As filed with the Securities and Exchange Commission on June __, 2006
Registration No. _____________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEWTOWN LANE MARKETING, INCORPORATED
(Name of small business issuer in its charter)
Delaware [ ] 20-3547231
(State or Jurisdiction (Primary Standard (IRS Employer
of Incorporation Industrial Identification
or Organization) Classification Number)
Code Number)
33 Newtown Lane
East Hampton, New York 11937
(212) 561-3626
(Address and telephone number of principal executive offices)
33 Newtown Lane
East Hampton, New York 11937
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(Address of principal place of business)
Richard M. Cohen, Chief Executive Officer
Newtown Lane Marketing, Incorporated
33 Newtown Lane
East Hampton, New York 11937
(212) 561-3626
(Name, address and telephone number of agent for service)
Copies of communications to:
Vincent J. McGill, Esq.
Eaton & Van Winkle LLP
3 Park Avenue, 16th Floor
New York, New York 10016
(212) 779-9910
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------------- Title of Each Class of Amount Proposed Maximum Proposed Maximum Securities To Be To Be Offering Price Per Aggregate Offering Amount of Registered Registered (1) Share (2) Price (2) Registration Fee ----------------------------------------------------------------------------------------------------------------------- $.001 par value per share common stock 548,584 $0.40 $219,434 $23.48 ----------------------------------------------------------------------------------------------------------------------- $0.001 par value per share common stock 1,000,000 $0.40 $400,000 $42.80 ----------------------------------------------------------------------------------------------------------------------- Total 1,548,584 $0.40 $619,434 $66.28 ----------------------------------------------------------------------------------------------------------------------- |
(1) Of the 1,548,584 shares registered pursuant to this registration statement, 1,000,000 shares are being offered for sale by the Registrant and 548,584 shares are being offered by selling stockholders.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457 of the Securities Act. As of the date hereof, there is no established public market for the common stock being registered. The $960,000 principal amount convertible promissory notes issued by the registrant in its latest private offering to investors are convertible into shares of common stock at $0.35 per share. Accordingly, we selected $0.40 per share as the offering price, reflecting a premium over the private offering conversion price.
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.
Subject to Completion, Dated ________ ___, 2006
1,548,584 Shares
NEWTOWN LANE MARKETING, INCORPORATED
Common Stock
Before this offering there has been no public market for our common stock.
We are offering a minimum ("Miminum") of 500,000 shares and a maximum ("Maximum") of 1,000,000 shares of our common stock, $.001 par value per share ("Common Stock"), in a direct public offering (sometimes referred to as the "direct offering") with Public Securities Inc. as our placement agent. The offering price is $0.40 per share. In the event the shares are not sold within 180 days, at our sole discretion, we may extend the offering for an additional 90 days.
In addition to our direct offering, we are registering 548,584 shares of Common Stock held by 33 selling stockholders. The selling stockholders will sell at a price of $0.40 per share until our shares are quoted on the Over the Counter Bulletin Board and thereafter at prevailing market prices or privately negotiated prices.
No public market currently exists for our shares. Our Common Stock is presently not quoted on the OTC Bulletin Board or traded on any national securities exchange or the NASDAQ Stock Market. We do not intend to apply for listing on any national securities exchange or the NASDAQ stock market but will apply to have the Common Stock quoted on the OTC Bulletin Board.
An investment in our Common Stock involves risks. See "Risk Factors" starting at page 5 of this Prospectus.
DIRECT OFFERING:
Total if Minimum Sold Total of Maximum Sold
Per Share (500,000 shares) (1,000,000 shares)
--------- ---------------- ------------------
Public Offering Price $0.40 $200,000 $400,000
Placement Agent Commissions $0.04 $ 20,000 $ 40,000
Proceeds to Newtown Lane
Marketing (before additional
expenses)(1) $0.36 $180,000 $360,000
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Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.
No person is authorized in connection with this prospectus to give any information or to make any representations about us, the selling security holders, the securities or any matter discussed in this prospectus, other than
the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us or any selling security holder. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the securities in any circumstances under which the offer or solicitation is unlawful. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus.
The Date of this Prospectus is ________________.
Dealer Prospectus Delivery Obligation
Until 90 days after the effective date of this Prospectus, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a Prospectus. This is in addition to the dealers' obligation to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY 3
RISK FACTORS 5
WHERE YOU CAN FIND MORE INFORMATION 9
USE OF PROCEEDS 11
DETERMINATION OF OFFERING PRICE 11
SELLING SECURITY HOLDERS 13
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 19
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS AND RELATED SHAREHOLDER MATTERS 21
DESCRIPTION OF SECURITIES 22
LEGAL MATTERS 23
EXPERTS 23
INDEMNIFICATION OF DIRECTORS AND OFFICERS 23
DESCRIPTION OF BUSINESS 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 27
CERTAIN RELATIONSHIPS AMD RELATED TRANSACTIONS 28
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 29
EXECUTIVE COMPENSATION 30
FINANCIAL STATEMENTS 31
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PROSPECTUS SUMMARY
Our Business
Newtown Lane Marketing, Incorporated (the "Company" or "we") is a start-up stage company. We have had no revenues as of the end of our most recent fiscal year and we have only recently begun operations. We have a license to market Dreesen's Famous Donuts "Start-up Kit," recipe mix, shortening and donut sugar, along with the right to use the Dreesen's name and logos, on an exclusive basis throughout the United States, except for the states of Florida and Pennsylvania, where we have non-exclusive rights, and in Suffolk County, New York, which Dreesen's retained for itself.
Our principal offices are located at 33 Newtown Lane, East Hampton, New York 11937, and our telephone number is (212) 561-3626. We were incorporated in the State of Delaware on September 26, 2005.
The Offering
Assuming 100% of our direct offering is sold, the 1,548,584 common shares registered under this Prospectus will represent approximately 26% of our issued Common Stock. Both before and after the offering, our current directors and officers will control the Company. As of June 9, 2006 Richard M. Cohen (our Chief Executive Officer and a Director), Sir John Baring (our Chairman of the Board), Brad Burde (our Secretary and Treasurer) and Vincent J. McGill (a director) together owned an aggregate of 2,375,000 shares of Common Stock, representing approximately 49.0% of our issued Common Stock prior to this offering. Even if 100% of our direct offering is sold, they will together own approximately 40.6% of the outstanding Common Stock.
The following is a brief summary of our offering:
Securities o through a direct public offering, up to 1,000,000 shares
Offered o 548,584 common shares held by 33 selling stockholders
o the minimum offering is 500,000 shares
Offering Price We are offering the shares at a price of $0.40 per share.
per Share This price was determined by our Board of Directors based
primarily on the $0.35 conversion price per share of the
$960,000 principal amount of 10% convertible notes (the
"December Notes") which we sold in our private placement
commencing December 2005 (the "December Private Placement").
The selling stockholders can sell the shares at an initial
price of $0.40 and thereafter at any price.
Offering The shares are being offered for a period not to exceed 180
Period days, unless extended by our Board of Directors for an
additional 90 days.
Net Proceeds Approximately $146,000, assuming half of our direct offering
is sold.
Approximately $322,000, assuming we sell all 1,000,000 shares
through our direct offering.
We will not receive any proceeds from the sale of shares by
the selling stockholders.
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Use of We will use the proceeds to accelerate marketing efforts and
Proceeds for general working capital.
Number of There are 4,848,584 shares of Common Stock outstanding as of
Shares June 26, 2006. However, if the outstanding options to
Outstanding purchase 1,250,000 shares of Common Stock are exercised, and
Before the the $960,000 principal amount of December Notes are converted
Offering at the conversion price of $0.35 per share (assuming no
interest is paid in shares), there would be 8,841,441 shares
outstanding as of June 26, 2006.
Number of We will have the following number of shares issued and
Shares outstanding after this offering:
Outstanding
After the o 5,348,584 if we sell 50% (the Minimum) of our direct
Offering offering
o 5,848,584 if we sell 100% (the Maximum) of our direct
offering
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Financial Summary Information
The following table sets forth selected financial information, which should be read in conjunction with the information set forth under "Management's Discussion and Analysis" below and the accompanying Financial Statements of the Company and related notes included elsewhere in this Prospectus.
Income Statement Data
---------------------------------------------------------
Accumulated from September
26, 2005 (inception) to
March 31, 2006
---------------------------------------------------------
Revenue -0-
---------------------------------------------------------
Expenses $ 363,474
---------------------------------------------------------
Net Loss $(363,474)
---------------------------------------------------------
Balance Sheet Data
---------------------------------------------------------
March 31, 2006
---------------------------------------------------------
Working Capital $697,308
---------------------------------------------------------
Total Assets $827,936
---------------------------------------------------------
Total Liabilities $947,657
---------------------------------------------------------
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RISK FACTORS
The reader should carefully consider each of the risks described below. If any of the following risks develop into actual events, our business, financial condition or results of operations could be materially adversely affected and the trading price of the Common Stock could decline significantly.
Lack of Operating History; No Assurance of Success; Need for Additional Funds
We were formed in September 2005 and have no operating or earnings history upon which prospective investors may base an assessment of our prospects for success. We intend, during the next few months, to accelerate efforts to market and distribute the Start-up Kit and supplies, and to create greater awareness of the opportunity to make and sell Dreesen's Famous Donuts. There can be no assurance that we will successfully complete any of our goals on a timely basis or that we will be able to develop or profitably exploit a market for Start-up Kits.
We may not be able to operate to the point at which we will be generating positive cash flow and we may require additional cash to achieve our objectives. There is no assurance that such cash as we will need will be available on acceptable terms, if at all. To the extent we raise additional capital by issuing equity securities, ownership dilution to existing shareholders will result. Even if we are successful in our efforts to raise additional cash, there is no assurance that we will achieve our business objectives or operate profitably.
Dependence On Key Personnel
Our business depends to a significant degree on the continuing contributions of our key management none of whom is required to devote any prescribed amount of time to the affairs of our Company. There can be no assurance that the loss of members of management of the Company would not materially adversely affect our business. We do not have "key-man" life insurance policies on any of our executives.
Dependence Upon Third Parties
Our ability to grow our business is initially dependant upon our ability to sell Start-up Kits. Our business is also dependent upon the ability of our sublicenses (or operators) to successfully grow and develop their businesses. Our operators may not have the skills, ability or dedication to operate successfully.
We are also dependent upon third parties for the production of the "Donut Robot" and other equipment and supplies used by our operators. To date, Dreesen's Enterprises has acquired Donut Robots only from Belshaw Brothers and we have not yet sourced an alternate supplier. Any delay or interruption in the supply of Donut Robots or consumables used by our operators could adversely affect their businesses and ours.
