
$ (347,000) $ (99,000) $ (91,000)
State income tax benefit, net of federal income tax effect
(61,000) (17,000) (16,000)
Tax effect of net operating losses not currently usable
408,000 116,000 107,000
----------- ------------ ----------
Provision (benefit) for income taxes
$ - $ - $ -
================ ================ =========
</TABLE>
At December 31, 1996, the Company had net operating loss
carryforwards of approximately $1,600,000 expiring through 2010.
Current tax law limits the use of net operating loss
carryforwards after there has been a substantial change in
ownership (as defined) during a three year period. Because of
the possible future changes in common stock ownership, the use
of the Company's net operating loss carryforwards may be subject
to an annual limitation. To the extent amounts available under
the annual limitation are not used, they may be carried forward
for the remainder of 15 years from the year the losses were
originally incurred.
Note 6 - Stockholders' Equity:
Preferred Stock - The Company's Certificate of Incorporation
authorizes the issuance of up to 25,000,000 shares of Preferred
Stock. None of such Preferred Stock has been designated or
issued to date. The Board of Directors is authorized to issue
shares of Preferred Stock from time to time in one or more
series and to establish and designate any such series and to fix
the number of shares and the relative conversion rights, voting
rights, terms of redemption and liquidation.
Sales of Common Stock - During the quarter ended March 31, 1996,
the Company sold 5,000 shares of its restricted common stock to
a former officer and director of the Company for $10,000. In
addition, the Company sold, to an unaffiliated private investor,
25,000 shares of its restricted common stock for $50,000. In
November 1996, the Company sold 25,000 shares of the Company's
restricted common stock to another unaffiliated party for
$50,000.
F-14
<PAGE>
Stock Splits - In July 1996, the Company's stockholders approved
and effectuated a one for two reverse stock split. As indicated
in Note 3, the contribution of shares by the original
stockholders has been treated as a 2 for 3 reverse stock split.
Stock splits have been retroactively reflected in the
accompanying consolidated financial statements.
Private Offering - Pursuant to a private offering, the Company
issued 11.5 units to various unrelated parties in May and June
1996. Each $50,000 unit consists of a $49,000 three-year
promissory note (bearing interest at 10% per annum) and a Class
A redeemable common stock purchase warrant valued at $1,000 per
unit. Each warrant entitles the holder to purchase 25,000 shares
of the Company's common stock at $5.75 per share. Gross proceeds
of this private offering totalled $575,000.
The principal and interest on the promissory notes are to be
repaid at the earlier of three years from issuance of such notes
or 30 days after the closing date of the Company's first
underwritten public offering. Each Class A common stock purchase
warrant entitles the holder to purchase a share of the Company's
common stock at an exercise price of $5.75 per share. The rights
represented by this warrant are exercisable commencing 90 days
after the effective date of a public offering registration
statement until four years thereafter. The terms and conditions
of these warrants are subject to adjustment to conform with the
warrants to be registered upon the effectiveness of the
contemplated registration statement to be filed with the
Securities and Exchange Commission. Warrants to purchase 287,500
shares of the Company's common stock are currently outstanding
pursuant to this private offering.
Cancellation of Shares - In August 1996, the Company gave notice
to a former officer that it was cancelling the 333,216 shares of
its common stock which had been issued to the former officer in
connection with services to be provided at the inception of
Travel Link. Such cancellation relates to various claims made by
the Company against the former officer and failure to provide
services to the Company. The former officer has informed the
Company that he will contest any attempt by the Company to
cancel his shares. Pending return of the shares, they are
considered outstanding for all periods presented herein.
Warrants and Options - In August 1995, the Company granted an
option to purchase 25,000 shares of its common stock to an
officer, exercisable at $.60 per share through August 2000. In
November 1996, the Company granted an option to purchase 35,000
shares of its common stock to the same officer exercisable at
$2.00 per share through November 2001.
In connection with the initial lease described in Note 3,
the Company granted to the lessor a warrant to purchase a
maximum of 12,721 shares of
common stock at an exercise price of $2 per share.
F-15
<PAGE>
Contribution to Capital - During the year ended December 31,
1996, in order to raise additional working capital, the
Company's President sold 37,600 shares of restricted common
stock of the Company owned by him to nineteen unaffiliated third
parties at prices ranging from $2.00 to $2.50 per share for
total proceeds of $76,700. Such proceeds were remitted to the
Company in the form of a capital contribution. The Company's
former Executive Vice President, has agreed to use his own
shares of restricted common stock of the Company to reimburse
the Company's President for one-half of the number of shares he
sold.
Note 7 - Subsequent Event (Unaudited):
Contingency - On February 20, 1997, two individuals filed an
action against the Company, Travel Link and Robotic Lasers in
the Superior Court of New Jersey seeking, among other things,
damages in the amount of 8% of any financing secured by Travel
Link and 5% of the Company's Common Stock allegedly due for
services rendered in connection with the Company's acquisition
of Travel Link in 1995. The claim for monetary damages is based
upon an alleged written agreement between Travel Link and
plaintiffs while the claim for the shares of the Company's
Common Stock is based upon alleged oral representations and
promises made by officers of Travel Link. The Company believes
that the plaintiff's claims are without merit and intends to
vigorously defend the action and to assert numerous defenses in
its answer.
F-16
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 24. Indemnification of Officers and Directors
The Company's Certificate of Incorporation provides in Article Fourth
that no Director of the Corporation shall be liable to the Corporation or
any of its shareholders for damages for breach of any duty owed to the
Corporation or its shareholders except for liability for any breach of duty
based upon an act or omission (I) in breach of such person's duty of loyalty
to the Corporation or its shareholders, (ii) not in good faith or involving
a knowing violation of law, or (iii) resulting in receipt by such person of
an improper personal benefit.
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions, non-accountable expenses of $132,600 ($152,484 if
the Over-Allotment Option is exercised) are estimated as follows:
Securities and Exchange Commission Fees..............$ 8,026.86
NASDAQ Stock Market listing fee......................$ 10,000.00
Transfer/Warrant Agent's fee and expenses............$ 3,500.00
NASD filing fee......................................$ 934.00
Accounting fees and expenses..........................$ 35,000.00
Blue Sky fees and expenses............................$ 30,000.00
Tombstone Advertisement...............................$ 10,000.00
Printing Expenses (including Securities)... ..........$ 40,000.00
Legal fees...........................................$ 90,000.00
Miscellaneous...................................... .$ 7,539.14
Total........................................$ 235,000.00
ITEM 26. Recent Sales of Unregistered Securities
During February 1995, the Company issued 45,765 shares of Common Stock
in repayment of certain liabilities totaling $251,702. Those liabilities
included notes payable to Saddle Brook Investors of $149,633, a note payable
plus accrued interest to an officer and Director of $34,273 and certain
accounts payable of $67,796.
II-1
<PAGE>
In February 1995, Loeb Holding Corporation, as escrow agent ("Loeb"),
for Warren D. Bagatelle, HSB Capital, trusts for the benefit of families of
two principals of Loeb and three unaffiliated individuals, agreed to loan
the Company $500,000 evidenced by a series of Convertible Promissory Notes.
In September 1995, Loeb converted the Convertible Promissory Notes into
841,455 shares of Common Stock and two Term Promissory Notes, one in the
principal amount of $475,000 and the other in the principal amount of
$25,000.
The principal amount of the $475,000 note is to be repaid in twelve
equal quarterly payments commencing two (2) years from the date of said
note. Prepayments may be made at any time without penalty. Interest is
accrued at a rate of 9% per annum and interest payments are to made
quarterly at the end of each calendar quarter, or at such earlier date that
the Note becomes due and payable as a result of acceleration, prepayment or
as otherwise provided therein. Interest began to run from the date that the
monies were advanced to the Company.
The Term Promissory Note in the amount of $25,000 and a Note issued in
December, 1995 in the amount of $12,500 have been modified. Such Notes
provide for accrued interest at the rate of 9% per annum payable quarterly
commencing in September 1997 and unless previously converted the principal
amount of each note is to be repaid in twelve equal quarterly installments,
commencing April 1, 1998, or on such earlier date as such notes provide.
Such notes are convertible at the sole option of the holder into an
aggregate of 400,000 common shares of Common Stock.
During March 1995, John H. Wasko, then President of the Company, upon
exercise of his own option, acquired 70,520 shares of the Common Stock of
the Company at an exercise price of $0.02145 per share.
During the quarter ended March 31, 1996, the Company sold 5,000 shares
of restricted Common Stock to a former officer and the director of the
Company for $10,000. During the same period, the Company sold 25,000 shares
of the Company's restricted Common Stock to an unaffiliated party for
$50,000.
II-2
<PAGE>
On August 11, 1995, Robotic Lasers acquired Corporate Travel Link,
Inc., by issuing 1,682,924 shares of restricted new Common Stock in exchange
for the shares of common stock of Corporate Travel Link owned by Joseph
Cutrona, Mark A. Kenny and Steven E. Pollan, which represented all the
issued and outstanding shares of common stock of Corporate Travel Link.
In August 1994 Joseph Cutrona and Mark A. Kenny each received 666,433
shares of Common Stock for contributed services to be provided to the
Company.
In August 1995 the Company granted Mr. Wasko a 5 year option to
purchase 25,000 shares of Common Stock at a price of $0.60 per share and a
5-year option to purchase 35,000 shares of Common Stock at a price of $2.00
per share was granted to Mr. Wasko by the Company on November 1, 1996.
During December, 1995, Loeb agreed to loan the Company $250,000
evidenced by a series of Convertible Promissory Notes. In November, 1996,
Loeb converted the Convertible Promissory Notes into two Term Promissory
Notes, one in the principal amount of $237,500 and the other in the
principal amount of $12,500 plus 420,728 shares of Common Stock, of which
420,000 shares are owned by four unaffiliated parties.
In May, 1996, Pursuant to a private offering, the Company issued 11.5
units to sixteen unaffiliated third parties in May and June, 1996. The
Underwriter acted as placement agent for the private placement. Each $50,000
unit consisted of a $49,000 promissory note and a Class A Redeemable Warrant
valued at $1,000 per unit. Each Redeemable Warrant entitles the holder to
purchase 25,000 shares of Common Stock at $5.75 per share. Proceeds from
this offering totaled $575,000 and Redeemable Warrants to purchase 287,500
shares of Common Stock were issued by the Company. The Underwriter was paid
a fee of $57,500 in connection with the private placement.
II-3
<PAGE>
During the quarters ended September 30, 1996 and December 31, 1996, in
order to raise additional working capital for the Company, Joseph Cutrona,
President of the Company, sold a total of 37,600 shares of restricted Common
Stock of the Company owned by him to nineteen unaffiliated third parties at
prices ranging from $2.00 to $2.50 per share for total proceeds of $76,500
which Mr. Cutrona remitted to the Company in the form of a capital
contribution. In February 1997 Mr. Cutrona sold an additional 7,850 shares
of restricted Common Stock to 5 unaffiliated third parties at a price of
$2.00 per share for total proceeds of $15,700, which Mr. Cutrona remitted to
the Company in the form of an additional capital contribution. Mr. Mark A.
Kenny has agreed to use 22,450 of his own shares of restricted Common Stock
to reimburse Mr. Cutrona for one-half of the number of shares recently sold
by Mr. Cutrona.
In November, 1996, the Company sold 25,000 shares of the Company's
restricted common stock to an unaffiliated party for $50,000.
During November and December, 1996, the Company and Loeb Holding
Corporation signed four 18 month Promissory Notes whereby Loeb Holding
Corporation loaned the Company the sums of $75,000, $30,000, $10,000 and
$95,000 (total of $210,000). The Promissory Notes which bear interest at
10%, mature on May 11, 1998, May 25, 1998, June 2, 1998 and June 9, 1998.
In February and March, 1997, the Company borrowed a total of $45,000
from two unaffiliated third parties pursuant to two eighteen (18) month
Promissory Notes bearing interest at 10% per annum payable at maturity. These
notes are secured by 11,250 shares of the Company`s restricted Common Stock
owned by Joseph Cutrona and 11,250 shares owned by Mark A. Kenny.
Neither the Company nor any person acting on its behalf offered or sold
the securities described above by means of any form of general solicitation
or general advertising. Each purchaser represented in writing that he
acquired the securities for his own account. A legend was placed on the
certificate stating that the restrictions on their transferability and sale.
Each purchaser signed a written agreement that the securities will not be
sold without registration under the Act or exemption therefrom. The
Registrant believes such issuances are exempt transactions not involving a
public offering under Section 4(2) of the Securities Act of 1933, as
amended.
II-4
<PAGE>
ITEM 27. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1*** Form of Underwriting Agreement
1.2** Selected Dealer Agreement
3.1* Registrant's Articles of Incorporation
3.2* Registrant's By-Laws
4.1** Form of Common Stock Certificate
4.2*** Redeemable Warrant Agreement with Form of
Class A and Class B Redeemable Warrants
4.3*** Underwriter's Warrant Agreement
5** Opinion of McLaughlin & Stern, LLP
10.1* Employment Agreement dated October 17, 1996
between Registrant and Joseph Cutrona.
10.2* Consulting Agreement dated October 18, 1996
between the Registrant and Mark A. Kenny.
10.3* Employment Agreement dated October 17, 1996
between Registrant and John H. Wasko.
10.4* Copy of lease dated November 1, 1995 between
Unicom and Corporate Travel Link, Inc.
10.5* Copy of Agreement dated June 22, 1995
between American Airlines, Inc., and
Corporate Travel Link, Inc., relating to
Sabre Extension Program - Associate
Distribution and Services Agreement.
10.6* Copy of Agreement dated June 30, 1995
between American Airlines, Inc. and
Corporate Travel Link, Inc., relating to
Associate Sabre Equipment Lease Agreement.
10.7* Copy of Agreement dated June 30, 1995
between American Airlines, Inc., and
Corporate Travel Link, Inc. - non-standard
system amendment to Corporate Sabre
Equipment Lease Agreement.
II-5
<PAGE>
10.8* Copy of Script Consulting Agreement dated
June 21, 1995 between Worldspan, LP and
Corporate Travel Link, Inc.
10.9* Copy of Script Services agreement dated June
21, 1995 between Worldspan, LP and Corporate
Travel Link, Inc.
10.10* Copy of Galileo Services Display and
Reservation Agreement dated August 28, 1995
between Galileo International Partnership
and Corporate Travel Link, Inc.
10.11* Copy of Ancillary Services Agreement dated
August 28, 1995 between Galileo
International Partnership and Corporate
Travel Link, Inc.
10.12* Copy of Worldspan Car Rental Associate
Reservation Agreement between Worldspan, LP
and Corporate Travel Link, Inc.
10.13* Copy of Interim Loan Agreement between the
registrant and Loeb Holding Corporation,
as escrow agent, and certain executives of
the Registrant.
10.14* Prosoft Consulting Agreement
10.15** Copy of Consulting and Investment Banking
Agreement between the Company and Loeb
Partners Corporation.
10.16** Copy of Promissory Notes of the Company
dated November 6, 1996 in the principal
amounts of $12,500 and $237,500 payable to
Loeb Holding Corporation, as escrow agent.
21* List of Subsidiaries
24.1* Consent of Wiss & Company, LLP
24.2* Consent of McLaughlin & Stern, LLP
28.1* Executive Stock Issuance
* Previously filed with Registration Statement
on Form SB-2, filed October 29, 1996.
** Previously filed with Amendment No. 1 filed
on January 22, 1997.
*** Filed herewith.
II-6
<PAGE>
Schedules other than those listed above have been omitted since they are
either not required, are not applicable or the required information is shown
in the financial statements or related notes.
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(I) Include any prospectus required by section 10(a)
(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material
information on the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering;
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering; and
(b) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors,
II-7
<PAGE>
officers and controlling persons of the small business issuer pursuant to
the foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suite or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b) (1) or (4) or 497 (h) under the Securities Act shall be deemed to be
part of this registration as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form SB-2 of our report dated January 31,
1997, relating to the consolidated financial statements of Genisys
Reservation Systems, Inc., and Subsidiary which appears in such the
Prospectus.
We also consent to the reference to us under "Experts" in the
Prospectus.
Wiss & Company, LLP
Woodbridge, New Jersey
March 3, 1997
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements of filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the undersigned,
in the City of Union, State of New Jersey, on March 5, 1997.
GENISYS RESERVATION SYSTEMS, INC.
By: /s/ Joseph Cutrona
Joseph Cutrona
President
In accordance with the requirements of the Securities Act of
1933, this registration statement was signed by the following persons in the
capacities and on the dates stated.
/s/Joseph Cutrona President and Director March 5, 1997
Joseph Cutrona
/s/John H. Wasko Secretary, Treasurer
John H. Wasko and Director March 5, 1997
(Chief Financial Officer
and
Chief Accounting Officer)
/s/Mark A. Kenny Director March 5, 1997
Mark A. Kenny
/s/Warren D. Bagatelle Chairman and Director March 5, 1997
Warren D. Bagatelle (Chief Executive Officer)
II-10
<PAGE>
GENISYS RESERVATION SYSTEMS, INC.
UNDERWRITING AGREEMENT
900,000 Shares of Common Stock and
2,400,000 Redeemable Warrants
March , 1997
R.D. White & Co., Inc.
950 Third Avenue - 3rd. Floor
New York, New York 10022
Gentlemen:
Genisys Reservation Systems, Inc., a New Jersey corporation (the
"Company"), confirms its agreement with R.D. White & Co., Inc. ("R.D. White") (
the "Underwriter") with respect to the sale by the Company and the purchase by
the Underwriter of 900,000 shares (the "Shares") of the Company's common stock,
$.0001 par value per share (the "Common Stock"), and 2,400,000 redeemable
warrants to acquire one additional share of Common Stock ("Public Warrants").
The shares of Common Stock and Public Warrants will be immediately separable and
tradeable upon issuance and will not trade as units. The Public Warrants will be
comprised of 1,500,000 Class A Redeemable Warrants (the "Class A Warrants") and
900,000 Class B Redeemable Warrants (the "Class B Warrants"). Each Public
Warrant is exercisable from , 1997 until, , 2002. Each Class A Warrant will have
an initial exercise price of $5.75 for one (1) share of Common Stock, and each
Class B Warrant shall have an initial exercise price of $6.75 for one (1) share
of Common Stock. The Public Warrants will be subject to prior redemption by the
Company as more fully described in the Registration Statement and Prospectus
referred to below. The Shares, Class A Warrants and Class B Warrants are
hereinafter referred to as the "Firm Securities." Upon your request, as provided
in Section 2(b) of this Agreement, the Company shall also issue and sell to you
up to an additional 135,000 Shares and/or 225,000 Class A Warrants and 135,000
Class B Warrants for the purpose of covering over-allotments, if any, in the
sale of the Firm Securities. Such 135,000 Shares and/or 225,000 Class A Warrants
and 135,000 Class B Warrants are hereinafter referred to as the "Option
Securities" The Firm Securities and the Options Securities are hereinafter
collectively referred to as the "Public Offering Securities." The Company also
proposes to issue and sell to you warrants (the "Underwriter's Warrants")
pursuant to the Underwriter's Warrant Agreement dated , 1997 between the
Underwriter and the Company (the "Underwriter's Warrant Agreement") for the
purchase of an additional 90,000 Shares and 150,000 Class A Warrants and 90,000
Class B
1
<PAGE>
Warrants. The Shares and/or Public Warrants issuable upon exercise of the
Underwriter's Warrants are hereinafter referred to as the "Underwriter's
Securities." The shares of Common Stock issuable upon exercise of the Public
Warrants (including the Public Warrants issuable upon exercise of the
Underwriter's Warrants) are hereinafter sometimes referred to as the "Warrant
Shares." The Public Offering Securities, the Shares, the Public Warrants, the
Underwriter's Warrants, the Underwriter's Securities and the Warrant Shares are
more fully described in the Registration Statement and the Prospectus referred
to below.
1. Representations and Warranties. (a) The Company represents and
warrants to, and agrees
with, each of the Underwriters as of the date hereof, and as of the Closing
Date (hereinafter defined)
and the Option Closing Date (hereinafter defined), if any, as follows:
(i) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333 - 15011), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Shares, the Public Warrants, the Underwriter's Securities and the Warrant Shares
under the Securities Act of 1933, as amended (the "Act"), which registration
statement and amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act, and the Rules and Regulations of
the Commission thereunder. The Company will promptly file a further amendment to
said registration statement in the form heretofore delivered to the Underwriter
and will not file any other amendment thereto to which the Underwriter shall
have objected in writing after having been furnished with a copy thereof. Except
as the context may otherwise require, such registration statement, as amended,
on file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents or information incorporated by reference therein) and
all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the rules and regulations) is hereinafter called
the "Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the rules and regulations is
hereinafter called the "Prospectus." For purposes hereof, "Rules and
Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(ii) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Acts and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
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Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment or supplement thereto. It is understood that the
statements set forth in the Prospectus on page 2 with respect to stabilization,
under the heading "Underwriting" and the identity of counsel to the Underwriter
under the heading "Legal Matters" constitute the only information furnished in
writing by or on behalf of the Underwriter for inclusion in the Registration
Statement and Prospectus, as the case may be.
(iii) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (hereinafter defined) and each
Option Closing Date (hereinafter defined), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriter or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, contains or will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of the
Underwriter (as set forth in paragraph 1(a)(ii) hereof) expressly for use in the
Preliminary Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
(iv) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
The Company does not own an equity interest in any corporation, partnership,
trust, joint venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations require such qualification or licensing except where the failure(s)
to be so qualified, licensed and in good standing, individually or in the
aggregate, would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company. The
Company has all requisite power and authority (corporate and other), and has
obtained any and all authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), necessary to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operations, properties, business, or results of operations of the
Company. The disclosures in the Registration Statement concerning the effects
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of federal, state, local, and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and will have the adjusted
capitalization set forth therein on the Closing Date (hereinafter defined) and
the Option Closing Date (hereinafter defined), if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement
and as described in the Prospectus. The Common Stock, the Shares, the Public
Warrants, the Underwriter's Warrants, the Underwriter's Securities and the
Warrant Shares (collectively, hereinafter sometimes referred to as the
"Securities") and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities are in due and proper form.
Upon the issuance and delivery pursuant to the terms hereof of the Securities to
be sold by the Company hereunder, the Underwriter will acquire good and
marketable title to such Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever.
(vi) The financial statements of the Company together with the related
notes and schedules (if any) thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, income, changes in cash flow, changes in stockholders' equity and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply and the pro forma financial information
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus presents fairly on a basis consistent with that of the audited
financial statements included therein, the Company's pro forma net income or
loss per share, as the case may be, pro forma net tangible book value, and the
pro forma capitalization and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. There has
been no material adverse change or development involving a material change in
the condition, financial or otherwise, or in the earnings, business affairs,
position,
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prospects, value, operation, properties, business or results of operation of the
Company whether or not arising in the ordinary course of business, since the
date of the financial statements included in the Registration Statement and the
Prospectus, and the outstanding debt, the property, both tangible and
intangible, and the business of the Company conforms in all material respects to
the descriptions thereof contained in the Registration Statement and the
Prospectus.
(vii) The Company (A) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (B) has established adequate reserves
for such taxes which are not due and payable, and (C) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriter in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the Underwriter of the Public
Offering Securities, the Shares, the Public Warrants and the Warrant Shares and
the purchase by the Underwriter of the Underwriter's Warrants from the Company,
(C) the consummation by the Company of any of its obligations under this
Agreement, or (D) resales of the Securities in connection with the distribution
contemplated hereby.
(ix) The Company maintains insurance policies, including, but not
limited to, general liability, product liability and property insurance, which
insures the Company and its employees, against such losses and risks generally
insured against by comparable businesses. The Company (A) has not 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, (B) does not have
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has not failed to pay any premiums due and payable thereunder,
or (C) has not failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the company.
(x) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (A) questions the validity of the capital stock of the Company or this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement (as
defined in Section 1(xxxiii) below) or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, the Underwriter's
Warrant Agreement, or the Warrant Agreement, (B) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
material respects), or (C) if adversely determined, might materially and
adversely affect the condition, financial or otherwise,
5
<PAGE>
or the business affairs or business prospects, earnings, liabilities, prospects,
stockholders' equity, value, properties, business or assets of the Company.
(xi) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement and to consummate
the transactions provided for herein and therein; and each of this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement have been duly and
properly authorized, executed and delivered by the Company. This Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement each constitute a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, and neither the Company's issue and sale
of the Securities or execution or delivery of this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement or its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (A) the certificate of
incorporation or by-laws of the Company, (B) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or which its properties or
assets (tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties, in each
case except for conflicts, breaches, violations, defaults, creations or
impositions which do not and would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, position,
shareholder's equity, value, operation, properties, business or results of
operations of the Company.
(xii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the execution, delivery or performance of this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement, and the transactions
contemplated hereby and thereby, including, without limitation, any waiver of
any preemptive, first refusal or other rights that any entity or person may have
for the issue and/or sale of any of the Securities, except such as have been or
may be obtained under the Act or may be required under state securities or Blue
Sky laws in connection with the Underwriter's purchase and distribution of the
Securities and the Underwriter's purchase of the Underwriter's Warrants to be
sold by the Company hereunder and thereunder.
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<PAGE>
(xiii) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents and
statutes and regulations are accurate and fairly present the information
required to be shown with respect thereto by Form SB-2, and there are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(xiv) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(A) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (B) entered into any transaction other than in
the ordinary course of business, or (C) declared or paid any dividend or made
any other distribution on or in respect of its capital stock of any class, and
there has not been any change in the capital stock, or any change in the debt
(long or short term) or liabilities or material change in or affecting the
business affairs or prospects, management, stockholders' equity, properties,
business, financial operations or assets of the Company.
(xv) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other material agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected, which default would have a material adverse effect on the condition,
financial or otherwise, earnings, business affairs, position, shareholder's
equity, value, operation, properties, business or results of operations of the
Company.
(xvi) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance in all
material respects with all federal, state, local, and foreign laws and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours. There are no pending investigations involving
the Company, by the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state, local, or foreign laws
and regulations. There is no unfair labor practice charge or complaint against
the Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company, or any predecessor entity, and none has ever occurred.
No representation question exists respecting the employees of the Company and no
collective bargaining agreement or modification
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<PAGE>
thereof is currently being negotiated by the Company. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists, or, to the knowledge of the Company is imminent.
(xvii) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multiemployer
plan."
(xviii) Neither the Company nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations) of
any of the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or otherwise.
(xix) None of the patents, patent applications, trademarks, service
marks, trade names and copyrights, and licenses and rights to the foregoing
presently owned or held by the Company are in dispute or are in any conflict
with the right of any other person or entity. The Company (i) owns or has the
license or other right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) except as set forth in the Prospectus,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark, tradename, 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.
(xx) The Company has not received any notice of infringement of or
conflict with asserted rights of others with respect to any trademark, service
mark, trade name or copyright or other intangible asset used or held for use by
it in connection with the conduct of its businesses which,
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<PAGE>
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition, financial or
otherwise, or the business affairs, position, properties, stockholder's equity,
financial operations or assets of the Company.
(xxi) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interest, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(xxii) Wiss & Company, LLP., Certified Public Accountants, whose
report is filed with the Commission as a part of the Registration Statement, are
independent certified public accountants as required by the Act and the Rules
and Regulations.
(xxiii) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of its officers, directors or any
person or entity deemed to be an affiliate of the Company and any stockholders
of the Company has agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock (either pursuant to
Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than 18 months following the effective
date of the Registration Statement without the prior written consent of the
Underwriter and that any Common Stock which has been issued and is outstanding
on the effective date of the Registration Statement and is to be sold or
otherwise disposed of pursuant to such Rule 144 with the consent of the
Underwriter shall only be sold or otherwise disposed of through the Underwriter.
The Company will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(xxiv) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriter' compensation,
as determined by the National Association of Securities Dealers, Inc. ("NASD")
and the Company is aware that the Underwriter and each of the Underwriter's
shall compensate any of their respective personnel who may have acted in such
capacities as they shall determine in their sole discretion.
(xxv) The Shares, the Common Stock and the Public Warrants have been
approved for quotation on the Nasdaq SmallCap Market.
(xxvi) Neither the Company, nor any of its officers, employees,
agents or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business)
9
<PAGE>
to any customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist
the Company in connection with any actual or proposed transaction) which (A)
might subject the Company, or any other such person to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (B) if not given in the past, might have had a materially adverse
effect on the assets, business, operations or prospects of the Company, or (C)
if not continued in the future, might adversely affect the assets, business,
operations or prospects of the Company. The Company's internal accounting
controls are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(xxvii) Except as set forth in the Prospectus, no officer, director, or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(A) an interest in any person or entity which (1) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (2) purchases from or sells or furnishes to the Company any
goods or services, or (B) a beneficiary interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, Principal Security Holder (as such term is
defined in the Prospectus) of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Scheichet & Davis, P.C. ("Underwriter'
Counsel") shall be deemed a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
(xxix) The minute books of the Company have been made available to
the Underwriter and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation, and reflects all transactions referred to in such minutes
accurately in all material respects.
(xxx) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(xxxi) The Company has as of the effective date of the Registration
Statement (a) entered into employment agreements with Joseph Cutrona and John
Wasko providing for annual salaries of $100,000 and $80,000, respectively, each
on terms and conditions satisfactory to the Underwriter,
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and (ii) purchased "Key-Man" insurance on the life of Joseph Cutrona which names
the Company as the sole beneficiary on terms and conditions satisfactory to the
Underwriter.
(xxxii) The Company has entered into a warrant agreement with respect
to the Public Warrants, substantially in the form filed as Exhibit 4.2 to the
Registration Statement ("Warrant Agreement") with Continental Stock Transfer and
Trust Company in form and substance satisfactory to the Underwriter.