We May Be Harmed By Actions of Our Licensees
The operators to which we sell Start-up Kits and donut mix are independent operators and not employees of ours. The quality of their operations will largely be determined by their skill and dedication. Operators may conduct their businesses in a manner which detracts from the image of "Dreesen's Famous Donuts." Given that we are not a franchisor, we may have limited ability to control an operator conducting itself in an inappropriate manner, and its operations could negatively impact our reputation and sales.
Rudy De-Santi's Success is Not Necessarily Indicative of Our Prospects for Success
A number of factors combined to make Dreesen's Famous Donuts a success in the Scoop Du Jour in East Hampton, New York and the limited number of other locations where they are being distributed. There is no guarantee that others will be able to duplicate the success of those currently distributing Dreesen's Famous Donuts.
The Failure or Inability to Enforce Dreesen's Trademark Could Adversely Affect Our Business.
Dreesen's Enterprises owns certain common law and federally registered trademarks. We believe that these trademarks and other proprietary rights, such as Dreesen's secret recipe, are important to our success. Actions we may need to take to limit imitation by others may not be successful, could be costly and may distract our management from other issues.
The Food Service Industry is Affected by Many Factors Beyond Our Control.
Food service businesses are often affected by changes in consumer tastes, local economic conditions and demographic changes. The performance of individual operators may be adversely affected by traffic patterns and the type, number and location of competing stores. Sales of our operators and our ability to sell Start-up Kits could be adversely affected by consumer tastes, for instance if health or dietary concerns cause consumers to avoid donuts in favor of other foods. Moreover, our success is primary dependent upon a single product. If consumer demand for donuts decreases, our business would be more adversely affected than if we had diversified products.
Our Success Depends on Our Operators' Ability to Compete with Many Food Service Businesses.
Dreesen's Famous Donuts will compete with many well established products offered by food service companies such as donut retailers and bakeries, bagel shops, fast food restaurants, delicatessens, convenience stores and specialty coffee shops. Our success will be dependent upon our ability to convince operators that Dreesen's Famous Donuts can successfully compete against competitive products.
Dilution
The per share offering price of the shares being offered hereby exceeds our net tangible book value per share and therefore purchasers of the shares offered hereby will experience immediate and substantial dilution. See "Dilution" below.
Shareholders May Be Diluted Significantly Through Our Efforts to Obtain Financing and Satisfy Obligations through Issuance of Additional Shares of our Common Stock.
We have no committed source of financing. Wherever possible, we will attempt to use noncash consideration to satisfy obligations. In many instances, we believe that the noncash consideration will consist of shares of our stock. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but un-issued shares of Common Stock and the 1,000,000 authorized shares of "blank check" preferred stock. In addition, if a trading market develops for our Common Stock, we may attempt to raise capital by selling shares of our Common Stock, possibly at a
discount to market. These actions will result in dilution of the ownership interests of existing shareholders and may further dilute the book value of the Common Stock, and such dilution may be material. Such issuances may also serve to enhance existing management's ability to maintain control of the Company. In addition, our 2006 Stock Incentive Plan allows the issuance of up to 2,000,000 shares of Common Stock. As of June 26, 2006, we had issued options to purchase 1,250,000 shares of Common Stock under such plan.
Control By Existing Management
Upon completion of this offering, Messrs. Cohen, Burde, Baring and McGill (who are our officers and directors) will continue to own approximately 40% of the outstanding shares of the Company and will be able to control the direction and affairs of the Company.
Potential Conflicts of Interest
None of our key personnel (See "Business - Employees") is required by contract to commit full time to our affairs and, accordingly, these individuals may have conflicts of interest in allocating time among their various business activities. In the course of their other business activities, certain key personnel may become aware of business opportunities which may be appropriate for presentation to us, as well as the other entities with which they are affiliated. As such, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Each officer and director is, so long as he is an officer or director, subject to the restriction that all opportunities contemplated by our plan of operation that come to his attention, either in the performance of his duties or in any other manner, will be considered opportunities of, and be made available to us and the companies that he is affiliated with on an equal basis. A breach of this requirement will be a breach of the fiduciary duties of the officer or director. If we or the companies to which the officer or director is affiliated each desire to take advantage of an opportunity, then the applicable officer or director would abstain from negotiating and voting upon the opportunity. However, the officer or director may still take advantage of opportunities if we should decline to do so. Except as set forth above, we have not adopted any other conflict of interest policy in connection with these types of transactions.
Because there is no public trading market for our Common Stock, you may not be able to resell your stock.
Prior to the date of this prospectus, there has not been any established trading market for our Common Stock, and there is currently no market whatsoever for our securities. We will seek to have a market maker file an application with the NASD on our behalf to quote the shares of our Common Stock on the OTC Bulletin Board. There can be no assurance as to whether such market maker's application will be accepted or, if accepted, the prices at which our Common Stock will trade if a trading market develops, of which there can be no assurance. We are not permitted to file such application on our own behalf. If the application is accepted, we cannot predict the extent to which investor interest in the Company will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
In addition, our Common Stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for the Common Stock. Either of these factors could adversely affect the liquidity and trading price of our Common Stock. Until our Common Stock is fully distributed and an orderly market develops in our Common Stock, if ever, the price at which
it trades is likely to fluctuate significantly. Prices for our Common Stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our Common Stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of the Company and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our Common Stock.
Because the Commission imposes additional sales practice requirements on brokers who deal in our shares which are penny stocks, some brokers may be unwilling to trade them. This means that you may have difficulty reselling your shares and this may cause the price of the shares to decline.
Our shares would be classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the "Exchange Act") which impose additional sales practice requirements on brokers-dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, the broker-dealer must make a special suitability determination and receive from you a written agreement prior to making a sale for you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent you from reselling your shares and may cause the price of the shares to decline.
We do not intend to pay dividends and there will be fewer ways in which you can make a gain on any investment in the Company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may likely prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in the Company will need to come through appreciation of the stock's price.
We indemnify our directors against liability to the Company and our stockholders, and the costs of this indemnification could negatively affect our operating results.
Our bylaws allow for the indemnification of Company officers and directors in regard to their carrying out the duties of their offices. The bylaws also allow for reimbursement of certain legal defenses.
As to indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), for directors, officers or persons controlling the Company, we have been informed that in the opinion of the Commission such indemnification is against public policy and unenforceable.
Since our directors and officers are aware that they may be indemnified for carrying out the duties of their offices, they may be less motivated to ensure that meet the standards required by law to properly carry out their duties, which could have a negative impact on our operating results. Also, if any director or officer claims against the Company for indemnification, the costs could have a negative effect on our operating results.
The market price of our Common Stock may be affected by low volume float.
If a market develops for our shares, substantial sales of our Common Stock, including shares issued upon the exercise of outstanding options and warrants, in the public market, or the perception that these sales could occur, may have a depressive effect on the market price of our Common Stock. Such sales or the perception of such sales could also impair our ability to raise capital or make acquisitions through the issuance of our Common Stock.
If a Market Develops for Our Shares, Rule 144 Sales May Depress Prices in That Market.
All of the outstanding shares of our Common Stock held by present stockholders are "restricted securities" within the meaning of Rule 144 under the Securities Act.
As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for a prescribed period may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed 1.0% of a company's outstanding Common Stock. The alternative average weekly trading volume during the four calendar weeks prior to the sale is not available to our shareholders because the OTC Bulletin Board (if and when our shares are listed thereon) is not an "automated quotation system" and market based volume limitations are not available for securities quoted only over the OTCBB. There is no limit on the amount of restricted securities that may be sold by a non-affiliate (i.e., a stockholder who is not an officer, director or control person) after the restricted securities have been held by the owner for a period of two years. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to registration of shares of Common Stock of present stockholders, may have a depressive effect upon the price of the Common Stock in any market that may develop.
For all of the foregoing reasons and others set forth herein, an investment in our securities in any market which may develop in the future involves a high degree of risk.
We may issue shares of preferred stock having greater rights than our Common Stock.
Our certificate of incorporation authorizes our Board of Directors to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from our shareholders. Any preferred stock that is issued may rank ahead of our Common Stock, with respect to dividends, liquidation rights and voting rights, among other things.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549, a registration statement on Form SB-2, under the Securities Act for the Common Stock offered by this prospectus. We have not included in this prospectus all the information contained in the registration statement and you should refer to the registration statement and its exhibits for further information.
Any statement in this prospectus about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to the registration statement, the contract or document is deemed to modify the description contained in this prospectus. You must review the exhibits themselves for a complete description of the contract or document.
The registration statement and other information which we may file may be read and copied at the Commission's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The SEC maintains a web site (HTTP://WWW.SEC.GOV.) that contains the registration statements, reports, proxy and information statements and other information regarding registrants that file electronically with the SEC as we intend to be doing. We will be required to file reports with the Commission pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended. We will be filing reports such as annual reports on Form 10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K. We intend to furnish our stockholders with annual reports containing audited financial statements and other reports as we think appropriate or as may be required by law.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contain some forward-looking statements. Certain of the matters discussed concerning our operations, cash flows, financial position, economic performance and financial condition, including, in particular, future sales, product demand, competition and the effect of economic conditions include forward-looking statements within the meaning of section 27A of the Securities Act of 1933, referred to herein as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, referred to herein as the Exchange Act.
Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and similar expressions are forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flow, research and development costs, working capital, capital expenditures, distribution channels, profitability, new products, adequacy of funds from operations, these statements and other projections and statements contained herein expressing general optimism about future operating results and non-historical information, are subject to several risks and uncertainties, and therefore, we can give no assurance that these statements will be achieved.
Investors are cautioned that our forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the expectations expressed in the forward-looking statements.
As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than projected. Given these uncertainties, you should not place any reliance on these forward-looking statements. These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this filing to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events.
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in our Form 10-KSB, Form 10-QSB and Form 8-K reports to the SEC. Also note that we provide a cautionary discussion of risk and uncertainties under the caption "Risk Factors" in this prospectus. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
USE OF PROCEEDS
Our direct offering is being made through our placement agent, Public Securities, Inc., with a minimum of $200,000 (or 500,000 shares) and a maximum of $400,000 (or 1,000,000 shares). The table below sets forth the use of proceeds if 50% (the Minimum) or 100% (the Maximum) of our direct offering is sold.