(xxxiii) Immediately prior to the effective date of the Registration
Statement there shall be no more than an aggregate of 3,280,594 shares of Common
Stock issued and outstanding (including 280,485 Shares of Common Stock held by
non-management members of the public). Except for the Underwriter's Warrants, an
option held by John Kelly to acquire 5,000 shares of Common Stock upon
conversion of a $10,000 promissory note, an option held by Jane Andrews to
acquire 10,000 shares of Common Stock upon conversion of a $20,000 promissory
note, options held by John Wasko to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $.60 per share and 35,000 shares of the
Company's Common Stock at a price of $2.00 per share, an option held by Loeb
Holding Corp., as agent, to acquire 400,000 shares of Common Stock of the
Company upon conversion of two promissory notes aggregating $37,500, a warrant
held by an unaffiliated equipment lessor to acquire 13,000 shares of Common
Stock at an exercise price of $2.00 per share and 287,500 Class A Redeemable
Warrants to purchase shares of Common Stock to be issued to lenders in the
recent bridge financing of the Company, there are no securities with equivalent
rights as the Common Stock, Common Stock or such equivalent securities, issuable
upon the exercise of options, warrants and other contract rights, or securities
convertible directly or indirectly into Common Stock or such equivalent
securities issued or outstanding.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$4.50 per Share, $.18 per Class A Warrant and $.09 per Class B Warrant, that
number of Firm Securities set forth above, subject to such adjustment as the
Underwriter in its sole discretion shall make to eliminate any sales or
purchases of fractional shares.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of an additional 135,000 Shares at a
price of $4.50 per Share and 225,000 Class A Warrants and 135,000 Class B
Warrants at a price of $.18 per Class A Warrant and $.09 per Class B Warrant.
The option granted hereby will expire 45 days after the date the Registration
Statement becomes effective and may be exercised in whole or in part from time
to time upon notice by the Underwriter to the Company setting forth the number
of Option Securities as to which the several Underwriter are then exercising the
option and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an
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"Option Closing Date") shall be determined by the Underwriter, but shall not be
later than ten (10) full business days after the exercise of said option, nor in
any event prior to the Closing Date (hereinafter defined), unless otherwise
agreed upon by the Underwriter and the Company. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided. Nothing herein contained
shall obligate the Underwriter to make any over-allotments, except that the
Underwriter agrees that it shall exercise the option to purchase Option
Securities equal to not less than 90,000 Shares, 150,000 Class A Warrants and
90,000 Class B Warrants.
(c) Payment of the purchase price for, and delivery of certificates
evidencing the Firm Securities shall be made at the offices of R.D. White & Co.,
Inc. at 950 Third Avenue, 3rd Floor, New York, NY 10022, or at such other place
as shall be agreed upon by the Underwriter and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on , 1997, or at such
other time and date as shall be agreed upon by the Underwriter and the Company,
but no less than three (3) nor more than ten (10) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being herein called "Closing Date"). In addition, in the event that any
or all of the Option Securities are purchased by the Underwriter, payment of the
purchase price for and delivery of certificates for, such Option Securities
shall be made at the above mentioned office of the Underwriter or at such other
place as shall be agreed upon by the Underwriter and the Company on each Option
Closing Date as specified in the notice from the Underwriter to the Company.
Delivery of the certificates for the Firm Securities and the Option Securities
if any, shall be made to the Underwriter against payment by the Underwriter,
severally and not jointly, of the purchase price for the Firm Securities and the
Option Securities if any, to the order of the Company by New York Clearing House
Funds. In the event such option is exercised, the Underwriter shall purchase
that number of Option Securities then being purchased subject to such
adjustments as the Underwriter in its discretion shall make to eliminate any
sales or purchases of fractional shares. Certificates for the Firm Securities
and the Option Securities if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriter may request in writing at least two
(2) business days prior to Closing Date or the relevant Option Closing Date, as
the case may be. The certificates for the Firm Securities and the Option
Securities if any, shall be made available to the Underwriter at such office or
such other place as the Underwriter may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter the Underwriter's Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 90,000 Shares and 150,000 Class A Warrants and 90,000 Class B
Warrants. The Underwriter's Warrants shall be exercisable for a period of four
(4) years commencing one (1) year from the Closing Date at a price of $6.00 per
Share, $.24 per Class A Warrant and $.12 per Class B Warrant. The Underwriter's
Warrant Agreement and form of Warrant Certificates with respect to each of the
(i) Underwriter's Warrants to purchase Shares and (ii) Underwriter's Warrants to
purchase Public Warrants, shall be substantially in the form filed as
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Exhibit 4.3 to the Registration Statement. Payment for the Underwriter's
Warrants shall be made on the Closing Date.
3. Public Offering of the Public Offering Securities. As soon after the
Registration Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall make a public offering of the Firm Securities and such of the
Option Securities as it may determine (other than to residents of or in any
jurisdiction in which qualification of the Shares and Public Warrants are
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Underwriter may from time to time increase or
decrease the public offering price after distribution of the Public Offering
Securities has been completed to such extent as the Underwriter, in its sole
discretion deems advisable. The Underwriter may enter into one or more
agreements as it Underwriter, in its sole discretion, deems advisable with one
or more broker-dealers who shall act as dealers in connection with such public
offering. Investors in the public offering will be required to purchase at least
one Share and one Public Warrant together or in multiples thereof. Such Public
Offering Securities will be immediately separable and tradeable upon issuance
and will not be registered or listed on any market or exchange for trading as
units.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable (such Registration Statement to be in form and substance
satisfactory to the Underwriter and Underwriter's Counsel) and will not at any
time, whether before or after the effective date of the Registration Statement,
file any amendment to the Registration Statement or supplement to the Prospectus
or file any document under the Act or Exchange Act before termination of the
offering of the Public Offering Securities by the Underwriter of which the
Underwriter shall not previously have been advised and furnished with a copy, or
to which the Underwriter shall have objected or which is not in compliance with
the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm by notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to
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the Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain promptly
the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter and Underwriter's Counsel) or transmit the
Prospectus by a means reasonably calculated to result in filing with the
Commission pursuant to Rule 424 (b)(1) (or, if applicable and if consented to by
the Underwriter, pursuant to Rule 424 (b)(47) not later than the Commission's
close of business on the earlier of (i) the second business day following the
execution and delivery of this Agreement and (ii) the fifth business day after
the effective date of the Registration Statement.
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Securities which differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Underwriter with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such prospectus to which the Underwriter or
Underwriter' Counsel, shall reasonably object.
(e) The Company shall take all action, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Public Offering Securities for offering and sale under
the securities laws of such jurisdictions as the Underwriter may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification. It is
agreed that Underwriter's Counsel (or its designees) shall perform all such
required Blue Sky legal services.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the reasonable opinion of counsel for the
Company or Underwriter' Counsel, the Prospectus, as then amended or
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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 and the Rules and Regulations, 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 Underwriter' Counsel, 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.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12- month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of seven years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's principal
financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to
stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(v) every press release and every material news item or article
of interest to the financial community in respect of the Company or its affairs
which was released or prepared by or on behalf of the Company; and
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<PAGE>
(vi) any additional information of a public nature concerning
the Company (and any future subsidiaries) or its businesses which the
Underwriter may reasonably request.
During such seven-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a Transfer Agent, counsel, accounting
firm, financial printer and, if necessary under the jurisdiction of
incorporation of the Company, a Registrar (which may be the same entity as the
Transfer Agent) for its Public Offering Securities, Common Stock and Public
Warrants all of whom shall be reasonably acceptable to the Underwriter (it being
agreed that the Company's current financial printer and the Transfer Agent,
counsel and accounting firm described in the Prospectus are acceptable to the
Underwriter). Such Transfer Agent shall, for a period of five years following
the Closing Date, deliver to the Underwriter the monthly securities position of
the Company's stockholders of record.
(j) The Company will furnish to the Underwriter or on the
Underwriter's order, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement any
pre-effective or post-effective amendments thereto (two of which copies will be
signed and will include all financial statements and exhibits), the Prospectus,
and all amendments and supplements thereto, including any Prospectus prepared
after the effective date of the Registration Statement, in each case as soon as
available and in such quantities as the Underwriter may reasonably request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Underwriter with true copies of duly executed, legally
binding and enforceable agreements pursuant to which for a period of not less
than 18 months after the effective date of the Registration Statement, each
holder of securities issued by the Company and outstanding at the effective date
of the Registration Statement (including securities convertible into Common
Stock of the Company, but excluding 333,216 shares of Common Stock held by
Steven E. Pollan, 200,000 shares of Common Stock held by Loeb Holding
Corporation, as escrow agent, and 280,485 shares of Common Stock held by
non-management members of the public) agrees that it or he or she will not,
directly or indirectly, issue, offer to sell, sell, grant an option for the sale
of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any of such securities (either pursuant to Rule 144 of the Rules and Regulations
or otherwise) or dispose of any beneficial interest therein without the prior
written consent of the Underwriter (collectively, the "Lock-up Agreements"). The
Lock-up Agreements shall also provide that any such securities that may be sold
pursuant to Rule 144 (with the Underwriter's consent) shall be executed through
the Underwriter. The commission for any such open market transactions shall not
exceed 5% and the sales price shall be reasonably related to the market. During
the 18 month period commencing with the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Underwriter, sell, contract or offer to sell, issue, transfer, assign, pledge,
distribute, or otherwise dispose of, directly or
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<PAGE>
indirectly, any debt security of the Company or any shares of Common Stock or
any issue of preferred stock of the Company, or any options, rights or warrants
with respect to any shares of Common Stock or any issue of preferred stock of
the Company, (other than upon exercise of the Underwriter's Warrants). On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreement and to place
appropriate stop transfer orders on the Company's ledgers.
(l) Neither the Company, nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act and the Rules and Regulations, and all such reports, forms and
documents filed shall comply as to form and substance with the applicable
requirements under the Act, the Exchange Act and the Rules and Regulations.
(o) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the 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 thirty (30)
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 6(j) hereof.
(p) The Company shall cause the Shares, the Common Stock and the
Public Warrants to be listed on the Nasdaq SmallCap Market and, for a period of
five (5) years from the date hereof, use its best efforts to maintain such
listing of the Shares, the Common Stock and the Public Warrants to the extent
outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Underwriter at the Underwriter's request and at the
Company's sole expense, the list of holders of all of the Company's securities.
The Company shall also instruct Depository Trust Company ("DTC") to send to the
Underwriter a copy of the securities positions of all of the security holders of
the Company on DTC's records on a weekly basis for a period of three (3)
calendar months following the effective date, on a monthly basis for a period of
three (3) years following the effective date and, in addition thereto, as
frequently as may be reasonably requested by the Underwriter,
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(r) The Company shall as soon as practicable, (i) but in no event
more than five business days before the effective date of the Registration
Statement, file a Form 8-A with the Commission providing for the registration
under the Exchange Act of the Securities and (ii) but in no event more than 30
days from the effective date of the Registration Statement, take all necessary
and appropriate actions to be included in Standard and Poor's Corporation
Descriptions or Moody's Manual in order to satisfy the requirements for "manual
exemption" in those states where available and to maintain such inclusion for as
long as the Securities are outstanding.
(s) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Underwriter and
Underwriter's Counsel, issue, directly or indirectly any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(t) For a period of three (3) years after the effective date of the
Registration Statement, the Underwriter shall have the right to designate, one
(1) individual for election to the Company's Board of Directors ("Board") and
the Company shall cause such individual to be elected to the Board (provided
such person is reasonably qualified and is not an officer, director, employee or
principal of the Underwriter). In the event the Underwriter shall not have
designated such individual at the time of any meeting of the Board or such
person is unavailable to serve, or at the end of the period of three (3) years,
the Company shall notify the Underwriter of each meeting of the Board and an
individual designated by the Underwriter shall be permitted to attend all
meetings of the Board and to receive all notices and other correspondence and
communications sent by the Company to members of the Board for a period of three
(3) years after the effective date. Such individual shall be reimbursed for all
actual out-of-pocket expenses incurred in connection with his or her service on,
or attendance at meetings of, the Board. The Company shall provide its outside
directors with compensation in the form of cash and/or options on its Common
Stock as deemed appropriate and customary for similar companies.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the date of the sale to the public of the securities
issuable upon exercise of the Underwriter's Securities, the Company will not
take any action or actions which may prevent or disqualify the Company's use of
any form otherwise available for the registration under the Act of the
securities issuable upon exercise of the Underwriter's Securities.
(v) Commencing one year from the date hereof, the Company shall pay the
Underwriter a commission equal to four percent (4%) of the exercise price of the
Public Warrants, payable on the date of the exercise thereof on terms provided
for in the Warrant Agreement. The Company will not solicit the exercise of the
Public Warrants other than through the Underwriter and will not authorize any
other dealer or engage in such solicitation without the Underwriter's prior
written consent.
(w) The Company agrees that, for a period of seven (7) years from
the effective date of the
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Registration Statement (the "Effective Date"), if the Company intends to file a
Registration Statement or Statements for the public sale of securities for cash
(other than a Form S-8, Form S-4 or comparable Registration Statement), it will
notify all of the holders of the Underwriter's Securities and if so requested it
will include therein material to permit a public offering of the Underwriter's
Securities at the expense of the Company (excluding fees and expenses of the
holder's counsel and any underwriting or selling commissions), In addition, for
a period of five (5) years from the Effective Date, upon the written demand of
holder(s) representing a majority of the Underwriter's Securities, the Company
agrees, on one occasion, to promptly register the Underwriter's Securities at
the expense of the Company (excluding fees and expenses of the holder's counsel
and any underwriting or selling commissions).
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the closing date of
the public offering of the shares of the Public Offering Securities (the
"Closing Date") and the Option Closing Date (to the extent not paid at the
Closing Date) all expenses and fees (other than fees of Underwriter' Counsel,
except as provided in (iv) below) incident to the performance of the obligations
of the Company under this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, (including mailing and
handling charges) filing, delivery and mailing (including the payment of postage
with respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage with respect thereto) and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments thereof or supplements thereto supplied to
the Underwriter and such dealers as the Underwriter may request, in quantities
as hereinabove stated, (iii) the printing, engraving, issuance and delivery of
the Securities, including, but not limited to, (x) the purchase by the
Underwriter of the Securities and the purchase by the Underwriter of the
Underwriter's Warrants from the Company, (y) the consummation by the Company of
any of its obligations under this Agreement, the Underwriter's Warrant
Agreement, and the Warrant Agreement, and (z) resale of the Securities by the
Underwriter in connection with the distribution contemplated hereby, (iv) the
qualification of the Securities under state or foreign securities or "Blue Sky"
laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
provided, however, that the Company's obligation with respect to such "Blue Sky"
fees and disbursement of counsel shall not exceed $30,000 (v) advertising costs
and expenses, including but not limited to costs and expenses in connection with
the "road show", information meetings and presentations, bound volumes and
prospectus memorabilia, tombstones in the Wall Street Journal and other
appropriate publications, (vi) costs, fees and expenses in connection with due
diligence investigations, including but not limited to the costs of background
checks on key management and/or personnel of the Company and the fees of any
independent
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<PAGE>
counsel or consultant retained, (vii) fees and expenses of the transfer agent,
warrant agent, escrow agent, if any, financial public relations firm, if any,
and registrar, if any, (viii) the costs of applications and listings in
securities manuals such as Standard & Poors or Moodys, (ix) the fees payable to
the Commission, Nasdaq and the NASD, and (x) the fees and expenses incurred in
connection with the listing of the Securities on the Nasdaq SmallCap Market and
any stock exchange.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 6, Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Underwriter for all of its actual out-of-pocket
expenses, including the fees and disbursements of Underwriter' Counsel (and in
addition to fees and expenses of Underwriter's Counsel incurred pursuant to
Section 5(a)(iv) above for which the Company shall remain liable), provided,
however, that in the event of a termination pursuant to Section 10(a) hereof
such obligation of the Company shall not exceed $50,000.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Underwriter on the Closing Date by certified or bank cashier's check or, at the
election of the Underwriter, by deduction from the proceeds of the offering
contemplated herein a non-accountable expense allowance equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the Firm
Securities. In the event the Underwriter elects to exercise the over-allotment
option described in Section 2(b) hereof, the Company further agrees to pay to
the Underwriter on each Option Closing Date (by certified or bank cashier's
check or, at the Underwriter's election, by deduction from the proceeds of the
offering) a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of the relevant Option
Securities.
(d) The Underwriter shall not be responsible for any expense of the
Company or others or for any charge or claim related to the offering
contemplated by hereunder in the event that the sale of the Securities as
contemplated hereunder is not consummated, except for the fees and disbursements
of Underwriter's Counsel.
6. Conditions of the Underwriter' Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement, which shall be in form and substance
satisfactory to the Underwriter and Underwriter's Counsel, shall have become
effective no later than 12:00 p.m., New York time, on the date of this Agreement
or such later date and time as shall be consented to in
20
<PAGE>
writing by the Underwriter, and, at the Closing Date and each Option Closing
Date, if any, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriter's Counsel. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Public Offering Securities and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period, and
prior to the 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) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received from Underwriter's Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Underwriter's Warrants, the Registration Statement, the Prospectus and other
related matters as the Underwriter may request and Underwriter's Counsel shall
have received such papers and information as they request to enable them to pass
upon such matters.
(d) On the Closing Date, the Underwriter shall have received the
favorable opinion of McLaughlin & Stern, LLP, counsel to the Company, dated the
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction,
and (B) has all requisite corporate power and authority, and has obtained any
and all authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing; to such counsel's knowledge, the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable
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decision, ruling or finding, would materially adversely affect the business,
operations, condition, financial or otherwise, or the earnings, business affairs
or prospects, properties, business, assets or results of operations of the
Company. The disclosures in the Registration Statement concerning the effects of
federal, state and local laws, rules and regulations on the Company's business
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a fact necessary to make the statements contained
therein not misleading in light of the circumstances in which they were made.
(ii) to such counsel's knowledge, the Company does not own an
equity interest in any other corporation, partnership, joint venture, trust or
other business entity other than as described in the Prospectus;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "Description of Securities" and "Certain Transactions," and, to
such counsel's knowledge, after due inquiry, the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement
and as described in the Prospectus. The Securities, and all other securities
issued or issuable by the Company, conform in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability under the laws of the State of New Jersey as currently in
effect 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. The Securities to be sold by the Company hereunder and under the
Underwriter's Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities are in
due and proper form. The Public Warrants and the Underwriter's Warrants
constitute valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefore the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to this
Agreement of the Securities to be sold by the Company, the Underwriter and the
Underwriter will acquire good and marketable title to the Securities free and
clear of any pledge, lien, charge, claim, encumbrance, pledge, security
interest, or other restriction or equity of any kind whatsoever. No transfer tax
is payable by or on behalf of the Underwriter in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by the Underwriter
and the Underwriter of the Securities from the Company, (C) consummation by the
Company of any of its obligations under this Agreement, or (D) resales of the
Securities in connection with the distribution contemplated hereby.
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(iv) 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, and, to such counsel's knowledge, after due
inquiry no stop order suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof or suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending, threatened or
contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplement thereto (other
than the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
(or required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which the Company is a
party or by which it is bound, including any document to which the Company is a
party or by which it is bound, 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 under the Act and the
Rules and Regulations of the Commission thereunder; (C) except as disclosed in
the Prospectus, there is not pending or threatened against the Company any
action, arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give rise to the same),
or involving the properties or business of the Company which (1) is required to
be disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all respects), (2) questions the validity of the capital stock of
the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) except as disclosed in the
Prospectus, there is no action, suit or proceeding pending, or threatened,
against or affecting the Company before any court or arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel) in which
an adverse decision which may result in a material adverse change in the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company, could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement or which in any manner
draws into question the validity or enforceability of this Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement;
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(vii) the Company has full legal right, power and authority to
enter into this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement and to consummate the transactions provided for therein; and this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement has
been duly authorized, executed and delivered by the Company. This Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement assuming due
authorization, execution and delivery by each other party hereto and thereto
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and neither the Company's execution or delivery of
this Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement,
its performance hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of, (A) the
certificate of incorporation or by-laws of the Company, (B) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule
or regulation applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties, except for conflicts, breaches, violations,
defaults, creations or impositions which do not and would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs, position, shareholder's equity, value, operations, properties,
business or results of operations of the Company.
(viii) except as described in the Prospectus, no consent,
approval, authorization or order, and no filing with, any court, regulatory
body, government agency or other body (other than such as may be required under
Blue Sky laws, as to which no opinion need be rendered) is required in
connection with the issuance of the Securities pursuant to the Prospectus and
the Registration Statement, the issuance of the Underwriter's Warrants, the
performance of this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement and the transactions contemplated hereby and thereby;
(ix) the Company is not in breach of, or in default under, any term
or provision of any license, contract, indenture, mortgage, installment sale
agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any
24
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other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected, which could materially
adversely affect the Company; and the Company is not in violation of any term or
provision of its Certificate of Incorporation or By-Laws, or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or regulation
the result of which would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position,
shareholders' equity, value operation, properties, business or results of
operations of the Company.
(x) the Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks, copyrights,
service names, trade names, patents, patent applications and licenses necessary
to conduct its business (including, without limitation any such licenses or
rights described in the Prospectus as being owned or possessed by the Company),
and to the best of such counsel's knowledge after reasonable investigation,
there is no claim or action by any person pertaining to, or proceeding, pending,
or threatened, which challenges the exclusive rights of the Company with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct of the Company's
business (including, without limitations, any such licenses or rights described
in the Prospectus as being owned or possessed by the Company).
(xi) the Company does not maintain, sponsor, or contribute to
any ERISA Plans or defined benefit plans, as defined in Section 3(35) of ERISA,
(xii) the Company's Registration Statement on Form 8-A under the
Exchange Act has become effective.
(xiii) such counsel has no information leading it to believe that the
persons listed under the caption "Principal Stockholders" in the Prospectus are
not the respective "beneficial owners" (as such phrase is defined in regulation
13d-3 under the Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth therein;
(xiv) to such counsel's knowledge, except as described in the
Prospectus, no person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement;
(xv) to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Public Offering Securities hereunder or the financial
consulting arrangement between the Underwriter and the Company, if any, or any
other arrangements, agreements, understandings, payments or issuances that may
affect the Underwriter' compensation, as determined by the NASD;
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(xvi) the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against each such party and any
subsequent holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable); and
(xvii) all action under the Act necessary to make the public
offering and consummate the sale of the Securities as provided in this Agreement
has been taken by the Company. The provisions of the Certificate of
Incorporation and By-laws of the Company comply as to form in all material
respects with the Act and the Rules and Regulations.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, 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
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which
leads counsel to believe that either the Registration Statement or any amendment
thereto, at the time such Registration Statement or amendment became effective
or the Preliminary Prospectus or Prospectus or amendment or supplement thereto
as of the date of such opinion contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
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 satisfactory to Underwriter's Counsel) of
other counsel acceptable to Underwriter's Counsel, familiar with the applicable
laws; (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 that the Underwriter and they are
justified in relying thereon.
At each Option Closing Date, if any, the Underwriter shall have received
the favorable opinion
26
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of McLaughlin & Stern, LLP, counsel to the Company, dated the Option Closing
Date, addressed to the Underwriter and in form and substance satisfactory to
Underwriter's Counsel confirming as of such Option Closing Date the statements
made in its opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or covenants of the
Company herein contained.
(f) Prior to each of Closing Date and each Option Closing Date, if any,
(i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, prospects,
stockholders' equity or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital or
any change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus (vi) no action, suit or proceeding, at law
or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company, or affecting any of its properties or
business before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may adversely affect the business, operations, management prospects or
financial condition or assets of the Company, except as set forth in the
Registration Statement and Prospectus: and (vii) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the principal executive
officer and the chief financial or chief accounting officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the effect
that each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement, and that:
(i) The representations and warranties in this Agreement of the
Company are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
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<PAGE>
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
(iv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (A) there has not been any material
change in the shares of Common Stock or liabilities of the Company except as set
forth in or contemplated by the Prospectus; (B) there has not been any material
adverse change in the general affairs, management, business, financial condition
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, as set forth in or contemplated
by the Prospectus; (C) the Company has not sustained any material loss or
interference with its business from any court or from legislative or other
governmental action, order or decree, whether foreign or domestic, or from any
other occurrence, not described in the Registration Statement and Prospectus;
(D) there has not occurred any event that makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or that is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information therein, in light of the circumstances in which they were made, not
misleading in any material respect; (E) the Company has not incurred up to and
including the Closing Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (F) the Company has not paid or declared any
dividends or other distributions on its capital stock; (G) the Company has not
entered into any transactions not in the ordinary course of business; (H) there
has not been any change in the capital stock or long-term debt or any increase
in the short-term borrowings (other than any increase in the short-terms
borrowings in the ordinary course of business) of the Company; (I) the Company
has not sustained any material loss or damage to its property or assets, whether
or not insured; and (J) there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
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(i) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated such date, addressed to the Underwriter in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriter and Underwriter's Counsel, from Wiss & Company, LLP:
(i) confirming that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company included in the Registration Statement comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the Underwriter may rely
upon the opinion of Wiss & Company, LLP, with respect to the financial
statements and supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
financial statements, if any, of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or (B) at a
specified date not more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the stockholders' equity or
net current assets or net assets of the Company as compared with amounts shown
in the September 30, 1996 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such change or
decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of liabilities of
the Company (including a breakdown of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other
29
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appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter
and found them to be in agreement;
(vi) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect to certain pro
forma financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information;
(vii) stating that they have not during the immediately preceding
five (5) year period brought to the attention of any of the Company's management
any "weakness," as defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters Noted in an Audit,"
in any of the Company's internal controls; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may request.
(j) On or prior to the Closing Date and each Option Closing Date, if
any, the Underwriter shall have received from Wiss & Company, LLP, a letter,
dated as of the Closing Date or the Option Closing Date, as the case may be, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (i) of this Section, except that the specified date in
the referred to shall be a date not more than five days prior to the Closing
Date or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further effect
that they have carried out procedures as specified in clause (v) of subsection
(i) of this Section with respect to certain amounts, percentages and financial
information as specified by the Underwriter and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(k) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Underwriter for the several Underwriter's
accounts the appropriate number of Securities.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(m) On or before Closing Date, the Shares, the Common Stock and the
Public Warrants shall have been approved for quotation on the Nasdaq SmallCap
Market and shall have been authorized upon official notice of issuance for
trading on the BSE.
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(n) On or before Closing Date, there shall have been delivered to the
Underwriter the Lockup Agreements, in form and substance satisfactory to the
Underwriter.
(o) On or before the Closing Date, the Company shall have executed the
Underwriter's Warrant Agreement and the Warrant Agreement together with the
applicable Warrant Certificates, each in form and substance satisfactory to the
Underwriter.
(p) On or before the Closing Date the Underwriter shall have received
executed copies of the employment agreements and insurance policies referred to
in Section 1 (a) (xxxi) hereof, each to the satisfaction of the Underwriter.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriter may terminate this Agreement or, if
the Underwriter so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriter (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act, or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in any Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any time new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "Application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any securities commission or agency,
Nasdaq, the BSE or any securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or
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Prospectus, or any amendment thereof or supplement thereto, or in any
Application, as the case may be. The indemnity agreement in this subsection (a)
shall be in addition to any liability which the Company may have at common law
or otherwise.
(b) the Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of the Act, to the same extent as the foregoing indemnity from the
Company to the Underwriter but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any Application
made in reliance upon, and in strict conformity with, written information
furnished to the Company with respect to the Underwriter by such Underwriter
expressly for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any such
Application, provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus directly relating to the transactions effected by the Underwriter in
connection with this offering. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such
32
<PAGE>
fees and expenses of one additional counsel shall be borne by the indemnifying
parties. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. Anything in this
Section 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
a contributing party and the Underwriter are the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Public Offering Securities (before deducting expenses)
bear to the total underwriting discounts received by the Underwriter hereunder,
in each case as set forth in the table in the cover page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, or by the Underwriter, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d) the Underwriter shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriter hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7, each person,
if any, who controls the Company within the meaning of the Act, each officer
33
<PAGE>
of the Company who has signed the Registration Statement, and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to this subparagraph (d), Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto shall be
deemed to be representations, warranties and agreements at the Closing Date and
any Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the respective indemnity agreements
contained in Section 7 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter,
the Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and deliver of the
Securities to the Underwriter and the Underwriter, as the case may be, for a
period of seven (7) years from the date hereof, except for Section 4(v), in
which case the period shall be eight (8) years.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Underwriter, in it's discretion, shall release the Securities for the sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Underwriter
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has disrupted, or in the Underwriter's
opinion will in the immediate future disrupt the financial markets; or (ii) any
material adverse change in the financial markets shall have occurred; or (iii)
if trading on the New York Stock Exchange, the American Stock Exchange, or in
the over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the NASD
or by order of the Commission or any other government authority having
jurisdiction;
34
<PAGE>
or (iv) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (v) if a banking moratorium has been declared by a state or federal
authority; or (vi) if a moratorium in foreign exchange trading has been
declared; or (vii) if the Company, shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (vii) if there
shall have been such a material adverse change in the condition (financial or
otherwise), business affairs or prospects of the Company, whether or not arising
in the ordinary course of business, which would render, in the Underwriter's
judgment, either of such parties unable to perform satisfactorily its respective
obligations as contemplated by this Agreement or the Registration Statement, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Underwriter's judgment
would make it inadvisable to proceed with the offering, sale and/or delivery of
the Securities.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 10(a), the Company shall promptly reimburse and
indemnify the Underwriter for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriter in an amount
not to exceed $50,000 (less amounts previously paid pursuant to Section 5(c)
above). Notwithstanding any contrary provision contained in this Agreement, if
this Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Underwriter, by reason of any failure on the
part of the Company to perform an undertaking or satisfy any condition of this
Agreement to be performed or satisfied by the Company (including, without
limitation, pursuant to Section 6 or Section 12) then, the Company shall
promptly reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriter (less amounts previously paid pursuant to Section 5 (c) above). In
addition, the Company shall remain liable for all Blue Sky counsel fees and
expenses and Blue Sky filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to Sections 6, 10, 11 and 12
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Omitted
12. Default by the Company. If the Company shall fail at the Closing Date or
any Option Closing Date, as applicable, to sell and deliver the number of Public
Offering Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on any Option Closing Date, the
Underwriter may at the Underwriter's option, by notice from the Underwriter to
the Company, terminate the Underwriter's obligation to purchase Option
Securities from the Company on such date) without any liability on the part of
any non-defaulting party other than pursuant to Section 5,
35
<PAGE>
Section 7 and Section 10 hereof. No action taken pursuant to this Section shall
relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at 950 Third Avenue - 3rd Floor, New York, New York 10022,
Attention: Mr. John Piscopo, President, with a copy to Scheichet & Davis, P.C.,
505 Park Avenue, New York, NY 10022, Attention: William J. Davis, Esq. Notices
to the Company shall be directed to the Company at 2401 Morris Avenue, 3rd
Floor, Union, New Jersey 07083, Attn: Joseph Cutrona, President, with a copy to
McLaughlin & Stern, LLP, 260 Madison Avenue, New York, NY 10016, Attention:
David W. Sass, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal Underwriter and assigns and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in
accordance with the laws of the State of New York without giving effect to the
choice of law or
conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of
which shall be deemed to be an original, and all of which taken together
shall be deemed to be one
and the same instrument.