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50% 100%
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Gross proceeds $200,000 $400,000
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Offering expenses 54,000 78,000
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Net proceeds 146,000 322,000
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The net proceeds will be used approximately as follows:
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50% 100%
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Marketing expenses $ 73,000 $ 161,000
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General working capital 73,000 161,000
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Offering expenses for the direct offering consist of (i) a commission to
the placement agent equal to 10% of gross proceeds from the direct offering,
(ii) a non-accountable expense allowance to the placement agent equal to 2% of
the gross proceeds from the direct offering, and (iii) additional expenses
estimated to be $30,000, consisting of the following: : $15,000 for legal fees;
$14,000 for accounting fees, $300 for printing and marketing expenses and $700
for miscellaneous expenses relating to the offering including SEC filing fees.
In connection with our direct offering, we will also issue a warrant to the placement agent to purchase the number of shares of our Common Stock equal to 10% of the number of shares sold in our direct offering, exercisable at $0.56 per share.
The net proceeds from this offering will be used to pay for continuing marketing activities and working capital. If necessary, we may seek to raise additional financing. To the extent we raise cash by offering equity securities, our existing shareholders will be diluted. If we are unsuccessful in our efforts to generate positive cash flow we will not be able to maintain our operations.
We will not receive any of the proceeds from the selling stockholders' sale of the shares offered under this prospectus.
DETERMINATION OF OFFERING PRICE
We are not selling any of the 548,584 shares of Common Stock that we are registering on behalf of selling stockholders. Such shares of Common Stock will be sold by the selling security holders listed in this prospectus. The selling stockholders will sell at a price of $0.40 per share until our shares are quoted
on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices. In our direct offering, we are selling up to 1,000,000 shares of Common Stock at the price of $0.40 per share.
There is no established public market for the common stock being registered. The $960,000 principal amount convertible promissory notes which we issued in the December Private Placement are convertible into shares of Common Stock at $0.35 per share. Accordingly, we selected $0.40 per share as the offering price in this offering, reflecting a premium over the conversion price of the December Notes.
The offering price bears no relationship whatsoever to our assets, earnings, book value or other criteria of value. Among the other factors considered were:
o our lack of operating history;
o the proceeds to be raised by the direct offering;
o the amount of capital to be contributed by purchasers in the direct offering in proportion to the amount of stock to be retained by our existing shareholders; and
o our cash requirements.
Dilution of the Price you Pay for Your Shares
Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets.
The initial subscribers for the Common Stock purchased an aggregate of 3,000,000 shares for an aggregate of $75,000 or $0.025 per share. The investors in the Company's December Private Placement of 10% convertible promissory notes invested an aggregate of $960,000, or approximately $0.29 per share, for notes convertible into an aggregate of 2,742,858 shares of Common Stock. For participating in the December Private Placement, the investors also received an aggregate of 548,584 additional shares of Common Stock for no additional consideration.
If 100% of the shares are sold:
Giving effect to 100% of this direct offering (and assuming offering expenses described in "Use of Proceeds", above, and assuming our assets and liabilities are as set forth in our balance sheet as of March 31, 2006), after giving effect to the conversion of the December Notes into Common Stock, we would have a net tangible book value of $1,019,308 for the 8,591,441 shares to be outstanding or approximately 12(cent) per share. The amount of dilution you will incur will be $0.28 per share. The net tangible book value of the shares held by our existing shareholders will be increased by $0.03 per share without any additional investment on their part. You will incur an immediate dilution from $0.40 per share to $0.12 per share. After completion of this offering, if 1,000,000 shares are sold, you will own approximately 11.6% of the total number of shares (assuming the conversion of the December Notes) then outstanding for which you will have made a cash investment of $400,000, or $0.40 per share.
If 50% of the shares are sold:
Assuming the conversion the December Notes, upon completion of 50% of our direct offering, the net tangible book value of the 8,091,441 shares to be outstanding will be $843,308, or approximately $0.10 per share. The amount of dilution you will incur will be $0.30 per share. The net tangible book value of
the shares held by our existing shareholders will be increased by $0.01 per share without any additional investment on their part. You will incur an immediate dilution from $0.40 per share to $0.10 per share. After completion of the Minimum level of the direct offering, if 500,000 shares are sold, you will own approximately 6.2% of the total number of shares (assuming the conversion of the December Notes) then outstanding for which you will have made a cash investment of $200,000, or $0.40 per share.
SELLING SECURITY HOLDERS
Based on information provided by the selling security holders, the table below sets forth certain information, as of June 26, 2006 unless otherwise noted, regarding the selling security holders. Each of the selling stockholders was an investor in our private placement of the December Notes which we completed in March 2006. All of the shares listed below as being offered by this prospectus were shares which the selling stockholders received for no additional consideration for participating in our offering of the December Notes. For a description of the December Notes, see "Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources".
Percentage ownership of Common Stock is based on 4,848,584 shares of our Common Stock outstanding as of June 26, 2006. For purposes of calculating the post-offering ownership of each selling security holder, the table also assumes the sale of all of the securities being offered by such selling security holder.
The second column from the left in the table below lists the number of shares of Common Stock beneficially owned by each selling stockholder, based on his/her ownership of the shares of our Common Stock.
The third column from the left lists the shares of Common Stock being offered pursuant to this prospectus by the selling stockholders.
The fourth column from the left assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.
The selling stockholders may sell all, some or none of their shares in this offering. See "Plan of Distribution."
Common stock beneficially owned
after the offering
Name of selling security holders Number of shares
of common stock
beneficially
owned prior to Number of shares Percentage of
the offering being offered Number of shares outstanding shares
John F. Baring (1) 502,858 2,858 500,000 9.4%
Wayne Brannan 107,143 7,143 100,000 2.0%
Michael Carlin 14,286 14,286 0 0
George Carmel 14,286 14,286 0 0
Chui Yen Chiou and Hui-Min Wu 14,286 14,286 0 0
Crapgame LLC (2) 28,572 28,572 0 0
Amiel David 7,143 7,143 0 0
Joel and Zoe Dictrow, JT 14,286 14,286 0 0
Debra Duneier 3,572 3,572 0 0
Charles Fewell (3) 1,429 1,429 0 0
Victoria Fillet 14,286 14,286 0 0
Barbara and Lawrence Finkelstein, Tenants by the
Entireties 7,143 7,143 0 0
The Melvin Finkelstein Trust U/D/T 6/11/98 7,143 7,143 0 0
Robert Friedland 3,572 3,572 0 0
Donald Gaugler 28,572 28,572 0 0
Green Stamp America, Inc. (4) 57,143 57,143 0 0
Allen Hauptman 14,286 14,286 0 0
David Kaminer 14,286 14,286 0 0
Josh Kurzban 14,286 14,286 0 0
Andrea Kraus 7,143 7,143 0 0
William Lawson 14,286 14,286 0 0
Karen Lorence 14,286 14,286 0 0
Richard Lynn 14,286 14,286 0 0
Steven Massarsky 28,572 28,572 0 0
Vincent McGill (3) 252,858 2,858 250,000 5.0%
Miles Prentice(3) 14,286 14,286 0 0
Richard Randall 7,143 7,143 0 0
Townhouse Partners LLC (5) 28,572 28,572 0 0
Michael H. Tai 14,286 14,286 0 0
Cheng Tai and Jen Chiou 85,715 85,715 0 0
Jung Tai 28,572 28,572 0 0
Eileen and Douglas Trojanowski 14,286 14,286 0 0
Tweedy Company LLC (6) 5,715 5,715 0 0
Totals: 1,398,584 548,584 850,000 16.3%
|
None of the Selling Security Holders is a broker/dealer or affiliate of a broker/dealer.
Selling stockholders will sell at a fixed price of $.40 per share until our common shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices, or privately negotiated prices.
(1) The holder is our Chairman and received 250,000 shares, and options to purchase an additional 250,000 shares, of Common Stock in connection with his agreement to become our Chairman.
(2) The controlling person of this entity is Douglas T. Millet.
(3) The holder is a partner of Eaton & Van Winkle LLP, which is our counsel. Such firm is the holder of 100,000 shares of Common Stock.
(4) The controlling person of this entity is Masahiko Kasuga.
(5) The controlling person of this entity is Robin Shapiro.
(6) The controlling person of this entity is Jeffrey Tweedy, a partner of Eaton & Van Winkle LLP, which is our counsel. Such firm is the holder of 100,000 shares of Common Stock.
PLAN OF DISTRIBUTION
Plan of Distribution; Terms of the Direct Offering
We are offering up to 1,000,000 shares of Common Stock in a direct public offering, with Public Securities, Inc. as our placement agent (the "Placement Agent"). The direct offering is made on a "best efforts-all or none" basis with respect to 500,000 shares and on a "best efforts" basis with respect to the remaining shares offered. Unless at least 500,000 shares are sold, we will not sell any shares in our direct offering. The offering price is $0.40 per share. The shares are being offered for a period not to exceed 180 days, unless extended by our Board of Directors for an additional 90 days.
Public Securities, Inc. is acting as our placement agent in our direct offering and will receive a sales commission equal to 10% of the aggregate purchase price of the shares sold, a non-accountable expense allowance of 2% of the aggregate purchase price of the shares sold, and a warrant to purchase the number of shares of our Common Stock equal to 10% of the number of shares sold in our direct offering, exercisable during a three-year period at $0.56 per share. Such warrant will provide for cashless exercise and registration rights. We have agreed to indemnify the placement agent against certain liabilities incurred by it in connection with its acting on our behalf for the direct offering.
Each prospective investor in our direct offering must deliver to the Placement Agent a check in the amount of its investment payable to "Signature Bank, as Escrow Agent for Newtown Lane". Alternatively, prospective investors may make payment by wire transfer. The cash payment of each prospective investor in our direct offering will be deposited in a segregated escrow account with Signature Bank, as escrow agent (the "Escrow Agent"). Such cash will be held by the Escrow Agent pursuant to the terms of an escrow agreement among the Company, the Placement Agent and the Escrow Agent. If our direct offering terminates or investors do not subscribe for the minimum 500,000 shares in the direct offering, the Escrow Agent will return to such prospective investor his or her subscription payment, without interest or deduction.
Section 15(g) of the Exchange Act
Our shares are covered by Section 15(g) of the Exchange Act, and Rules 15g-1 through 15g-6 promulgated thereunder. They impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses).
Rule 15g-1 exempts a number of specific transactions from the scope of the penny stock rules.
Rule 15g-2 declares unlawful broker-dealer transactions in penny stocks unless the broker-dealer has first provided to the customer a standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny stock transaction unless the broker-dealer first discloses and subsequently confirms to the customer current quotation prices or similar market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales person compensation.
Rule 15g-6 requires broker-dealers selling penny stocks to provide their customers with monthly account statements.
Rule 15g-9 requires broker-dealers to approve the transaction for the customer's account; obtain a written agreement from the customer setting forth the identity and quantity of the stock being purchased; obtain from the customer information regarding his investment experience; make a determination that the investment is suitable for the investor; deliver to the customer a written statement for the basis for the suitability determination; notify the customer of his rights and remedies in cases of fraud in penny stock transactions; and, the NASD's toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker-dealers and their associated persons.