17. Entire Agreement; Amendments. This Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement constitute the entire agreement of
the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Underwriter and
the Company.
36
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
GENISYS RESERVATION SYSTEMS, INC.
By:_____________________
Joseph Cutrona, President
Confirmed and accepted as of
the date first above written
R.D. White & Co., Inc.
By:
Louis Pagano, Chairman
4734-3
37
<PAGE>
GENISYS RESERVATION SYSTEMS, INC.
AND
CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
REDEEMABLE WARRANT AGREEMENT
Dated as of , 1997
4736-4
<PAGE>
AGREEMENT, dated as of this _____ day of ___________, 1997, between
GENISYS RESERVATION SYSTEMS, INC., a New Jersey corporation (the "Company"), and
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public pursuant to
the Prospectus (the "Prospectus") contained in the Company's Registration
Statement on Form SB-2 (Registration No. 333-15011) of up to 900,000 shares of
the Company's common stock, $.0001 par value per share (the "Common Stock"),
(ii) the offering to the public pursuant to the Prospectus of up to 2,400,000
redeemable warrants (the "Warrants") comprised of 1,500,000 Class A Redeemable
Warrants ("Class A Warrants") and 900,000 Class B Redeemable Warrants ("Class B
Warrants"), each Warrant entitling the holder thereof to purchase one additional
share of Common Stock, (iii) the over-allotment option to purchase up to an
additional 135,000 shares of Common Stock and/or 225,000 Class A Warrants and
135,000 Class B Warrants, (the "Over-allotment Option"), and (iv) the sale to
R.D. White & Co., Inc. ("R.D. White"), its successors and assigns (the
"Underwriter"), of warrants (the "Underwriter's Warrants") to purchase up to
90,000 shares of Common Stock and/or 150,000 Class A Warrants and 90,000 Class B
Warrants, the Company will issue up to 3,000,000 Warrants (subject to increase
as provided in the Underwriter's Warrant Agreement and herein); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the
Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of certificates representing the
Warrants and the exercise of the Warrants.
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, R.D. White, the
holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
4736-4
1
<PAGE>
SECTION 1. Definitions. As used herein, the following terms shall
have the following
meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class whether
now or hereafter authorized, which has the right to participate in the voting
and in the distribution of earnings and assets of the Company without limit as
to amount or percentage.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business in New
York, New York, shall be administered, which office is located on the date
hereof at 2 Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, subject to the provisions of Section
5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder hereof or his
attorney duly authorized in writing, and (ii) payment in cash or by check made
payable to the Warrant Agent for the account of the Company, of the amount in
lawful money of the United States of America equal to the applicable Purchase
Price in good funds.
(d) "Initial Warrant Exercise Date" shall mean ,1997.
(e) "Initial Warrant Redemption Date" shall mean twelve (12) months
after the date of the Prospectus.
(f) "Purchase Price" shall mean, subject to modification and adjustment
as provided in Section 8, $5.75 per share for each Class A Warrant and $6.75 per
share for each Class B Warrant and further subject to the Company's right, in
its sole discretion, to decrease the Purchase Price.
(g) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation (regardless of whether
or not at the time stock of any other class or classes of such corporation shall
have or may have voting power by reason of the happening of any contingency) is
4736-4
2
<PAGE>
at the time directly or indirectly owned by the Company or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.
(i) "Transfer Agent" shall mean Continental Stock Transfer and Trust
Company, or its authorized successor.
(j) "Underwriting Agreement" shall mean the underwriting agreement
dated ____________, 1997 between the Company and the Underwriter relating to the
purchase for resale to the public of 900,000 shares of Common Stock, 1,500,000
Class A Warrants and 900,000 Class B Warrants plus an over-allotment option of
135,000 shares of Common Stock and/or 225,000 Class A Warrants and 135,000 Class
B Warrants.
(k) "Underwriter's Warrant Agreement" shall mean the agreement dated as
of , 1997 between the Company and the Underwriter relating to and governing the
terms and provisions of the Underwriter's Warrants.
(l) "Warrant Certificate" shall mean certificates representing each of
the Warrants substantially in the form annexed hereto as Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New York
time), on , 2001, or, if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:00 p.m. (New York time)
on the next following day which in the State of New York is not a holiday or a
day on which banks are authorized to close, subject to the Company's right,
prior to the Warrant Expiration Date, in its sole discretion, to extend such
Warrant Expiration Date on five business days prior written notice to the
Registered Holders.
(n) "Warrant Agent" shall mean Continental Stock Transfer and Trust
Company, or its authorized successor.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise
4736-4
3
<PAGE>
Date until the Warrant Expiration Date one share of Common Stock upon the
exercise thereof, subject to modification and adjustment as provided in Section
8.
(b) Upon execution of this Agreement, Warrant Certificates representing
1,500,000 Class A Warrants to purchase up to an aggregate of 1,500,000 shares of
Common Stock and 900,000 Class B Warrants to purchase up to an aggregate 900,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-allotment Option, in whole or in part,
Warrant Certificates representing up to 225,000 Class A Warrants to purchase up
to an aggregate of 225,000 shares of Common Stock and 135,000 Class B Warrants
to purchase up to an aggregate of 135,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8) shall be executed by the
Company and delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants as provided therein,
Warrant Certificates representing all or a portion of 150,000 Class A Warrants
to purchase up to an aggregate of 150,000 shares of Common Stock and 90,000
Class B Warrants to purchase up to an aggregate of 90,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8 hereof and in
the Underwriter's Warrant Agreement), shall be countersigned, issued and
delivered by the Warrant Agent upon written order of the Company signed by its
Chairman of the Board, President or a Vice President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary.
(e) From time to time, up to the Warrant Expiration Date, as the case
may be, the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Underwriter's Warrant Agreement (including Warrants in excess of the
Underwriter's Warrants to purchase 90,000 shares of Common Stock and/or 150,000
Class A Warrants and 90,000 Class B
4736-4
4
<PAGE>
Warrants issued as a result of the anti-dilution provisions contained in the
Underwriter's Warrant Agreement), and (v) at the option of the Company, Warrant
Certificates in such form as may be approved by its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon exercise of the Warrants or the redemption price
therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which 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).
(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 Treasurer
or an Assistant Treasurer or its Secretary or an Assistant Secretary, by manual
signatures or by facsimile signatures printed thereon, and shall have imprinted
thereon a facsimile of the Company's seal. Warrant Certificates shall be
manually countersigned. 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, nevertheless, may be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
4736-4
5
<PAGE>
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof
may be exercised at any time commencing with the Initial Warrant Exercise Date,
and ending at the close of business on the Warrant Expiration Date, upon the
terms and subject to the conditions set forth herein (including the provisions
set forth in Sections 5 and 9 hereof) 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, provided that 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, together
with payment in cash or by check made payable to the Warrant Agent for the
account of the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price has been received in good funds
by the Warrant Agent. The person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder of such
securities as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date and in any event within five business
days after such date, the Warrant Agent on behalf of the Company shall cause to
be issued to the person or persons entitled to receive the same a Common Stock
certificate or certificates for the shares of Common Stock deliverable upon such
exercise, and the Warrant Agent shall deliver the same to the person or persons
entitled thereto. Upon the exercise of any Warrant, the Warrant Agent shall
promptly notify the Company in writing of such fact and of the number of
securities delivered upon such exercise and, subject to subsection (b) below,
shall cause all payments of an amount in cash or by check made payable to the
order of the Company, equal to the Purchase Price, to be deposited promptly in
the Company's bank account.
(b) At any time upon the exercise of any Warrants after 181 days from
the date hereof, the Warrant Agent shall, on a daily basis, within two business
days after such exercise, notify the Underwriter, and its successors or assigns,
of the exercise of any such Warrants and shall, on a weekly basis (subject to
collection of funds constituting the tendered Purchase Price, but in no event
later than five business days after the last day of the calendar week in which
such funds were tendered), remit to the Underwriter (so long as the Underwriter
solicited the exercise of such Warrant as indicated upon the Subscription Form
attached to the Warrant Certificate tendered for exercise), an amount equal to
4736-4
6
<PAGE>
four percent (4%) of the Purchase Price of such Warrants being then exercised
unless (1) the Underwriter shall have notified the Warrant Agent that the
payment of such amount with respect to such Warrant is violative of the General
Rules and Regulations promulgated under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"), or the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") or applicable state securities
of "blue sky" laws, or (2) the Warrants are those underlying the Underwriter's
Warrants, or (3) the market price of the Common Stock on the subject Exercise
Date is lower than the Purchase Price, or (4) the Warrants are held in a
discretionary account, or (5) the Warrants are exercised in an unsolicited
transaction, in any of which events the Warrant Agent shall pay such amount to
the Company; provided that the Warrant Agent shall not be obligated to pay any
amounts pursuant to this Section 4(b) during any week that such amounts payable
are less than $1,000 and the Warrant Agent's obligation to make such payments
shall be suspended until the amount payable aggregate $1,000, and provided
further, that, in any event, any such payment (regardless of amount) shall be
made not less frequently than monthly.
(c) The Company shall not be required to issue fractional shares upon
the exercise of Warrants. Warrants may only be exercised in such multiples as
are required to permit the issuance by the Company of one or more whole shares.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Registered Holder, the number of whole shares which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares purchasable on exercise of the Warrants so presented.
If any fraction of a share would, except for the provisions provided herein, be
issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to such fraction multiplied by the
then current market value of a share of Common Stock, determined as follows:
(1) If the Common Stock is listed or admitted to unlisted
trading privileges on the New York Stock Exchange ("NYSE") or the American Stock
Exchange ("AMEX") or is traded on The Nasdaq National Market (" Nasdaq/NM"), the
current market value of a share of Common Stock shall be the closing price of
the Common Stock at the end of the regular trading session on the last business
day prior to the date of exercise of the Warrants on whichever of such exchanges
or Nasdaq/NM had the highest average daily trading volume for the Common Stock
on such day; or
4736-4
7
<PAGE>
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges on either the NYSE or the AMEX and is not traded on
Nasdaq/NM, but is quoted or reported on Nasdaq, the current market value of a
share of Common Stock shall be the last sale price of the Common Stock at the
end of the regular trading session on the last business day prior to the date of
exercise of the Warrants as quoted or reported on Nasdaq, as the case may be; or
(3) If the Common Stock is not listed or admitted to unlisted
trading privileges on either of the NYSE or the AMEX, and is not traded on
Nasdaq/NM or quoted or reported on Nasdaq, but is listed or admitted to unlisted
trading privileges on the BSE or other national securities exchange (other than
the NYSE or the AMEX), the current market value of a share of Common Stock shall
be the closing price of the Common Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the Warrants
on whichever of such exchanges has the highest average daily trading volume for
the Common Stock on such day; or
(4) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, but is traded in the over-the-counter
market, the current market value of a share of Common Stock shall be the average
of the last reported bid and asked prices of the Common Stock reported by the
National Quotation Bureau, Inc. on the last business day prior to the date of
exercise of the Warrants; or
(5) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed for trading on
Nasdaq/NM or quoted or reported on Nasdaq, and bid and asked prices of the
Common Stock are not reported by the National Quotation Bureau, Inc., the
current market value of a share of Common Stock shall be an amount, not less
than the book value thereof as of the end of the most recently completed fiscal
quarter of the Company ending prior to the date of exercise, determined in
accordance with generally accepted accounting principles, consistently applied.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number
4736-4
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<PAGE>
of shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, at the time of
delivery thereof, be duly and validly issued and fully paid and nonassessable
and free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, and that upon issuance such shares shall be listed
on each securities exchange, if any, on which the other shares of outstanding
Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post effective amendment, use its best efforts to cause the same to become
effective and use its best efforts to keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Securities Act of 1933, as amended, (the
"Act"), to the Registered Holder exercising the Warrant (except, if in the
opinion of counsel to the Company, such registration is not required under the
federal securities law or if the Company receives a letter from the staff of the
Securities and Exchange Commission (the "Commission") stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate approvals or registrations under
state "blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
4736-4
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<PAGE>
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other securities required upon exercise of the Warrants, and the
Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Register
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for registration
of transfer, or for exchange or exercise, the subscription or exercise form, as
the case may be, on the reverse thereof shall be duly endorsed or be accompanied
by a written instrument or instruments or transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder thereof or his attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates. However, the Company may require payment 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
shall be promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner
4736-4
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thereof of each Warrant represented thereby (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to the
contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of
Common Stock Deliverable.
(a) If the Company shall at any time subdivide its outstanding shares
of Common Stock by recapitalization, reclassification or split-up thereof, or if
the Company shall declare a stock dividend or distribute shares of Common Stock
to its stockholders, the number of shares of Common Stock subject to the
Warrants immediately prior thereto shall be proportionately increased and, if
the Company shall at any time combine the outstanding shares of Common Stock by
recapitalization, reclassification or combination thereof, the number of shares
of Common Stock subject to the Warrants immediately prior to such
recapitalization, reclassification or combination shall be proportionately
decreased. Any such adjustment and adjustment to the Warrant Price pursuant to
Section 8(b) shall be effective at the close of business on the effective date
of such subdivision or combination or, if any adjustment is the result of a
stock dividend or distribution, then the effective date for such adjustment
based thereon shall be the record date therefor.
(b) If the Company after the date hereof shall distribute to all of the
holders of its shares of Common Stock any securities or other assets (other than
a distribution made as a dividend payable
4736-4
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<PAGE>
out of earnings or out of any earned surplus legally available for dividends
under the laws of the jurisdiction of incorporation of the Company), the Board
of Directors shall be required to make such equitable adjustment in the Warrant
Price in effect immediately prior to the record date of such distribution as may
be necessary to preserve to the holder of each Warrant rights substantially
proportionate to those enjoyed hereunder by such holder immediately prior to the
happening of such distribution. Any such adjustment shall become effective as of
the day following the record date for such distribution.
(c) Whenever the number of shares of Common Stock purchasable upon the
exercise of the Warrants is adjusted, as provided in Section 8, the Warrant
Price shall be adjusted (to the nearest cent) by multiplying such Warrant Price
immediately prior to such adjustment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise of
the Warrants immediately prior to such adjustment, and (y) the denominator of
which shall be the number of shares of Common Stock so purchasable immediately
thereafter.
(d) In case of any reclassification of the outstanding shares of Common
Stock other than a change covered by Section 8(a) hereof or which solely affects
the par value of such shares of Common Stock, or in the case of any merger or
consolidation 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 or reorganization of the
outstanding shares of Common Stock) or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
each holder of the Warrants shall have the right thereafter (until the
expiration of the right of exercise of the Warrants) to receive upon the
exercise thereof, for the same aggregate Warrant Price payable thereunder
immediately prior to such event, the kind and amount of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution following any
such sale or other transfer, by a holder of the number of shares of Common Stock
of the Company obtainable upon exercise of the Warrants immediately prior to
such event; and if any reclassification also results in a change in shares of
Common Stock covered by Section 8(a), then such adjustment shall be made
pursuant to both Section
4736-4
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8(a), and this Section 8(d). The provisions of this Section 8(d) shall similarly
apply to successive reclassifications, reorganizations, mergers or
consolidations, sales or other transfers.