The application of the penny stock rules may affect your ability to resell your shares.
Offering Period and Expiration Date
This offering will start on the date this prospectus is declared effective and continue for a period of up to 180 days, and an additional 90 days, if so elected by our Board of Directors.
Procedures for Subscribing
If you decide to subscribe for any shares in our direct offering, you must
1. execute and deliver a share subscription agreement; and
2. deliver a check or certified funds to us for acceptance or rejection.
All checks for subscriptions must be made payable to "Signature Bank, as Escrow Agent for Newtown Lane".
Right to Reject Subscriptions
We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned immediately by us to the subscriber, without interest or deductions.
Sales by Selling stockholders
The selling stockholders may sell some or all of their Common Stock in one or more transactions, including block transactions:
o on such public markets as the Common Stock may be trading;
o in privately negotiated transactions;
o through the writing of options of the Common Stock;
o in short sales; or
o in any combination of these methods of distribution.
The sales price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price; or
o such other price as the selling stockholders determine.
We are bearing all costs relating to the registration of the Common Stock. The selling stockholders, however, will pay any commissions or other fees payable to brokers or dealers in connection with any sale of their shares of Common Stock.
The selling stockholders must comply with the requirements of the Securities Act and the Exchange Act in the offer and sale of the Common Stock. In particular, during such times as the selling stockholders may be deemed to be engaged in a distribution of the Common Stock, and therefore be considered to be an underwriter, they must comply with applicable laws and may, among other things:
o not engage in any stabilization activities in connection with our Common Stock;
o furnish each broker or dealer through which Common Stock may be offered, such copies of this Prospectus, as amended from time to time, as may be required by such broker or dealer; and
o not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Exchange Act.
None of the selling stockholders will engage in any electronic offer, sale or distribution of the shares. Further, neither the Company nor any of the selling stockholders have any arrangements with a third party to host or access our Prospectus on the Internet.
The selling stockholders and any underwriters, dealers or agents that participate in the distribution of our Common Stock may be deemed to be underwriters, and any commissions or concessions received by any such underwriters, dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act. Shares may be sold from time to time by
the selling stockholders in one or more transactions at a fixed offering price, which may be changed, or at any varying prices determined at the time of sale or at negotiated prices. We may indemnify any underwriter against specific civil liabilities, including liabilities under the Securities Act.
LEGAL PROCEEDINGS
The Company is not currently subject to any litigation.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information with respect to the current directors and executive officers of the Company.
Name Positions ---- --------- Richard M. Cohen Chief Executive Officer and Director John Baring Chairman of the Board Brad C. Burde Secretary and Treasurer Vincent J. McGill Director |
Richard M. Cohen, age 55, our Chief Executive Officer and a director since our inception, has been the President of Richard M. Cohen Consultants since 1996. Richard M. Cohen Consultants is a financial services consulting company that accepts engagements from public and private companies to assist with their corporate governance and corporate finance needs. In addition, since 2003 Mr. Cohen has served as a director of Dune Energy, Inc. a publicly traded energy company (AMEX:DNE) for which he served as Chief Financial Officer from November 2003 to April 2005. He is also currently serving as Secretary of Dune. In addition, since February 2006, Mr. Cohen has served as a director of Helix Biomedics (OTCBB: HXBM) and as the Chief Financial Officer of ABC Funding. (OTCBB: AFDG). During 1999 Mr. Cohen served as the President of National Auto Credit, a publicly traded sub-prime auto finance company. From 1992 to 1995 Mr. Cohen was the President of General Media, then a $150 million international diversified publishing and communications company. At General Media, Mr. Cohen managed 300 employees; raised $200 million in public and private financings; and secured international licensing rights for General Media. From 1984 through 1992, Mr. Cohen was an Investment Banker at Henry Ansbacher, Furman Selz, where he specialized in Mergers & Acquisitions, Public Equity Offerings, and Restructurings. From 1980 through 1983, Mr. Cohen was a Vice President of Corporate Development at Macmillan.
Mr. Cohen is a Certified Public Accountant (New York State). He received a BS from The University of Pennsylvania (Wharton) and an MBA from Stanford University.
Sir John Baring, age 58, has been our Chairman of the Board since May 2006. Sir John has founded a number of businesses and has been actively involved in developing and financing emerging communications companies since 1985. From July 2004 to present, Sir John has been the President and Director of Nevro Imaging, Inc., a medical imaging software company. From June 2000 to present, he has been a Managing Member of Mercator Management LLC, a fund management company based in the Washington, DC area. From September 1999 to June 2004, Sir John was a Managing Member of Mercator Capital, LLC, which Sir John co-founded. Mercator Capital, LLC is an investment banking and venture capital firm. From July 2001 to June 2004, Sir John was the Chief Compliance Officer for Mercator Securities, LLC, a securities dealer. From 1991 to September 1997, Sir John was the founder and Chairman of Hackman, Baring & Co., a communications merchant-banking boutique. Sir John was chairman of the board of directors of HB Communications Acquisition Corp. from its inception until it completed a business combination
with IT Network, Inc. on June 23, 1995. Sir John is the Chairman of the Board of Directors of Turinco, Inc., a managed voice services provider, and also Chairman of the Board of Directors of Quinduno Energy, LLC, an independent oil and gas company. He is the Chair of the Trustees for the Rudolf Steiner School, New York and a Director of the Camphill Foundation supporting Camphill communities in North America for special needs children and adults.
Bradley C. Burde, age 41, Secretary and treasurer, has over a decade of experience in investment management and corporate America. He has seven years of experience in investment analysis and portfolio management, most recently at Sandler Capital Management and previously at Sanford C. Bernstein & Company. In the mid-nineties he co-founded Netcast Communications, a pioneering internet media company which he also served as Chief Financial Officer. He holds an MBA from The Tuck School of Business at Dartmouth (Tuck Scholar) and a BA, magna cum laude, from The University of Pennsylvania.
Vincent J. McGill, age 51, is currently a Partner of Eaton & Van Winkle, a law firm in New York City which he joined as a Partner in 2001. Eaton & Van Winkle has served and is expected to continue to serve as our counsel for which it will be paid fees. Prior to joining Eaton & Van Winkle, Mr. McGill was affiliated with Phillips Nizer LLP, which he joined as an associate in 1986, and where he became a partner in 1989. Throughout his career, Mr. McGill's practice has been focused on corporate finance including public offerings and private placements. As such, he has served and is currently serving as counsel to a number of companies in the healthcare industry. Mr. McGill holds an AB from Colgate University, a JD from Hofstra School of Law and an LL.M from New York University.
Possible Potential Conflicts
No member of management is or will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officer(s) and director(s) in that they have other business interests to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his fiduciary duties to us.
Board of Directors
All directors hold office until the completion of their term of office, which is not longer than one year, or until their successors have been elected. All officers are appointed annually by the board of directors and subject to any existing employment agreement serve at the discretion of the board. Currently, directors receive no compensation.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, our board of directors will establish an audit committee and a compensation committee. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate the system of internal controls. The compensation committee will manage any stock option plans which we may adopt and review and recommend compensation arrangements for the officers. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members to establish committees.
All directors will be reimbursed by the Company for any expenses incurred in attending directors' meetings provided that we have the resources to pay these fees. We will consider applying for officers and directors liability insurance at such time when it has the resources to do so.
Audit Committee
The functions of the Audit Committee are currently carried out by our Board of Directors. Our Chief Executive Officer, although not deemed to be "independent" of the Company, is deemed to be an audit committee financial expert as defined in Regulation S-B, Item 401.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 26, 2006, there are a total of 4,848,584 shares of the Company's Common Stock issued and outstanding. The following table sets forth information with respect to the beneficial ownership of common shares by (i) the holders of more than 5% of the common shares outstanding, (ii) each officer or director of the Company who holds shares, and (iii) all officers and directors as a group.
Name and Address Number of Shares Percentage of Of Beneficial Owner(1)(2) Beneficially Owned Outstanding Shares ------------------------- ------------------ ------------------ Richard M. Cohen 1,000,000 20.6% Brad Burde 1,000,000 (3) 20.6% The Barter Family Trust 1,000,000(4) 20.6% Vincent J. McGill 250,000 (5) 5.0% Sir John Baring 500,000 (6) 9.8% Jay Barry Richman 450,000 (7) 9.1% All officers and directors 2,750,000(4)(5)(6)(7) 52.6% As a group (4 persons) ---------- |
(1) Unless otherwise indicated below, the persons in the above table have
sole voting power and investment power with respect to the shares owned by them.
(2) The address Richard Cohen, Brad Burde and Vincent J. McGill are c/o
Eaton & Van Winkle, 3 Park Avenue, New York, New York 10016. The address of Sir
John Baring is 440 West 24th St., 11E, New York, NY 10011 and the address of The
Barter Family Trust and Jay Barry Richman is 33 Newtown Lane, East Hampton, NY
11937.
(3) Of the 1,000,000 shares, 800,000 shares are held by Brad Burde and
200,000 shares are held by Burde Associates LLC, a New York limited liability
company controlled by Mr. Burde.
(4) The controlling person of The Barter Family Trust is Scott Barter.
(5) Includes 125,000 shares underlying fully-vested stock options held by
Mr. McGill. These options are exercisable at $0.25 per share and expire on March
31, 2011. Mr. McGill is a partner of Eaton & Van Winkle LLP which owns 100,000
shares of Common Stock.
(6) Includes 250,000 shares underlying fully-vested stock options held by
Mr. Baring. These options are exercisable at $0.25 per share and expire on March
31, 2011.
(7) Includes 100,000 shares underlying stock options held by Mr. Richman
which either have vested or will vest in the next 60 days. These options are
exercisable at $0.25 per share and expire on March 31, 2011.
DESCRIPTION OF SECURITIES
General
We are authorized to issue 29,000,000 shares of Common Stock, $.001 par value per share, and 1,000,000 shares of preferred stock, $.001 par value per share. As of June 26, 2006, there were issued and outstanding 4,848,584 shares of Common Stock. As of such date, we also had stock options outstanding to purchase 1,250,000 shares of Common Stock and $960,000 principal amount of December Notes outstanding, convertible into 2,742,858 shares of Common Stock.
The following summary of the respective rights of holders of our capital stock is qualified in its entirety by reference to our amended and restated certificate of incorporation and by-laws, copies of which are available upon request.