(e) If the Company after the date hereof shall take any action
affecting the shares of its Common Stock, other than action described in this
Section 8, which, in the opinion of the Board of Directors of the Company, would
materially affect the rights of a holder of the Warrants, the Warrant Price and
the number of shares of Common Stock obtainable upon exercise of the Warrants
shall be adjusted in such manner, if any, and at such time as the Board of
Directors of the Company, in good faith, may determine to be equitable in the
circumstances.
(f) The form of Warrant need not be changed because of any change
pursuant to this Section and Warrants issued after such change may state the
same Warrant Price and the same number of shares as is stated in the Warrants
initially issued pursuant to this Agreement. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of Warrant that the Company may deem appropriate and that does not affect
the substance thereof; and any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise, may
be in the form as so changed.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may,
on 30 days' prior written notice redeem all the Warrants, other than the
Warrants underlying the Underwriter's Warrants which shall not be redeemable, at
ten cents ($.10) per Warrant, provided, however, that before any such call for
redemption of Class A Warrants can take place the closing sale price of the
Common Stock as quoted on the principal market on which such shares shall then
be trading, shall have, for only twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth (5th) day prior to the
date on which the notice contemplated by (b) and (c) below is given, equalled or
exceeded $6.25 per share (subject to adjustment in the event of any stock splits
or other similar events as provided in Section 8 hereof), and before any such
call for redemption of Class B Warrants can take place the closing sale price of
the Common Stock as quoted on the principal market on which such shares shall
then be trading, shall have, for only twenty (20) trading days within a
4736-4
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<PAGE>
period of thirty (30) consecutive trading days ending on the fifth (5th) day
prior to the date on which the notice contemplated by (b) and (c) below is
given, equalled or exceeded $7.25 per share (subject to adjustment in the event
of any stock splits or other similar events as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all of the
Class A or Class B Warrants so redeemable, it shall give or cause notice to such
effect to be given to the Underwriter in the same manner that notice is required
to be given by the Underwriter's Warrant Agreement. The Underwriter may, at its
option, solicit exercises of the Warrants. In the event that the Underwriter
does not commence solicitation of exercises of the Warrants within thirty (30)
days of notice from the Company, the Company may give notice of redemption to
the Registered Holders of the Warrants by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
business days prior to the mailing to the Registered Holders of the Warrants of
the notice of redemption, the Company shall deliver or cause to be delivered to
the Underwriter a similar notice telephonically and confirmed in writing
together with a list of the Registered Holders (including their respective
addresses and number of Warrants beneficially owned) to whom such notice of
redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, which shall in no event be less than thirty
(30) days after the date of mailing of such notice, (iii) the place where the
Warrant Certificate shall be delivered and the redemption price shall be paid,
(iv) that the Underwriter is the Company's warrant solicitation agent and may
receive the commission contemplated by Section 4(b) hereof, and (v) that the
right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrants shall be 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 the Secretary or Assistant Secretary
4736-4
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<PAGE>
of the Company that notice of redemption has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New
York time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from the
registration statement or prospectus referred to in Section 5(b) hereof to the
same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify the Underwriters contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall
furnish to the Underwriter (i) an opinion of counsel to the Company, dated such
date and addressed to Underwriter, and (ii) a "cold comfort" letter dated such
date addressed to the Underwriter, signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(g) The Company shall as soon as practicable after the Redemption Date,
and in any event within 15 months thereafter, make "generally available to its
security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
4736-4
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<PAGE>
(h) The Company shall deliver within five business days prior to the
Redemption Date 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 such registration statement and
permit the Underwriter 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 NASD. 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 the Underwriter shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company and the Underwriter, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder, be deemed to make
any representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, 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. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any
4736-4
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<PAGE>
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board of Directors, President or any Vice President (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) 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 gross negligence or willful misconduct), after giving
30 days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation the Company shall
appoint in writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company doing business in
4736-4
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Massachusetts or New York. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the warrant agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the
date of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct
4736-4
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<PAGE>
any defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Warrants which are to be
governed by this Agreement resulting from a subsequent public offering of
Company securities which includes warrants having the same terms and conditions
as the Warrants originally covered by or subsequently added to this Agreement
under this Section 11; or (iii) that they may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders representing not less that 66-2/3% of the
Warrants then outstanding (including, for this purpose Warrants issuable to the
Underwriter pursuant to the Underwriter's Warrants, whether or not then
outstanding); provided, further, that no change in the number or nature of the
securities purchasable upon the exercise of any Warrant, or to increase the
Purchase Price therefor, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate, other than such changes as are
specifically prescribed by this Agreement as originally executed. In addition,
this Agreement may not be modified, amended or supplemented without the prior
written consent of the Underwriter, other than to cure any ambiguity or to
correct any provision which is inconsistent with any other provision of this
Agreement or to make any such change that is necessary or desirable and which
shall not adversely affect the interests of the Underwriter and except as may be
required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid, or delivered to a telegraph office for
transmission 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 Genisys Reservation Systems, Inc., 2401 Morris
Avenue, 3rd Floor, Union, New Jersey 07083, Attention: Joseph Cutrona,
President, or at such other address as may have been furnished to the Warrant
Agent in writing by the company; and if to the Warrant Agent, at its Corporate
Office. Copies of any notice delivered pursuant to this Agreement shall be
delivered to R.D. White at R.D. White & Co., Inc., 950 Third Avenue, 3rd Floor,
New York, New York 10022, Attention: John
4736-4
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Piscopo, with a copy to Scheichet & Davis, P.C., 505 Park Avenue, 20th Floor,
New York, New York 10022, Attention: William J. Davis, or at such other address
as may have been furnished to the Company and the Warrant Agent in writing.
SECTION 13. Construction.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Underwriters (as defined in
the Underwriting Agreement) are, and shall at all times irrevocably be deemed to
be, third-party beneficiaries of this Agreement, with full power, authority and
standing to enforce the rights granted to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the first date first above written.
GENISYS RESERVATION SYSTEMS, INC. CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
By: By:
Joseph Cutrona, President
4736-4
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EXHIBIT A
No. Class A W VOID AFTER ____________, 2001
----------
____________ CLASS A WARRANTS
CLASS A REDEEMABLE WARRANT CERTIFICATE
TO PURCHASE ONE SHARE OF COMMON STOCK
GENISYS RESERVATION SYSTEMS, INC.
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.0001 par
value, of Genisys Reservation Systems, Inc., a New Jersey corporation (the
"Company"), at any time between
, 1997 (the "Initial Warrant Exercise Date"), and the Expiration Date
(as hereinafter defined) upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of Continental Stock Transfer and Trust Company, 2
Broadway, New York, New York 10004, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $5.75 subject to adjustment (the
"Purchase Price"), in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Redeemable Warrant Agreement (the "Warrant Agreement"), dated
________________, 1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrant represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute
4736-4
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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 ,
2001. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
of Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing six (6) months after the Initial Warrant
Exercise Date, provided that (i) the closing bid price for the Common Stock is
reported by The Nasdaq Stock Market, Inc. ("Nasdaq"), if the Common Stock is
then traded in the over-the-counter market or (ii) the closing sale price, if
the Common Stock is then traded on Nasdaq/NM or a national securities exchange,
shall have equalled or exceeded for any twenty (20) trading days within a period
of thirty (30) consecutive trading days ending on the fifth (5th) day prior to
the Notice of Redemption, as defined below, $6.25 per share (subject to
adjustment in the event of any stock splits or other similar events). Notice of
redemption (the "Notice of Redemption") shall be
4736-4
22
<PAGE>
given not later than the thirtieth 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 the
Warrants except to receive the $.10 per Warrant upon surrender of this Warrant
Certificate.
Under certain circumstances, R.D. White & Co., Inc. collectively shall
be entitled to receive
an aggregate of four percent (4%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ________________, 1997
[SEAL] GENISYS RESERVATION SYSTEMS, INC.
By: _____________________________
Joseph Cutrona, President
By: _____________________________
John Wasko, Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
as Warrant Agent
By: _____________________
4736-4
23
<PAGE>
Name: _____________________
Title: ____________________
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in 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.
4736-4
24
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was
solicited by R.D. White & Co., Inc.
2. The exercise of this Warrant was not
solicited.
Dated: X
Address
Social Security or Taxpayer
Identification Number
Signature Guaranteed
4736-4
25
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
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 of the
Company, with full power of substitution in the premises.
Dated: X
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
CONTINENTAL STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR
BOSTON STOCK EXCHANGE.
4736-4
26
<PAGE>
EXHIBIT B
No. Class B W VOID AFTER ____________, 2001
----------
___________ CLASS B WARRANTS
CLASS B REDEEMABLE WARRANT CERTIFICATE
TO PURCHASE ONE SHARE OF COMMON STOCK
GENISYS RESERVATION SYSTEMS, INC.
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.0001 par
value, of Genisys Information Systems, Inc., a New Jersey corporation (the
"Company"), at any time between
, 1997 (the "Initial Warrant Exercise Date"), and the Expiration Date
(as hereinafter defined) upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of Continental Stock Transfer and Trust Company, 2
Broadway, New York, New York 10004, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $6.75 subject to adjustment (the
"Purchase Price"), in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Redeemable Warrant Agreement (the "Warrant Agreement"), dated
________________, 1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrant represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute
4736-4
27
<PAGE>
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 ,
2001. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, use
its best efforts to keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
of Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing six (6) months after the Initial Warrant
Exercise Date, provided that (i) the closing bid price for the Common Stock is
reported by The Nasdaq Stock Market, Inc. ("Nasdaq"), if the Common Stock is
then traded in the over-the-counter market or (ii) the closing sale price, if
the Common Stock is then traded on Nasdaq/NM or a national securities exchange,
shall have equalled or exceeded for any twenty (20) trading days within a period
of thirty (30) consecutive trading days ending on the fifth (5th) day prior to
the Notice of Redemption, as defined below, $7.25 per share (subject to
adjustment in the event of any stock splits or other similar events). Notice of
redemption (the "Notice of Redemption") shall be
4736-4
28
<PAGE>
given not later than the thirtieth 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 the
Warrants except to receive the $.10 per Warrant upon surrender of this Warrant
Certificate.
Under certain circumstances, R.D. White & Co., Inc. collectively
shall be entitled to receive
an aggregate of four percent (4%) of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ________________, 1997
[SEAL] GENISYS RESERVATION SYSTEMS, INC.
By: _____________________________
Joseph Cutrona, President
By: _____________________________
John Wasko, Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
as Warrant Agent
By: _____________________
4736-4
29
<PAGE>
Name: _____________________
Title: ____________________
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in 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.
4736-4
30
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was
solicited by R.D. White & Co., Inc.
2. The exercise of this Warrant was not
solicited.
Dated: X
Address
Social Security or Taxpayer
Identification Number
Signature Guaranteed
4736-4
31
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ___________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
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 of the
Company, with full power of substitution in the premises.
Dated: X
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
CONTINENTAL STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR
BOSTON STOCK EXCHANGE.
4736-4
32
<PAGE>
GENISYS RESERVATION SYSTEMS, INC.
AND
R.D. WHITE & CO., INC.
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of , 1997
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of , 1997 between GENISYS
RESERVATION SYSTEMS, INC., a New Jersey corporation (the "Company") and R.D.
WHITE & CO., INC., its successors, designees and assigns (hereinafter referred
to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Warrants") to purchase up to an aggregate of 90,000 shares of common stock,
$.0001 par value, of the Company's ("Common Stock") and/or up to 240,000
warrants consisting of 150,000 Class A Warrants and 90,000 Class B Warrants
("Underlying Warrants"), each Underlying Warrant entitling the holder to
purchase one share of Common Stock. (One share of Common Stock and one
Underlying Warrant are each hereinafter referred to as a "Warrant Security" and
more than one collectively referred to as the "Warrant Securities"); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof among the
Underwriter and the Company to act as the Underwriter in connection with the
Company's proposed public offering of up to 900,000 shares of Common Stock and
2,400,000 redeemable warrants consisting of 1,500,000 Class A Warrants and
900,000 Class B Warrants (collectively the "Redeemable Warrants") at a public
offering price of $5.00 per share of Common Stock and $.20 per Class A
Redeemable Warrant and $.10 per Class B Redeemable Warrant (the "Public
Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter 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 premises, the payment by the
Underwriter
1
<PAGE>
to the Company of an aggregate twenty-one dollars ($21.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant The Underwriter is hereby granted by the Company the right to
purchase, at any time from , 1998 until 5:00 P.M., New York time, on , 2002, up
to an aggregate of 90,000 shares of Common Stock (the "Shares") and 240,000
Underlying Warrants at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $6.00 per Share and $.24 per Class A Warrant
and $.12 per Class B Warrant, subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one additional
share of Common Stock at an initial exercise price of $6.90 per Class A Warrant
from , 1998 until 5:00 P.M. New York time on , 2002 at which time the Class A
Underlying Warrants will expire and $ 8.10 per Class B Warrant from , 1998 until
5:00 P.M. New York time on , 2002 at which time the Class B Underlying Warrants
will expire. Except as set forth herein, the Underlying Warrants issuable upon
exercise of the Warrants are in all respects identical to the Redeemable
Warrants being purchased by the Underwriter for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement and the Redeemable
Warrant Agreement dated 1997 between the Company and Continental Stock Transfer
& Trust Company ("Redeemable Warrant Agreement"). Except as set forth herein,
the shares issuable upon exercise of the Warrants are in all respects identical
to the shares of Common Stock being purchased by the Underwriter for resale to
the public pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
(i) in the form set forth in Exhibit A, with respect to Class A Warrants to
purchase Underlying Warrants and (ii) in the form set forth in Exhibit B with
respect to Class B Warrants to purchase Underlying Warrants, each attached
hereto and made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
2
<PAGE>
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable at the
initial exercise prices (subject to adjustment as provided in Section 8 hereof)
per Share and per Underlying Warrant as set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Warrant Securities purchased at the Company's principal offices (presently
located at 2401 Morris Avenue, Union, NJ 07083) the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased and a
certificate or certificates for the Underlying Warrants so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holders thereof, in whole or part (but not as to fractional shares
of the Common Stock and Underlying Warrants). In the case of the purchase of
less than all Warrant Securities 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 Warrant Securities purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the applicable Warrant Certificates in the manner specified in Section 3.1. The
number of shares of Common Stock to be issued pursuant to this Section 3.2 shall
be equal to the difference between (a) the number of shares of Common Stock in
respect of which the Warrants are exercised and (b) a fraction, the numerator of
which shall be the number of shares of Common Stock in respect of which the
Warrants are exercised multiplied by the Exercise Price (as hereinafter defined)
and the denominator of which shall be the Market Price. The number of Underlying
Warrants to be issued pursuant to this Section 3.2 shall be equal to the
difference between (a) the number of Underlying Warrants in respect of which the
Warrants are exercised and (b) a fraction, the numerator of which shall be the
number of Underlying Warrants in respect of which the Warrants are exercised
multiplied by the Exercise Price (as hereinafter defined) and the denominator of
which shall be the
3
<PAGE>
Market Price.