Common Stock
Subject to the rights of the holders of any preferred stock which may be outstanding, each holder of Common Stock is entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore, and, in the event of liquidation, dissolution or winding up of the Company, to share pro rata in any distribution of the Company's assets after payment or providing for the payment of all liabilities and the liquidation preference of any outstanding preferred stock. Each holder of Common Stock is entitled to one vote for each share held of record on the applicable record date on all matters presented to a vote of stockholders, including the election of directors. Holders of Common Stock have no cumulative voting rights or pre-emptive rights to purchase or subscribe for any shares of Common Stock or other securities of the Company in the event of any subsequent offering. The shares of Common Stock have no conversion rights, are not subject to redemption and are not subject to further calls or assessments. All outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be when issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, without any action of the stockholders, to provide for the issuance of one or more series of preferred stock and to fix the designations, preferences, powers and relative, participating, optional and other rights, qualifications, limitations and restrictions thereof including, without limitation, the dividend rate, voting rights, conversion rights, redemption price and liquidation preference per series of preferred stock. Any series of preferred stock issued may rank senior to the Common Stock with respect to the payment of dividends or amounts to be distributed upon liquidation, dissolution or winding up of the Company. There are no agreements for the issuance of preferred stock and the Board or Directors has no present intent to issue any preferred stock. The existence of authorized but unissued preferred stock may enable the Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to holders of Common Stock and adversely affect the rights to powers, including voting rights, of such holders and may have the effect of delaying, deferring or preventing a change in control of the Company.
Transfer Agent
We expect that the transfer agent for our Common Stock will be American Stock Transfer and Trust Company, 59 Maiden Lane, New York, New York 10038. Its telephone number is 718-331-1852.
LEGAL MATTERS
Our counsel, Eaton & Van Winkle LLP, located in New York, New York, is passing upon the validity of the issuance of the shares of Common Stock that are being offered pursuant this prospectus.
EXPERTS
Malone & Bailey, PC, independent registered public accountants, located in Houston, Texas, has audited our Financial Statements included in this registration statement to the extent, and for the periods set forth in their reports. We have relied upon such report, given upon the authority of such firm as an expert in accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article Sixth of our Amended and Restated Certificate of Incorporation, we have agreed to indemnify our officers, directors, employees and agents to the fullest extent permitted by the laws of the State of Delaware, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Directors, Officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore unenforceable.
DESCRIPTION OF BUSINESS
Purpose
We were formed in September 2005 to exploit the reputation for quality and taste associated with "Dreesen's Famous Donuts." As a first step towards the creation of an internationally recognized branded donut and donut making system, in November 2005, we entered into a License Agreement with Dreesen's Enterprises, Inc., the owner of the rights to the trademark "Dreesen's Famous Donuts" and the secret recipe for making Dreesen's donuts. This license ("License") grants to us the right to market Dreesen's "Start-up Kit," along with the right to use the Dreesen's name and logos, on an exclusive basis throughout the United States, except for the states of Florida and Pennsylvania, where we have non-exclusive rights, and in Suffolk County, which Dreesen's retained for itself. A Start-up Kit includes a "Donut Robot" Mark II Machine, recipe mix, shortening, donut sugar and miscellaneous items.
Background
The DeSanti family came to Sag Harbor from the village of Ginestra Sabina in the mountains of Rome in the early 1900's. In 1948 Rudy DeSanti's father and a partner bought Dreesen's Excelsior Market, a simple old-fashioned sawdust-on-the-floor butcher shop in East Hampton, then a small village on the eastern end of Long Island. In the late 1950's Rudy DeSanti's father purchased an automatic machine, a donut robot, made by the Belshaw Bros. Company. The machine turned the donuts, drained them and dropped them onto a waiting tray.
In the 1960's, Rudy DeSanti ("Rudy") left his father's business and went into the business of building houses. In 1970 his father's partner died. At that time, Rudy's father decided to stop running the family's store and Rudy decided to run it permanently. Rudy ran his market, a meat shop with donuts, on Newtown Lane from 1970 until he made the strategic decision in the year 2002 to concentrate on the wholesale donut business and rented space in his building to "Scoops Ice Cream" and granted it the right to distribute Dreesen's Famous Donuts.
While Rudy was operating the market, it became a full service delicatessen and the donut business flourished. The donut machine was displayed near the windows so that passers by could see the donuts being made. Among Rudy's customers were Alec Baldwin, Martha Stewart, Bill Clinton, Billy Joel and other celebrities. Dreesen's Famous Donuts were publicly acknowledged when Rudy appeared on a segment of "Martha Stewart Living" and were regularly featured on news and other lifestyle television programs. There is still a Donut Robot in the window of the Scoop's Ice Cream shop at the site of Rudy's market, turning out Dreesen's Famous Donuts for its customers.
Rather than disclose his donut recipe, Rudy has helped people make Dreesen's Famous Donuts at other locations. They buy equipment from Rudy, a modern Belshaw Bros. machine that they can put in a window, and sell product made to his specifications using mix and other ingredients provided by Rudy, keeping the profit for themselves. Dreesen's Famous Donuts can now be found at more than 10 locations, originated by Mr. DeSanti, in Manhattan, New Jersey and Connecticut, including those set forth below.
LOCATIONS
-------------------------------------------------------------------------------- Scoop Du Jour Balthazar 35 Newtown Lane 80 Spring Street East Hampton, NY 11937 New York City, NY 10012 631-329-4883 212-965-1785 -------------------------------------------------------------------------------- Homer's Variety Heartland Brewery/Empire State Building 64 Brunell Ave 350 Fifth Ave Lenox, MA 1240 New York City, NY 10118 413-637-0061 212-645-3400 -------------------------------------------------------------------------------- Tom Bailey's Market Jacob Javits Center 1323rd Ave 655 West 34th Street Spring Lake, NJ 7762 New York City, NY 10001 732-282-0920 212-216-2400 -------------------------------------------------------------------------------- Route 22 Restaurant The Tavern on the Green 55 OldRoute 22 Central Park at West 67th Street Armonk, NY 10504 New York City, NY 10023 914-765-0022 212-877-7139 -------------------------------------------------------------------------------- Ronnie's Deli Carversville General Store Box 160 Main Street 6208 Fleecydale Road Montauk, NY 11954 Carversville, PA 18913 631-668-2757 215-297-5353 -------------------------------------------------------------------------------- Gourmet Garage 1245 Park Avenue New York, NY 10128 212-348-5850 -------------------------------------------------------------------------------- |
The System
To assure himself that donuts sold by others bearing the Dreesen's name meet his standards, Rudy DeSanti developed a system. The system includes the line of "Donut Robots" and peripherals produced by Belshaw Bros., Inc., a member of the AGA Foodservice Equipment group of Companies, a division of AGA Foodservice Group plc. Dreesen's Famous Donut mix based upon the secret family recipe, and Dreesen's branded shortening and doughnut sugar. The Dreesen's line of donuts consists of only three types of donuts - plain, powdered sugar and cinnamon. Rudy has purposely kept the choices simple. This limits the inventory requirements of an operator and, more importantly, makes the choices easy for the customer.
In addition to providing the equipment and ingredients, Rudy educates his operators about the preparation and history of Dreesen's donuts. Training, including a film prepared by Belshaw Bros. demonstrating proper use and maintenance of its equipment, is available at Dreesen's in East Hampton or the operator's site, and includes:
o Machine Use
o Ingredient Prep
o Cooking and Timing
o Customer Interaction
o Packaging and Presentation
o Maintenance and Planning
o Donut Tasting and Texture Analysis
Because Rudy's system is comprehensive, there is generally no need for ongoing participation by Dreesen's. Once an operator buys the necessary equipment and supplies, he's in business producing donuts, a business he can operate on his own or as an adjunct to an existing operation.
Intellectual Property
The "Dreesen's Famous Donuts" trademark is owned by Dreesen's Enterprises, Inc. and registered with the United States Patent and Trademark Office. A trademark registration has also been filed in Canada. When appropriate, we will seek to file or cause Dreesen's Enterprises to file applications to register the mark in other countries.
Effective November 21, 2005, we entered into a License Agreement (the "License Agreement") with Dreesen's Enterprises, Inc. The License grants to us the non-exclusive right to use the Dreesen's name throughout the United States to market and promote Dreesen's Famous Donuts; and the exclusive right throughout the United States (except in the states of Florida and Pennsylvania, where we were granted non-exclusive rights, and the county of Suffolk, which Dreesen's retained for itself) to grant sublicenses to others to use the Dreesen's name and to make and distribute Dreesen's Famous Donuts using Dreesen's secret recipe mix, shortening and doughnut sugar. The License Agreement has an initial term of two years but, at our option, may be extended for two additional terms of two years each, provided that at the end of each term we have at least 100 sublicensees and are otherwise in compliance with the material terms of the License. The License requires that we purchase from Dreeson's all Start-Up Kits at a price of $9,000 each, subject to increase.
In addition to the revenue generated from our sale of Start-up Kits, we are to be paid $2.50 for each 30-lb box of mix sold to our licensees during the terms of the License Agreement and $1,000 should Dreesen's directly grant any sublicense within the territory over which we have rights. A 30-lb box of mix makes approximately 400 donuts. The License also requires that we pay to Dreesen's 50% of our net profit derived from sales of promotional materials such as hats, t-shirts, napkins and mugs.
Marketing
We anticipate deriving our revenues principally through two sources, the sale of Start-up Kits and follow-on sales of supplies. In addition to the Start-up Kits and mix, we will distribute promotional materials and supplies such as napkins, paper cups, hats, mugs and t-shirts, but we are not anticipating that this will be a source of significant revenues.
The Start-up Kits will be marketed through a variety of channels. We will advertise directly to individuals and single-store owners through telemarketing advertisements in trade and food magazines, newspapers and participation at trade shows. In addition, building on our existing relationships we will contact owners of chains of stores, such as convenience stores, department, drug and food chains, as well as hotels. We plan to use independent sales representatives who would be compensated by commissions based on sales made by them.
As our revenues and activities develop, we may determine to form one or more subsidiaries to undertake particular aspects of our business or new projects. For example, we might form a new subsidiary to focus on the distribution of promotional materials or, if we can expand the territory or scope of our License Agreement with Dreesen's, we might form a new subsidiary to deal with overseas opportunities.
Government Regulation
The sale of franchises and certain types of business opportunities is highly regulated at the federal and state level. Our current plan is to initially structure the relationship with our customers so as to not be a franchise or a business opportunity. Each sublicense will be granted the right to use the Dreesen's name and logo only in connection with the sale of donuts produced using Dreesen's mix and approved system. Except for such requirement, each licensee will be free to determine when and how to operate his business. Although we and Dreesen's will be available to provide appropriate support, we do not envision placing the kinds of restrictions and demands on our licensee that would result in a franchise or/finance relationship.