3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) when referring to the Common Stock,
the last reported price, or, in case no such reported sale takes place on such
day, the average of the last reported prices for the last three (3) trading
days, in either case as officially reported by the principal securities exchange
on which the Common Stock is listed or admitted to trading or by the Nasdaq
National Market ("NNM"), or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted by NNM, the average
closing price as furnished by the National Association of Securities Dealers,
Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer
reporting such information, or if the Common Stock is not quoted on Nasdaq, or
such similar organization as determined in good faith by resolution of the Board
of Directors of the Company, based on the best information available to it or
(ii) when referring to an Underlying Warrant, the last reported price, or, in
the case no such reported sale takes place on such day, the average of the last
reported prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Underlying
Warrants are listed or admitted to trading or by NNM, or, if the Underlying
Warrants are not listed or admitted to trading on any national securities
exchange or quoted by NNM, the closing price as furnished by the NASD through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Underlying Warrant is not quoted on Nasdaq or such
similar organization, the Market Price of an Underlying Warrant shall equal the
difference between the Market Price of the Common Stock and the Exercise Price
(as hereinafter defined) of the Underlying Warrant. Notwithstanding the
foregoing, for purposes of Section 8, the Market Price of a share of Common
Stock or an Underlying Warrant shall be determined by reference to the relevant
information set forth above during the thirty (30) trading days immediately
preceding the date of the event requiring the determination of the Market Price
(except that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock or an Underlying Warrant shall be
determined by reference to the trading day immediately preceding the effective
date of the public offering and not such thirty (30) trading day period).
4
<PAGE>
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and Underlying Warrants and
other securities, properties or rights underlying such Warrants and, upon the
exercise of the Underlying Warrants, the issuance of certificates for shares of
Common Stock and other securities, properties or rights underlying such
Underlying Warrants, shall be made forthwith (and in any event within five (5)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 5
and 7 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.
The Warrant Certificates and the certificates representing the Shares,
Underlying Warrants and the shares of Common Stock underlying such Underlying
Warrants (and other securities, property or rights issuable upon the exercise of
the Warrants or the Underlying Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then present 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 then present 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.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants 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 of the Underwriter.
5
<PAGE>
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant to purchase
Common Stock shall be $6.00 per share of Common Stock and the initial exercise
price of each Warrant to purchase Underlying Warrants shall be $.24 per Class A
Underlying Warrant and $.12 per Class B Underlying 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 Section 8 hereof and in accordance with a reduction by the
Company, in its sole discretion, of the exercise price of each Warrant to
purchase Common Stock.
6.2 Exercise Price. The term "Exercise Price" herein
shall mean the applicable
initial exercise price or with respect to Warrants to purchase Common Stock
the adjusted exercise
price, depending upon the context.
7. Registration Rights.
7.1 Current Registration Under the Securities Act of 1933. The
Warrants, the Shares, the Underlying Warrants issuable upon exercise of the
applicable Warrants and the shares of Common Stock issuable upon exercise of
such Underlying Warrants have been registered under the Securities Act of 1933,
as amended (the "Act"), pursuant to the Company's Registration Statement on Form
SB-2 (Registration No.333-15011 ) (the "Registration Statement"). The Company
covenants and agrees to use its best efforts to maintain the effectiveness of
the Registration Statement for a period of five (5) years from its effective
date.
7.2 Contingent Registration Rights. In the event that, for any reason
whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement for a period of five (5) years from its effective date
and, in any event, from and after the fifth (5th) anniversary of the effective
date of the Registration Statement, the Underwriter shall have commencing the
date of any such occasion, the contingent registration rights ("Registration
Rights") set forth in Sections 7.3 and 7.4 hereof.
7.3 Piggyback Registration.
(a) If, at any time commencing after the effective date
of the Registration Rights
6
<PAGE>
and expiring on the seventh (7th) anniversary of the effective date of the
Registration Statement, the Company proposes to register any of its securities
under the Act, either for its own account or the account of any other security
holder or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or comparable
registration statement), it shall give written notice, at least thirty (30) days
prior to the filing of each such registration statement, to the Underwriter and
to all other Holders of Warrants, Shares, Underlying Warrants and shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively,
"Registrable Securities") of its intention to do so. If the Underwriter or other
Holders of Registrable Securities notify the Company within twenty-one (21) days
after the receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford the
Underwriter and such other Holders of such securities the opportunity to have
any such securities registered under such registration statement.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Underwriter and such other Holders as part of the written notice
given pursuant to Section 7.3(a) hereof. The right of the Underwriter or any
such other Holder to registration pursuant to this Section 7.3 shall be
conditioned upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent hereinafter
provided. The Underwriter and all other Holders proposing to distribute their
securities through such underwriting shall (together with the Company and any
officer, directors or Other Stockholders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected by the Company. Notwithstanding any
other provision of this Section 7.3, if the underwriter or underwriters advises
the Company in writing that marketing factors require a limitation or
elimination of the number of shares of Common Stock or other securities to be
underwritten, the Underwriter may limit the number of shares of Common Stock or
other securities to be included in the registration and underwriting. The
Company shall so advise the Underwriter and all other Holders of Registrable
Securities requesting registration, and the number of shares of Common Stock or
other securities that are entitled to be included in the registration and
underwriting shall be allocated among the Underwriter and other Holders
requesting registration, in each case, in
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proportion, as nearly as practicable, to the respective amounts of securities
which they had requested to be included in such registration at the time of
filing the registration statement.
(c) Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to Section 7.3(a) hereof (irrespective of whether a written
request for inclusion of any such securities shall have been made) to elect not
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
7.4 Demand Registration.
(a) At any time commencing after the effective date of the
Registration Rights and ending on the fifth (5th) anniversary of the effective
date of the Registration Statement, the Underwriter and Holders of Registrable
Securities representing a "Majority" (as hereinafter defined) of such securities
(assuming the exercise of all of the Warrants and Underlying Warrants) (the
"Initiating Holders") shall have the right (which right is in addition to the
registration rights under Section 7.3 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Registrable
Securities for up to two hundred and seventy (270) days by such Holders and any
other Holders of Registrable Securities, as well as any other security holders
possessing similar registration rights, who notify the Company within twenty-one
(21) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.4 by any Holder or Holders to all
other registered Holders of Registrable Securities, as well as any other
security holders possessing similar registration rights, within ten (10) days
after the date of the receipt of any such registration request.
(c) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 7.4(a) hereof. The right of any Holder to registration pursuant to this
Section 7.4 shall be conditioned upon such Holder's participation in such
underwriting and the
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inclusion of such Holder's Registrable Securities in the underwriting to the
extent and subject to the limitations provided herein. A Holder may elect to
include in such underwriting all or a part of the Registrable Securities it
holds.
(d) The Company shall (together with all Holders, officers,
directors and Other Stockholders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the Underwriter of the underwriter of underwriters selected for such
underwriting by the Initiating Holders, which underwriter(s) shall be reasonably
acceptable to the Underwriter. Notwithstanding any other provision of this
Section 7.4, if the Underwriter advises the Initiating Holders in writing that
marketing factors require a limitation or elimination of the number of shares of
Common Stock or other securities to be underwritten, the Underwriter may limit
the number of shares of Common Stock or other securities to be included in the
registration and underwriting. The Company shall so advise the Underwriter and
all Holders of Registrable Securities requesting registration, and the number of
shares of Common Stock or other securities that are entitled to be included in
the registration and underwriting shall be allocated among the Underwriter and
other Holders requesting registration, in each case, in proportion, as nearly as
practicable, to the respective amounts of securities which they had requested to
be included in such registration at the time of filing the registration
statement. If the Company or any Holder of Registrable Securities who has
requested inclusion in such registration as provided above disapproves of the
terms of any such underwriting, such person may elect to withdraw its securities
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. Any securities so excluded shall be withdrawn from such registration.
No securities excluded from such registration by reason of such underwriters'
marketing limitations shall be included in such registration. To facilitate the
allocation of shares in accordance with this Section 7.4(d), the Company or
underwriter or underwriters selected as provided above may round the number of
securities of any holder which may be included in such registration to the
nearest 100 shares.
(e) In the event that the Initiating Holders are unable to
sell all of the Registrable Securities for which they have requested
registration due to the provisions of Section 7.4(d) hereof and if, at that
time, the Initiating Holders are not permitted to sell Registrable Securities
under Rule 144(k), the Initiating Holders shall be entitled to require the
Company to afford the Initiating Holders
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an opportunity to effect one additional demand registration under this
Section 7.4.
(f) In addition to the registration rights under Section 7.3
and subsection (a) of Section 7.4 hereof, at any time commencing on the date
hereof and expiring five (5) years thereafter any Holder of Registrable
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for 270 days
by any such Holder of its Registrable Securities provided, however, that the
provisions of Section 7.5(b) hereof, shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holder's making such request.
(g) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Registrable
Securities of the Initiating Holders or the Holder(s) referred to in Section
7.5(f) above (the "Paying Holders"), within the time period specified in Section
7.5(a) below, the Company shall upon the written notice of election of the
Initiating Holders or the Paying Holders, as the case may be, repurchase (i) any
and all Shares and Underlying Warrants at the higher of the Market Price per
share of Common Stock or per Underlying Warrant, as the case may be, on (x) the
date of the notice sent to the Company under Section 7.4(a) or (f), as the case
may be, or (y) the expiration of the period specified in Section 7.5(a) and (ii)
any and all Warrants at such Market Price less the Exercise Price of such
Warrant. Such repurchase shall be in immediately available funds and shall close
within five (5) business days after the expiration of the period specified in
Section 7.5(a).
7.5 Covenants of the Company With Respect to Registration.
In connection
with any registration under Sections 7.3 and 7.4 hereof, the Company covenants
and agrees as
follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Registrable Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)'
counsel and any underwriting or selling commissions), fees and expenses in
connection with all
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registration statements filed pursuant to Sections 7.3 and 7.4 hereof including,
without limitation, the Company's legal and accounting fees, printing expenses,
blue sky fees and expenses. If the Company shall fail to comply with the
provisions of Section 7.5(a), the Company shall, in addition to any other
equitable or other relief available to the Holder(s), extend the exercise period
of the Warrants by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all 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 reasonably are requested by the Holder(s); provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the
Registrable Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify each of the Underwriters
contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement
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pursuant to which the Underwriters have agreed to indemnify the Company.
(f) For a period of one hundred eighty (180) days after the
effectiveness of any registration statement filed pursuant to Section 7.4
hereof, the Company shall not permit any other registration statement (other
than (1) a registration statement relating to the securities for which the
Company has granted demand registration rights, as described in the Prospectus
included in the Registration Statement, (2) a registration statement relating to
the shares of Common Stock issuable upon exercise of the Redeemable Warrants
issued to the public pursuant to the Registration Statement, (3) a registration
statement relating to the securities for which the Company has granted piggyback
registration rights, as described in the Prospectus included in the Registration
Statement and (4) a registration statement filed on Forms S-4 or S-8) to be or
remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.4 hereof, without the prior written consent of the Holders
of the Registrable Securities representing a Majority of such securities.
(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(h) The Company shall as soon as practicable after the
effective date of any registration statement filed pursuant to Sections 7.3 and
7.4 hereof, and in any event within 15 months thereafter, make "generally
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be audited) complying with Section
11(a) of
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the act and covering a period of at least 12 consecutive months beginning after
the effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all written
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 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
NASD. 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 or underwriter shall reasonably request.
(j) With respect to any registration under Section 7.4 hereof,
the Company shall enter into an underwriting agreement with the managing
underwriter selected for such underwriting by the Initiating Holders or the
Paying Holders, as the case may be, which may be the Underwriter. Such agreement
shall be satisfactory in form and substance to the Company, each Holder and such
managing underwriters, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale of their
Registrable Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters, except as they may relate to
such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Registrable Securities, shall mean in excess of
fifty percent (50%) of the then outstanding Warrants, Shares, Underlying
Warrants and shares of Common Stock issued upon exercise of the Underlying
Warrants that (i) are not held by the Company, an affiliate, officer, creditor,
employee
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<PAGE>
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
(l) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants or Underlying Warrants prior
to the initial filing of any registration statement or the effectiveness
thereof.
(m) In addition to the Registrable Securities, upon the
written request therefor, by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement, including
without limitation restricted shares of Common Stock, options, warrants or any
other securities convertible into shares of Common Stock.
7.6 Restrictive Legends. In the event that the Company fails to
maintain the effectiveness of the Registration Statement, such that the
exercise, in part or in whole, of the Warrants and the Underlying Warrants are
not, at the time of such exercise, registered under the Act, any certificates
representing the Shares underlying the Warrants, the Underlying Warrants
underlying the Warrants and the shares of Common Stock underlying the Underlying
Warrants, and any of the other securities issuable upon exercise of the Warrants
shall bear the following restrictive legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144 under
the Act (or any similar rule under such Act relating to the disposition
of securities), or (iii) an opinion of counsel, if such opinion shall
be reasonably satisfactory to counsel to the issuer, that an exemption
from registration under such Act is available.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Computation of Adjusted Exercise Price. Except
as hereinafter provided, in the
event the Company shall at any time after the date hereof issue or sell any
shares of Common Stock
(other than the issuances or sales referred to in Section 8.7 hereof),
including shares held in the
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Company's treasury and shares of Common Stock issued upon the exercise of any
options, rights or warrants to subscribe for shares of Common Stock and shares
of Common Stock issued upon the direct or indirect conversion or exchange of
securities for shares of Common Stock, for a consideration per share less than
the Exercise Price in effect immediately prior to the issuance or sale of such
shares, or without consideration, then forthwith upon such issuance or sale, the
Exercise Price shall (until another such issuance or sale) be reduced to the
price (calculated to the nearest full cent) equal to the quotient derived by
dividing (i) an amount equal to the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to the issuance or sale of such
shares, multiplied by the Exercise Price in effect immediately prior to such
issuance or sale, and (b) the aggregate of the amount of all consideration, if
any, received by the Company upon such issuance or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such issuance or
sale; provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8.3
hereof.
For the purposes of this Section 8 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 6 hereof, as
adjusted from time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
(i) 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 therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or other performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (other than as a
dividend or other distribution
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on any stock of the Company) 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 Company and shall
include any amounts payable to security holders or any affiliates thereof,
including without limitation, pursuant to any employment agreement, royalty,
consulting agreement, covenant not to compete, earnout or contingent payment
right or similar arrangement, agreement or understanding, whether oral or
written; all such amounts being valued for the purposes hereof at the aggregate
amount payable thereunder, whether such payments are absolute or contingent, and
irrespective of the period or uncertainty of payment, the rate of interest, if
any, or the contingent nature thereof; provided, however, that if any Holder(s)
does not agree with such evaluation, a mutually acceptable independent appraiser
shall make such evaluation, the cost of which shall be borne by the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of stockholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 8.1.
(v) 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) upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.2 Options, Rights, Warrants and Convertible and Exchangeable
Securities. In case the Company shall at any time after the date hereof
issue options, rights or
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<PAGE>
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, for a consideration
per share less than the Market Price in effect immediately prior to the issuance
of such options, rights or warrants, or such convertible or exchangeable
securities, or without consideration, the Exercise Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of Section
8.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall be deemed
to be issued and outstanding at the time such options, rights or warrants were
issued, and for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration (determined in the same manner as consideration received on
the issue or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Warrants) received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a) of
this Section 8.2, or in the price per share at which the securities referred to
in subsection (b) of this Section 8.2 are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable
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<PAGE>
upon the exercise of such options, rights or warrants or the conversion or
exchange of such convertible or exchangeable securities.