Property
The Company is subject to two real estate leases: one at 33 Newtown Lane and the other at 445 Park Avenue. The Company's offices at 33 Newtown Lane are under lease through November 30, 2007 with a monthly rent of $1,400. The Company's offices at 445 Park Avenue are under lease through October 31, 2006 with a monthly rent of $7,960.
Employees
Our only employees are R. Scott Barter, Richard M. Cohen, Bradley C. Burde and Don Cunningham. Messr's Cohen and Burde, who each received $900 per month and health insurance coverage, were the only employees who received compensation from us during the fiscal year ended March 31, 2006.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We are a start-up stage corporation with limited operations and have had no revenues from our business operations as of March 31, 2006. We completed the first sale of a Start-Up Kit in June 2006.
Plan of Operation. From the time we were incorporated, in September 2005, to the end of our first fiscal year, March 31, 2006, we did not have any revenues from operations. Accordingly, the information provided in this section is a plan of operation pursuant to Regulation S-B Item 303(a) promulgated by the SEC.
Effective November 21, 2005, we entered into the License Agreement with Dreesen's Enterprises, Inc. Our plan of operation is, pursuant to the License Agreement, to grant sublicenses to others to use the Dreesen's name and to make and distribute Dreesen's Famous Donuts using Dreesen's secret recipe mix, shortening and doughnut sugar. The License Agreement has an initial term of two years but, at our option, may be extended for two additional terms of two years each, provided that at the end of each term we have at least 100 sublicensees and are otherwise in compliance with the material terms of the License. On June 12, 2006, we granted our first sublicense pursuant to the License Agreement.
The License requires that we purchase from Dreeson's all Start-Up Kits at a price of $9,000 each, subject to increases to reflect increases in the prices paid by Dreesen's for the components of the Start-up Kit.
In addition to the revenue generated from our sale of Start-up Kits, we are to be paid $2.50 for each 30-lb box of mix sold to our licensees during the terms of the License Agreement and $1,000 should Dreesen's directly grant any sublicense within the territory over which we have rights. A 30-lb box of mix makes approximately 400 donuts. The License also requires that we pay to Dreesen's 50% of our net profit derived from sales of promotional materials such as hats, t-shirts, napkins and mugs.
We anticipate deriving our revenues principally through two sources, the sale of Start-up Kits and follow-on sales of supplies. In addition to the Start-up Kits and mix, we will distribute promotional materials and supplies such as napkins, paper cups, hats, mugs and t-shirts, but we are not anticipating that this will be a source of significant revenues.
The Start-up Kits will be marketed through a variety of channels. We will advertise directly to individuals and single-store owners through telemarketing advertisements in trade and food magazines, newspapers and participation at trade shows. In addition, building on our existing relationships we will contact owners of chains of stores, such as convenience stores, department, drug and food chains, as well as hotels.
As our revenues and activities develop, we may determine to form one or more subsidiaries to undertake particular aspects of our business or new projects. For example, we might form a new subsidiary to focus on the distribution of promotional materials or, if we can expand the territory or scope of our License Agreement with Dreesen's, we might form a new subsidiary to deal with overseas opportunities.
Liquidity and Capital Resources
As of March 31, 2006, we had $697,000 in working capital.
We were initially capitalized with $75,000 contributed by the Company's founders.
We sold an aggregate of $960,000 principal amount of the December Notes in closings which we held from time to time between December 2005 and March 2006. After expenses, we had net proceeds of approximately $925,000 after such sale. We did not pay any selling commissions in connection with such offering. The December Notes have a face amount equal to the amount of the subscriber's investment accepted by the Company, bear interest at a rate of ten percent (10%) per annum, compounded annually, and are payable on December 31, 2007. The principal of and interest accrued on each December Note will be convertible at the option of the holder into shares of the Company's Common Stock at any time prior to payment of the December Note at a price of thirty-five cents ($.35) per share of Common Stock, subject to adjustment upon certain events. For participating in the offering of the December Notes, for no additional consideration, each investor received, as of the date of the closing applicable to such investor, a number of shares of the Company's Common Stock equal to twenty percent (20%) of the face amount of his December Note divided by thirty-five cents ($0.35). By way of example, if an investor acquired a December Note in the principal face amount of $50,000, he received 28,571 shares ($10,000 divided by $0.35) of the Company's Common Stock.
If we do not generate sufficient sales, or receive additional financing, we will not be able to repay by December 2007 any of the December Notes which have not been converted into Common Stock.
CERTAIN RELATIONSHIPS AND RELATED STOCKHOLDER MATTERS
During our fiscal year ended March 31, 2006, we paid an aggregate of approximately $12,000 in fees to Catherine Simmons-Gill, who is the wife of our Chief Executive Officer, for legal services rendered to us relating to our trademark and other legal matters.
Upon our inception in September 2005, each of Richard M. Cohen (our Chief Executive Officer), Brad C. Burde (our Secretary and Treasurer) and The Barter Family Trust (one of our significant shareholders) subscribed for 1,000,000 shares of our Common Stock for $0.025 per share. We issued an aggregate of 3,000,000 shares of Common Stock to such parties in September 2006 and received the aggregate subscription price of $75,000. Of Mr. Burde's 1,000,000 shares, 800,000 shares are held in his individual name and 200,000 shares are held by Burde Associates LLC, of which Mr. Burde is the controlling person.
In September 2005, we issued 350,000 shares of our Common Stock to Mr. Jay Barry Richman in consideration for services. Mr. Richman beneficially owns over 5% of our outstanding Common Stock and introduced us to Dreeson's.
In September 2005, we issued 100,000 shares of our Common Stock to our outside counsel, Eaton & Van Winkle LLP, in consideration for legal services. One of our directors is a partner of such firm.
As of April 4, 2006, we issued 250,000 shares of our Common Stock to Sir John Baring in connection with his agreement to serve as our Chairman.
As of April 4, 2006, we issued 125,000 shares of our Common Stock to Vincent J. McGill in connection with his agreement to continue to serve on our Board of Directors.
As of April 4, 2006, we granted stock options to purchase shares of our Common Stock to Sir John Baring (250,000 options), Vincent J. McGill (125,000 options) and Jay Barry Richman (750,000 options). All of such options are exercisable at $0.25 per share and expire on March 31, 2011. Mr. Baring's and McGill's options vested in full upon grant. Mr. Richman's options vested as to 50,000 shares upon grant and will vest as to 50,000 shares as of the end of each quarter, starting June 30, 2006 and ending on December 31, 2007, and as to 350,000 additional shares at December 31, 2007.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is not traded on any exchange. We plan to eventually seek listing on the OTC Bulletin Board, once our registration statement has been declared effective by the Commission. We cannot guarantee that we will obtain a listing. There is no trading activity in our securities and there can be no assurance that a regular trading market for our Common Stock will ever be developed.
A market maker sponsoring a company's securities is required to obtain a listing of the securities on any of the public trading markets, including the OTC Bulletin Board. If we are unable to obtain a market maker for our securities, we will be unable to develop a trading market for our Common Stock. We may be unable to locate a market maker that will agree to sponsor our securities. Even if we do locate a market maker, there is no assurance that our securities will be able to meet the requirements for a quotation or that the securities will be accepted for listing on the OTC Bulletin Board.
As of June 26, 2006, there were approximately 40 holders of record of our Common Stock.
We have issued and have outstanding stock options to purchase an aggregate of 1,250,000 shares of Common Stock. We also have outstanding the December Notes which are in the aggregate convertible into 2,742,858 shares of Common Stock, not counting shares which may be issuable upon conversion of interest accruing on such December Notes. Other than such stock options and the December Notes, we do not have outstanding any options, warrants or other securities exercisable or convertible into shares of our capital stock.
The number of shares of our Common Stock that could be sold pursuant to Rule 144 (once we are eligible therefore) is up to 1% of the shares which we will have outstanding (i.e. approximately 49,000 as of June 26, 2006, not giving effect to the direct offering) during each three (3) month period by each of our shareholders.
EXECUTIVE COMPENSATION
Compensation Agreements
During our fiscal year ended March 31, 2006, the only officers who received compensation from us were Mr. Richard Cohen and Mr. Brad Burde who each received approximately $900 per month per month and were each provided with health insurance costing approximately $700 per month. We expect to continue to compensate Messrs. Cohen and Burde at these levels for the foreseeable future. During the fiscal year ended March 31, 2006, we paid our counsel, Eaton & Van Winkle LLP, a total of $10,000. Our Chief Executive Officer, Mr. Cohen, received aggregate compensation from us of approximately $3,000 during the fiscal year ended March 31, 2006. Mr. Cohen is referred to below as the "named executive officer".
Incentive Plans
During our fiscal year ended March 31, 2006, we did not grant any options to purchase shares of our Common Stock to our named executive officer or to anyone else. Subsequently, our Board of Directors adopted our 2006 Stock Incentive Plan which allows for the issuance of up to 2,000,000 shares of Common Stock.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
During, our fiscal year ended March 31, 2006, our named executive officer did not exercise any options to purchase shares of Common Stock. We did not have outstanding any stock options as of March 31, 2006.
Employment Agreements.
The Company does not have employment agreements with any of its officers.
Equity Compensation Arrangements.
The following table provides information as of March 31, 2006 about our equity compensation arrangements.
(c)
Number of securities
remaining available for
(a) (b) future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
---------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans
approved by security holders -0- -0- -0-
---------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans not -0- -0- -0-
approved by security holders
---------------------------- ----------------------- -------------------- -----------------------
Total -0- -0- -0-
============================ ======================= ==================== =======================
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Subsequent to March 31, 2006, pursuant to our 2006 Stock Incentive Plan, we issued to seven individuals options to purchase an aggregate of 1,250,000 shares of Common Stock.
Director Compensation
Directors of the Company are not compensated in cash for their services but are reimbursed for out-of-pocket expenses incurred in furtherance of our business.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Pages
I. Newtown Lane Marketing, Incorporated Audited Financial Statements
and Notes
A. Report of Independent Registered Public Accounting Firm............F-2
B. Balance Sheet......................................................F-3
C. Statement of Expenses..............................................F-4
D. Statement of Cash Flows............................................F-5
E. Statement of Changes in Shareholders' Deficit......................F-6
F. Notes to Financial Statements......................................F-7-9
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
(a Development Stage Company)
Newtown Lane Marketing Incorporated
East Hampton, New York
We have audited the accompanying balance sheet of Newtown Lane Marketing, Incorporated ("the Company") (a Development Stage Company) as of March 31, 2006 and the related statements of expenses, cash flows and changes in shareholders' deficit for the period from September 26, 2005 (inception) through March 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Newtown Lane Marketing Incorporated as of March 31, 2006, and the results of its operations and its cash flows for the period described in conformity with accounting principles generally accepted in the United States of America.
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
May 22, 2006
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
BALANCE SHEET
MARCH 31, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 827,936
---------
Total current assets 827,936
TOTAL ASSETS $ 827,936
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 130,628
---------
Total current liabilities 130,628
LONG-TERM LIABILITIES
Convertible notes payable, net of discount 817,029
---------
TOTAL LIABILITIES 947,657
---------
SHAREHOLDERS' DEFICIT
Preferred stock, $.001 par value; 1,000,000 shares authorized, none issued --
Common stock, $.001 par value; 29,000,000 shares authorized,
4,248,584 shares issued and outstanding 4,249
Additional paid in capital 239,504
Deficit accumulated during the development stage (363,474)
---------
Total shareholders' deficit (119,721)
---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 827,936
=========
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See summary of accounting policies and notes to financial statements.
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
STATEMENT OF EXPENSES
FOR THE PERIOD FROM SEPTEMBER 26,
2005 (INCEPTION) THROUGH MARCH 31, 2006
Selling, general and administrative $ 326,077
Interest expense, net 37,397
-----------
Net loss $ (363,474)
===========
Net loss per share - basic and diluted $ (0.10)
Weighted average shares outstanding - basic and diluted 3,743,637
|
See summary of accounting policies and notes to financial statements.
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 26,
2005 (INCEPTION) THROUGH MARCH 31, 2006
Cash flows from operating activities:
Net loss $ (363,474)
Adjustments to reconcile net loss to net
cash used in operating activities:
Share based compensation 8,750
Amortization of debt discount 17,032
Increase in accounts payable 130,628
-----------
Net cash used in operating activities (207,064)
Net cash provided by financing activities
Proceeds from issuance of common stock 235,003
Issuance of notes payable 799,997
-----------
Net cash provided by financing activities 1,035,000
Net increase in cash and cash equivalents 827,936
Cash and cash equivalents, beginning of year --
-----------
Cash and cash equivalents, end of year $ 827,936
===========
Supplemental Disclosures:
Interest paid $ --
Income taxes paid $ --
===========
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See summary of accounting policies and notes to financial statements.
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE PERIOD FROM SEPTEMBER 26,
2005 (INCEPTION) THROUGH MARCH 31, 2006
Deficit
Accumulated
Common Common During the
Stock Stock Additional Development
Shares Amount Paid in Capital Stage Total
-----------------------------------------------------------------------------------------------
Founders shares issued
at inception 3,350,000 $ 3,350 $ 71,650 $ -- $ 75,000
Stock issued for
services 350,000 350 8,400 -- 8,750
Stock issued in
connection with
convertible notes 548,584 549 159,454 -- 160,003
Net income (loss) -- -- -- (363,474) (363,474)
--------- --------- --------- --------- ---------
Balances at March 31, 2006 4,248,584 $ 4,249 $ 239,504 $(363,474) $(119,721)
========= ========= ========= ========= =========
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See summary of accounting policies and notes to financial statements.
Newtown Lane Marketing, Incorporated
(A Development Stage Company)
Notes to the Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Operations
Newtown Lane Marketing Incorporated ("the Company") was incorporated in Delaware on September 26, 2005. The Company is based in East Hampton, New York. The Company is in the development stage and holds the exclusive license to exploit the Dreesen's Donut Brand in the United States with the exception of the states of Florida and Pennsylvania, where it has non-exclusive rights, and in Suffolk County, New York, which the licensor, Dreesen's, retained for itself. Dreesen's is a 50 year old brand with operations in East Hampton, New York. In addition to the flagship location, approximately 10 other retail outlets in the United States sell Dreesen's products. The Company also maintains an office at 445 Park Avenue in New York City.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash deposits and highly liquid investments with original maturities of three months or less.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Basic and Diluted Income (Loss) Per Share
Basic and diluted income (loss) per share equals net income (loss) divided by weighted average shares outstanding during the period. Diluted income (loss) per share includes the impact of common stock equivalents using the treasury stock method when the effect is dilutive. There were no common stock equivalents during the period ended March 31, 2006.
New Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant effect on the Company's results of operations, financial position or the Company's cash flow
Note 2. CONVERTIBLE NOTES PAYABLE
On December 15, 2005 the Company circulated a Private Placement Memorandum ("PPM") offering convertible notes on the following terms: each note would have a 2 year term, a 10% interest rate payable in either cash or shares and a conversion rate of $ 0.35 per share, and each investor would be issued upon subscription, as an inducement to participate in the offering, a number of shares of Common Stock equal to 20% of his or her investment. The original PPM offered up to $500,000 in notes. Actual subscriptions received and accepted were for $960,000. If all $960,000 of notes are converted at maturity, then including interest and the additional shares issued upon subscription, 3,840,025, shares will be issued.
Such additional shares of common stock issued to the investors upon their subscription for convertible notes amounted to 548,584 shares. The relative fair value of these shares is $160,003 and was recorded as a debt discount and as additional paid in capital. The debt discount is being amortized over the term of the notes payable using the effective interest method. During the period from September 26, 2005 (inception) to March 31, 2006 a total of $17,032 was amortized and recorded as interest expense.
Note 3. LEASE AND OTHER COMMITMENTS
The Company is subject to two real estate leases: one at 33 Newtown Lane and the other at 445 Park Avenue. The Company's offices at 33 Newtown Lane are under lease through November 30, 2007 with a monthly rent of $1,400. The Company's offices at 445 Park Avenue are under lease through October 31, 2006 with a monthly rent of $7,960. The Company does not lease any equipment and is not subject to any employment contracts.
Future minimum payments under operating leases as of March 31, 2006 are as follows:
--------------------------------------- Fiscal Year Minimum Lease Payments --------------------------------------- 2007 $72,500 --------------------------------------- 2008 $11,200 --------------------------------------- |
Note 4. INCOME TAXES
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During fiscal 2006, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $363,000 at March 31, 2006, and will expire in the year 2026.
At March 31, 2006, deferred tax assets consisted of the following:
Deferred tax assets $ 127,216
Less: valuation allowance (127,216)
---------
Net deferred tax asset $ --
=========
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Note 5. SUBSEQUENT EVENTS
On April 4, 2006 the Company issued 600,000 shares and options to purchase a total of 1,250,000 shares of common stock to two employees, two directors and selected consultants.
The options on the shares vest according to set schedules. Of the 1,250,000 options issued, 375,000 options vested immediately upon grant. These options are exercisable at a strike price of $0.25 per share and expire on March 31, 2011.
Of the 1,250,000 options issued, 400,000 options vest quarterly over 2 years with the initial traunch vesting on April 4, 2006; and 350,000 options vest on December 31, 2007. These options are exercisable at a strike price of $0.25 per share and expire on March 31, 2011.
Of the 1,250,000 options issued, 50,000 options vest quarterly over 1 year with the initial traunch vesting on April 4, 2006; and 75,000 options vest quarterly over 1 year with the initial traunch vesting on June 30, 2006. These options are exercisable at a strike price of $0.35 per share and expire on March 31, 2011.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers
Pursuant to Article Sixth of our Amended and Restated Certificate of Incorporation, we have agreed to indemnify our officers, directors, employees and agents to the fullest extent permitted by the laws of the State of Delaware, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Directors, Officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore unenforceable.
Item 25. Other Expenses Of Issuance And Distribution
Our expenses in connection with the issuance and distribution of the securities being registered, other than the underwriting discount, are estimated as follows:
SEC Registration Fee $ 100 Legal Fees and Expenses $15,000 Accountants' Fees and Expenses $14,000 Miscellaneous Expenses $ 900 Total $30,000 |
Item 26. Recent Sales Of Unregistered Securities
We were initially capitalized with $75,000 contributed by the Company's founders.
We sold an aggregate of $960,000 principal amount of the December Notes in closings which we held from time to time between December 2005 and March 2006. The December Notes have a face amount equal to the amount of the subscriber's investment accepted by the Company, bear interest at a rate of ten percent (10%) per annum, compounded annually, and are payable on December 31, 2007. The principal of and interest accrued on each December Note will be convertible at the option of the holder into shares of the Company's Common Stock at any time prior to payment of the December Note at a price of thirty-five cents ($.35) per share of Common Stock, subject to adjustment upon certain events. For participating in the offering of the December Notes, for no additional consideration, each investor received at closing, a number of shares of the Company's Common Stock equal to twenty percent (20%) of the face amount of his December Note divided by thirty-five cents ($0.35). By way of example, if an investor acquired a December Note in the principal face amount of $50,000, he received 28,571 shares ($10,000 divided by $0.35) of the Company's Common Stock.
We did not pay any selling commissions in connection with this offering.
Upon our inception in September 2005, each of Richard M. Cohen (our Chief Executive Officer), Brad C. Burde (our Secretary and Treasurer) and The Barter Family Trust (whose controlling person is Scott Barter) subscribed for 1,000,000 shares of our Common Stock for $0.025 per share. We issued an aggregate of 3,000,000 shares of Common Stock to such parties in September 2006 and received
II-1
the aggregate subscription price of $75,000. Of Mr. Burde is 1,000,000 shares, 800,000 shares are held by him and 200,000 shares are held by Burde Associates LLC, of which Mr. Burde is the controlling person.
In September 2005, we issued 350,000 shares of our Common Stock to Mr. Jay Barry Richman in consideration for services.
In September 2005, we issued 250,000 shares of our Common Stock to Mr. Alan Gaines in consideration for services.
In September 2005, we issued 100,000 shares of our Common Stock to Eaton & Van Winkle LLP in consideration for legal services.
As of April 4, 2006, we granted an aggregate of 600,000 shares of our Common Stock to six individuals in consideration for services (John Baring-250,000 shares, Vincent J. McGill-125,000 shares, Don Cunningham-50,000 shares, Wayne Brannan-100,000 shares, John Vincenzo-50,000 shares and Sean Driscoll-25,000 shares).