8.3 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.4 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.5 Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. The
Company covenants that so long as any of the Warrants are outstanding, the
Company shall not without the prior written consent of the Underwriter issue any
securities whatsoever other than Common Stock. In the event that the Company
shall, upon the consent of the Underwriter, after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of any Warrant either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
8.6 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant)
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<PAGE>
to receive, upon exercise of such warrant, the kind and amount of shares of
stock and other securities and property receivable upon such consolidation or
merger, by a holder of the number of shares of Common Stock of the Company for
which such warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
8.7 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the
-------------------------------------------------
Exercise Price shall be made:
(a) upon the issuance or sale of the Warrants, Underlying
Warrants, Redeemable Warrants or the shares of Common Stock issuable upon the
exercise of (i) the Warrants, (ii) the Underlying Warrants, (iii) the Redeemable
Warrants, (iv) an option held by John Kelly to acquire 5,000 shares of Common
Stock upon conversion of a $10,000 promissory note, (v) an option held by Jane
Andrews to acquire 10,000 shares of Common Stock upon conversion of a $20,000
promissory note, (vi) options held by John Wasko to purchase 25,000 shares of
the Company's Common Stock at an exercise price of $.60 per share and 35,000
shares of the Company's Common Stock at a price of $2.00 per share, (vii) an
option held by Loeb Holding Corp., as agent, to acquire 400,000 shares of Common
Stock of the Company upon conversion of two promissory notes aggregating
$37,500, (viii) a warrant held by an unaffiliated equipment lessor to acquire
13,000 shares of Common Stock at an exercise price of $2.00 per share and the
287,500 Class A Redeemable Warrants to purchase shares of Common Stock being
registered together with the Public Offering for public sale; or
(b) If the amount of said adjustment shall be less than two
(2) cents per Warrant Security, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least two (2) cents per Warrant Security.
8.8 Dividends and Other Distributions.
In the event that the Company shall at
any time prior to the exercise of all Warrants declare a dividend (other than
a dividend consisting
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solely of shares of Common Stock) or otherwise distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
shares of Common Stock), whether issued by the Company or by another, or any
other thing of value, the Holders of the unexercised Warrants shall thereafter
be entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, 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 Warrants had been
exercised immediately prior to such dividend or distribution. At the time of any
such dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this subsection 8.8.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the 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 fractional shares of Common Stock or Underlying Warrants upon
the exercise of Warrants. Warrants may only be exercised in such multiples as
are required to permit the issuance by the Company of one or more whole shares
of Common Stock and Underlying Warrants. If one or more Warrants shall be
presented for exercise in full at the same time by the same Holder, the number
of whole shares of Common Stock or Underlying Warrants which shall be issuable
upon such exercise
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thereof shall be computed on the basis of the aggregate number of shares of
Common Stock and Underlying Warrants purchasable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock or Underlying Warrants
would, except for the provisions provided herein, be issuable on the exercise of
any Warrant (or specified portion thereof), the Company shall pay an amount in
cash equal to such fraction multiplied by the then current market value of a
share of Common Stock or Underlying Warrants, determined as follows:
(1) If the Common Stock or Underlying Warrant, as the case may
be, is listed, or admitted to unlisted trading privileges on the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX"), or is traded on the
NNM, the current market value of a share of Common Stock or Underlying Warrant,
as the case may be, shall be the closing sale price of the Common Stock or the
Underlying Warrant, as the case may be, at the end of the regular trading
session on the last business day prior to the date of exercise of the Warrants
on whichever of such exchanges or NNM had the highest average daily trading
volume for the Common Stock or the Underlying Warrant, as the case may be, on
such day; or
(2) If the Common Stock or the Underlying Warrant, as the case
may be, is not listed or admitted to unlisted trading privileges, on either the
NYSE or the AMEX and is not traded on NNM, but is quoted or reported on Nasdaq,
the current market value of a share of Common Stock or the Underlying Warrant,
as the case may be, shall be the closing price (or the last sale price, if then
reported by Nasdaq) of the Common Stock or the Underlying Warrant, as the case
may be, at the end of the regular trading session on the last business day prior
to the date of exercise of the Warrants as quoted or reported on Nasdaq, as the
case may be; or
(3) If the Common Stock or the Underlying Warrant, as the case
may be, is not listed, or admitted to unlisted trading privileges, on either of
the NYSE or the AMEX, and is not traded on NNM or quoted or reported on Nasdaq,
but is listed or admitted to unlisted trading privileges on the BSE or another
national securities exchange (other than the NYSE or the AMEX), the current
market value of a share of Common Stock or Underlying Warrant, as the case may
be, shall be the closing price of the Common Stock or the Underlying Warrant, as
the case may be, at the end of the regular trading session on the last business
day prior to the date of exercise of the Warrants on whichever of such exchanges
has the highest average daily trading volume for the
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Common Stock or the Underlying Warrant, as the case may be, on such day; or
(4) If the Common Stock or the Underlying Warrant, as the case
may be, is not listed or admitted to unlisted trading privileges on any national
securities exchange, or listed for trading on NNM or quoted or reported on
Nasdaq, but is traded in the over-the-counter market, the current market value
of a share of Common Stock or the Underlying Warrant, as the case may be, shall
be the average of the last reported bid and asked prices of the Common Stock or
the Underlying Warrant, as the case may be, reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of exercise of the
Warrants; or
(5) If the Common Stock or the Underlying Warrant, as the case
may be, is not listed, admitted to unlisted trading privileges on any national
securities exchange, or listed for trading on NNM or quoted or reported on
Nasdaq, and bid and asked prices of the Common Stock or the Underlying Warrant,
as the case may be, are not reported by the National Quotation Bureau, Inc., the
current market value of a share of Common Stock or the Underlying Warrant, as
the case may be, shall be an amount, not less than the book value thereof as of
the end of the most recently completed fiscal quarter of the Company ending
prior to the date of exercise, determined in accordance with generally
acceptable accounting principles, consistently applied.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants and the
Underlying Warrants, such number of shares of Common Stock or other securities,
properties or rights as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock and other Securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
Company further covenants and agrees that upon exercise of the Underlying
Warrants underlying the Warrants and payment of the respective Underlying
Warrant exercise price therefor, all shares of Common Stock and other securities
issuable upon such exercises shall be duly and validly issued, fully paid, non-
assessable and not subject to the preemptive rights of any stockholder. As long
as the Warrants shall be outstanding, the Company shall use its best efforts to
22
<PAGE>
cause all shares of Common Stock issuable upon the exercise of the Warrants and
Underlying Warrants and all Underlying Warrants underlying the Warrants to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock or the Underlying Warrants issued to the public in
connection herewith may then be listed and quoted on NNM.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the 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 Common Stock for the purpose of entitling them to receive a dividend
or distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or (c) a dissolution,
liquidation or winding up of the Company (other than in connection with a
consolidation or merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed; then, in any one or more
of said events, the Company shall give written notice of such event at least
fifteen (15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled to
such dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer book, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
23
<PAGE>
13. Underlying Warrants.
The form of the certificates representing Class A and Class B
Underlying Warrants (and the form of election to purchase shares of Common Stock
upon the exercise of Underlying Warrants and the form of assignment printed on
the reverse thereof) shall be substantially as set forth in Exhibits "A" and "B"
to the Redeemable Warrant Agreement provided, however, that the Underlying
Warrants will be subject to redemption only after the Warrants have been
exercised and the Underlying Warrants are outstanding. Each Class A Underlying
Warrant shall entitle the Holder to purchase one fully paid and non-assessable
share of Common Stock at an initial purchase price of $6.90 from , 1998 until
5:00 P.M. New York time on , 2002 at which time the Class A Underlying Warrants
shall expire. Each Class B Underlying Warrant shall entitle the Holder to
purchase one fully paid and non-assessable share of Common Stock at an initial
purchase price of $8.10 from , 1998 until 5:00 P.M. New York time on , 2002 at
which time the Class B Underlying Warrants shall expire. The exercise price of
the Underlying Warrants and the number of shares of Common Stock issuable upon
the exercise of the Underlying Warrants are subject to adjustment, whether or
not the Warrants have been exercised and the Underlying Warrants have been
issued, in the manner and upon the occurrence of the events set forth in Section
8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Underlying
Warrants, each registered holder of such Underlying Warrant shall have the right
to purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable shares of Common
Stock (subject to adjustment as provided herein and in the Redeemable Warrant
Agreement), free and clear of all preemptive rights of stockholders, provided
that such registered holder complies with the terms governing exercise of the
Underlying Warrant set forth in the Redeemable Warrant Agreement, and pays the
applicable exercise price, determined in accordance with the terms of the
Redeemable Warrant Agreement. Upon exercise of the Underlying Warrants, the
Company shall forthwith issue to the registered holder of any such Underlying
Warrant in his name or in such name as may be directed by him, certificates for
the number of shares of Common Stock so purchased. Except as otherwise provided
herein and in Section 6.1 hereof, the Underlying Warrants shall be governed in
all respects by the
24
<PAGE>
terms of the Redeemable Warrant Agreement except that any notice of redemption
that the Company may issue with respect to the Redeemable Warrants shall not be
applicable to the Underlying Warrants. The Underlying Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Underlying Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holder(s) that without the prior written consent of the Holder(s), which will
not be unreasonably withheld, the Redeemable Warrant Agreement will not be
modified, amended, canceled, altered or superseded, and that the company will
send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as
shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
15. 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 shall not
adversely affect the interests of the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding
25
<PAGE>
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the
close of business on
, 2004. Notwithstanding the foregoing, the indemnification provisions
of Section 7 shall survive
such termination until the close of business on , 2006.
18. Governing Law; Submission to Jurisdiction. 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 without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Underwriter and any other registered Holders hereby
agree that any action, proceeding or claim against it arising out of, or
relating in any way to, this Agreement shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company, the Underwriter and any
other registered Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Underwriter and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Underwriter and any other registered Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its'/their reasonable legal costs and
expenses relating to such action or proceeding and incurred in connection with
the preparation therefor.
19. Entire Agreement; Modification. This Agreement
(including the Underwriting
Agreement and the Redeemable Warrant Agreement to the extent portions thereof
are referred to
26
<PAGE>
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this
Agreement.
21. Captions. The caption headings of the Sections of
this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this
Agreement and shall be given no substantive effect.
22. 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(s) of the Warrant Certificates or
Warrants Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Underwriter and any other registered Holders of Warrant Certificates or
Warrant Securities.
23. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
GENISYS RESERVATION SYSTEMS, INC.
By:
Name:
Title:
27
<PAGE>
R.D. WHITE & CO., INC.
By:
Name:
Title:
EXHIBIT A
[FORM OF CLASS A WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE 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, , 2002
No. UW- Class A Warrants to Purchase
Shares of Common Stock
CLASS A WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns,
is the registered holder of
Warrants to purchase initially, at any time from , 1998
until 5:00 p.m. New York time
on , 2002 ("Expiration Date"), up to fully-paid and non-assessable shares of
common stock, $.0001 par value ("Common Stock") of Genisys Reservation Systems,
Inc., a New Jersey corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the
28
<PAGE>
"Exercise Price"), of $6.90 per share of Common Stock 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 Underwriter's Warrant Agreement dated
as of , 1997
between the Company and R.D. WHITE & CO., INC. (the "Underwriter's Warrant
Agreement").
Payment of the Exercise Price shall be made by certified or official bank
check in New York
Clearing House funds payable to the order of the Company or by surrender
of this Warrant
Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events the Exercise Price and the type and 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 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 Underwriter's 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 of
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 Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered 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.
29
<PAGE>
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of , 1997
Attest: GENISYS RESERVATION SYSTEMS, INC.
By:
Name: Name:
Title: Title:
30
<PAGE>
EXHIBIT B
[FORM OF CLASS B WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE 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, , 2002
No. UW- Class B Warrants to Purchase
Shares of Common Stock
CLASS B WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is
the registered holder of
Warrants to purchase initially, at any time from , 1998 until
5:00 p.m. New York time
on , 2002 ("Expiration Date"), up to fully-paid and non-assessable shares of
common stock, $.0001 par value ("Common Stock") of Genisys Reservation Systems,
Inc., a New Jersey corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $8.10 per
share of Common Stock 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 Underwriter's Warrant Agreement dated as
of , 1997 between the Company and R.D. WHITE & CO., INC. (the "Underwriter's
Warrant Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
31
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events the Exercise Price and the type and 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 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 Underwriter's 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 of
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 Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered 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
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of , 1997
Attest: GENISYS RESERVATION SYSTEMS, INC.
By:
Name: Name:
Title: Title:
32
<PAGE>
EXHIBIT C
[FORM OF CLASS A WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE 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, , 2002
No. W- Class A Warrants to Purchase
Underlying Warrants
CLASS A WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from , 1998
until 5:00 p.m. New York time on , 2002 ("Expiration Date"), up to warrants
(each such Underlying Warrant entitling the owner to purchase one fully-paid and
non-assessable share of common stock, $.0001 par value ("Common Stock") of
Genisys Reservation Systems, Inc., a New Jersey corporation (the "Company")), at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $.24 per Underlying 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 Underwriter's
Warrant Agreement dated as of , 1997 between the Company and R.D. WHITE & CO.,
INC. (the "Underwriter's Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company or by surrender of this Warrant
Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
33
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events the Exercise Price and the type and 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 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 Underwriter's 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 of
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 Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered 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
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of , 1997
Attest: GENISYS RESERVATION SYSTEMS, INC.
By:
Name: Name:
Title: Title:
34
<PAGE>
EXHIBIT D
[FORM OF CLASS A WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE 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, , 2002
No. W- Class B Warrants to Purchase
Underlying Warrants
CLASS B WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from , 1998
until 5:00 p.m. New York time on , 2002 ("Expiration Date"), up to warrants
(each such Underlying Warrant entitling the owner to purchase one fully-paid and
non-assessable share of common stock, $.0001 par value ("Common Stock") of
Genisys Reservation Systems, Inc., a New Jersey corporation (the "Company")), at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $.12 per Underlying 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 Underwriter's
Warrant Agreement dated as of , 1997 between the Company and R.D. WHITE & CO.,
INC. (the "Underwriter's Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company or by surrender of this Warrant
Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
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The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events the Exercise Price and the type and 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 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 Underwriter's 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 of
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 Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered 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
Underwriter's Warrant Agreement shall have the meanings assigned to them in the
Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of , 1997
Attest: GENISYS RESERVATION SYSTEMS, INC.
By:
Name: Name:
Title: Title:
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[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
Shares
Class A Underlying Warrants
Class B Underlying Warrants
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Genisys
Reservation Systems, Inc., in the amount of $ , all in accordance with the terms
of Section 3.1 of the Underwriter's Warrant Agreement dated as of , 1997 between
Genisys Reservation Systems, Inc., and R.D. White & Co., Inc. The undersigned
request that a certificate for such Securities be registered in the name of
whose address is and that such Certificate be delivered to
- --------------- ---------------------
whose address is .
---------------------
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)
37
<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 unto
(Please print name and address of transferee)
Warrant Certificate, together with all right, title and interest therein,
and does hereby reasonably constitute and appoint , as Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Date: 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)
38
<PAGE>