As of April 4, 2006, we issued stock options to purchase an aggregate of 1,250,000 shares of our Common Stock to seven individuals (Jay Barry Richman-750,000 options, John Baring-250,000 options, Vincent J. McGill-125,000 options, Don Cunningham-50,000 options, Sean Driscoll-25,000 options, Lynn Blumenfeld-25,000 options, and Jill Fleming-25,000 options). Each of the stock options expires as of March 31, 2011. The stock options held by Messrs. Richman, Baring and McGill are exercisable at $0.25 per share and the stock options held by Cunningham, Driscoll, Blumenfeld and Fleming are exercisable at $0.35 per share. Mr. Baring's and Mr. McGill's options vested in full upon grant. Mr. Richman's options vested as to 50,000 shares upon grant and will vest as to 50,000 shares as of the end of each quarter, starting June 30, 2006 and ending December 31, 2007, and as to 350,000 additional shares at December 31, 2007. With respect to the stock options granted to each of Don Cunningham, Sean Driscoll, Lynn Blumenfeld and Jill Fleming , 25% of the shares underlying the options vested as of the date of grant and 25% of the shares will vest on each of June 30, 2006, September 30, 2006 and December 31, 2006.
We believe that all of the issuances of our securities described above in this item were exempt from registration under Section 4(2) of the Securities Act.
Item 27. Exhibits
1.1* Form of Placement Agency Agreement between the Registrant and Public
Securities, Inc.
3.1* Amended and Restated Certificate of Incorporation
3.2* By-laws
4.1* Form of 10% Convertible Promissory Note.
4.2* Form of Placement Agent Warrant.
5.1* Opinion of Eaton & Van Winkle LLP.
10.1* License Agreement, dated November 21, 2005, between the Registrant
and Dreeson's Enterprises, Inc.
10.2* Form of Stock Option Agreement between the Registrant and Jay Barry
Richman.
10.3* Form of Stock Option Agreement between Registrant and John Baring.
10.4* Form of Stock Option Agreement between Registrant and Vincent J.
McGill.
10.5* 2006 Stock Incentive Plan.
23.1* Consent of Counsel (contained in the opinion annexed as Exhibit 5.1).
23.2* Consent of Malone & Bailey, PC.
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II-2
Numbers with (*) are filed herewith.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the Securities Act;
ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement;
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
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 prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by 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, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer 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.
Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made
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in a registration statement or prospectus that is a part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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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, thereunto duly authorized in the City of New York, State of New York on June 30, 2006.
NEWTOWN LANE MARKETING, INCORPORATED
By: /s/ Richard M. Cohen
---------------------------
Richard M. Cohen,
Chief Executive Officer
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In accordance with the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacities Date
/s/ Richard M. Cohen Chief Executive Officer June 30, 2006
--------------------- and Director (principal
Richard M. Cohen executive, financial and
accounting officer)
/s/ Vincent J. McGill Director June 30, 2006
---------------------
Vincent J. McGill
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NEWTOWN LANE MARKETING, INCORPORATED
INDEX OF EXHIBITS FILED WITH REGISTRATION STATEMENT
1.1* Form of Placement Agency Agreement between the Registrant and Public
Securities, Inc.
3.1* Amended and Restated Certificate of Incorporation
3.2* By-laws
4.1* Form of 10% Convertible Promissory Note.
4.2* Form of Placement Agent Warrant.
5.1* Opinion of Eaton & Van Winkle LLP.
10.1* License Agreement, dated November 21, 2005, between the Registrant
and Dreeson's Enterprises, Inc.
10.2* Form of Stock Option Agreement between the Registrant and Jay Barry
Richman.
10.3* Form of Stock Option Agreement between Registrant and John Baring.
10.4* Form of Stock Option Agreement between Registrant and Vincent J.
McGill.
10.5* 2006 Stock Incentive Plan.
23.1* Consent of Counsel (contained in the opinion annexed as Exhibit 5.1).
23.2* Consent of Malone & Bailey, PC.
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Exhibit 1.1
___________, 2006
Public Securities, Inc.
300 North Argonne Road
Suite 202
Spokane, Washington 99212
Gentlemen:
Newtown Lane Marketing, Incorporated, a Delaware corporation (the "Company"), with principal offices located at 33 Newtown Lane, East Hampton, New York 11937, has an authorized capitalization of 100,000,000 shares of Common Stock, $.001 par value. The Company proposes to issue and sell through Public Securities, Inc., (the "Underwriter") a minimum of 500,000 Shares and a maximum of 1,000,000 Shares at the offering price of $0.40 per share. The Shares are being offered on a "best efforts, minimum or maximum" basis
The Company wishes to confirm as follows its agreements with you.
1. Certain Definitions
The following shall constitute the definitions of certain terms used in this Agreement:
(a) "Underwriter" shall refer to Public Securities, Inc. and members of a selling group (which group may include the Underwriter) or such other associate underwriters as it may deem necessary as long as such underwriters or members of the selling group are members of the NASD.
(b) "Company" shall refer to Newtown Lane Marketing, Incorporated, its affiliates, and subsidiaries.
(c) "Commission" shall refer to the Securities and Exchange Commission.
(d) "Act" shall refer to the Securities Act of 1933 as amended.
(e) "Regulations" shall refer to the rules and regulations of the Commission.
(f) "Share(s)" shall refer to the shares of the Company's Common Stock, $0.001 par value being registered pursuant to the Registration Statement. The Shares are being offered on a "best efforts, minimum or maximum" basis.
(g) "Effective Date" shall be the first date upon which the Registration Statement filed pursuant to this Agreement is declared effective by the Commission, i.e., the date when the Shares may be offered for sale to the public.
(h) "Registration Statement" shall refer to the Registration Statement, Form SB-2 (File No.333-XXXXXXXX) filed for the proposed sale of the Shares, including any related preliminary prospectus, exhibits and financial statements as finally amended and revised prior to the Effective Date or as may be amended after the Effective Date. 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, any schedules, exhibits and all other documents and information filed as a part thereof or that may be incorporated 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.
(i) "NASD" shall refer to the National Association of Securities Dealers, Inc.
(j) "Initial Closing Date" shall refer to such date that the proceeds from the offering of the Shares sold by the Underwriter and received by the Escrow Agent equals at least $200,000, but not more than $400,000, and the Company and the Underwriter have determined that funds should be released from Escrow and the offering is not yet closed. "Final Closing Date" shall refer to such date that the cumulative proceeds from the offering of the Shares sold by the Underwriter and received by the Escrow Agent does not exceed $400,000, and the Company and the Underwriter have determined that the terms and conditions of the offering have been completed and the offering should be closed.
(k) "Material" shall refer to the definitions of "Material" under Generally Accepted Accounting Principles, Regulation S-X of the Securities Exchange Act of 1934, as well as judicial interpretations of such term.
2. Underwriter's Compensation
(a) The Company hereby appoints the Underwriter as its exclusive agent during the continuance of the authorization hereunder to sell and obtain purchasers for 1,000,000 Shares at a public offering price of $0.40 per Share and at an aggregate public offering price of $400,000 on a "best efforts, minimum or maximum basis." Unless 500,000 Shares are sold and payment received by the Company therefore within 180 days from the Effective Date, no Shares will be sold, and in that event the Underwriter will not receive any of the commissions mentioned, but will be entitled to all accountable out-of-pocket expenses, not to exceed $XXXXXX. Such exclusive agency shall be good and irrevocable unless and until terminated as hereinafter set forth.
(1) If the sale of the Shares by the Underwriter is not consummated for any reason not attributable to the Underwriter, or if (i) the Company unilaterally withdraws the Registration Statement or does not proceed with the public offering for reasons other than the Underwriter's failure to comply with or perform the obligations required by its representations, covenants or agreements hereunder , or (ii) the representations in Section 3 hereof are not correct or the covenants cannot be complied with, or (iii) there has been a materially adverse change in the condition, prospects or obligations of the Company or a materially adverse change in stock market conditions from current conditions, or (iv) the "road show" presentation produced a negative affect on the intended syndicate members, the Company will reimburse the Underwriter for its accountable expenses up to a maximum of $XXXXX, but any funds remaining unused from a $XXXXX advance to be paid upon signing of this Agreement, will be returned to the Company.
(b) Subject to the filing and the becoming effective of a post-effective amendment to the Registration Statement and a prospectus disclosing this Agreement in compliance with the provisions of the Act and the availability for sale to the public, pursuant to law, of the offered Shares and subject to the fulfillment of all of the obligations of the Company and compliance with all of the terms and conditions thereof by the Company in all material respects and in reliance upon the warranties, representations and covenants made by the Company herein, the Underwriter accepts the foregoing exclusive agency and agrees to use its best efforts during the term of the this Agreement and the continuance of the authorization provided herein to sell the offered Shares when and as issuable at the public offering price set forth above; and to make such public offering at such time as Underwriter so determines and after the following have been completed:
(1) a post effective amendment to Registration Statement and prospectus disclosing this Agreement has become effective.
(2) Approval of offering by the NASD.
(3) Blue Sky clearance from the states required by Underwriter and listed on Exhibit A attached to this Agreement.
(4) Shares and/or Certificates are available for public offering.
(5) Company furnishes Underwriter with sufficient number of prospectuses.
(c) As compensation for the services of the Underwriter herein, the Company shall allow the Underwriter, subject to the sale and receipt of funds for 500,000 Shares minimum and 1,000,000 Shares maximum to be offered herein, a sales commission of ten percent (10%) of the public offering price on all offered Shares actually sold hereunder. The Underwriter may organize a selling group (which group may include the Underwriter) or associate itself with such other Underwriters as it may deem necessary as long as such underwriters or members of the selling group are members of the NASD for the purpose of distributing the offered Shares and in such event, the Underwriter may allow to members of such selling group, or such other underwriters, such part of the aforementioned commission or discount as it may, in its sole discretion determine. Shares sold by members of the selling group may only be sold at the price of $0.40 per Share. The Underwriter shall be paid a non-accountable expense allowance of two percent (2%) of the public offering price on all Shares sold (of which $XXXXXX will be pre-paid by the Company to the Underwriter as of the date of this letter) and granted warrants to purchase up to 100,000 shares of Common Stock for $100, having an exercise price equal to 140% of the Public Offering price, at the rate of one Underwriter's warrant for every ten Shares sold in this offering (the "Underwriter's Common Stock Purchase Warrant")subject to the sale of the minimum number of Shares.
(1) Underwriter's Common Stock Purchase Warrant: At the Final Closing Date, the Company will sell to the Underwriter for a purchase price of $100, warrants to purchase shares at 140% of the offering price of the Shares (the "Underwriter's Common Stock Purchase Warrant" or "Underwriter's Warrants") in the form attached as Exhibit B. The total number of shares which may be purchased on the exercise of the Underwriter's Warrants will be 10% of the Shares sold in the offering. The Underwriter's Warrants shall be non-exercisable and nontransferable for a period of twelve (12) months after the effective date of post-effective amendment to the Registration Statement disclosing this Agreement.
The Company and the Underwriter agree that, prior to the effective date of post-effective amendment to the Registration Statement disclosing this Agreement, the Underwriter may designate that the Underwriter's Warrants be issued in varying amounts directly to its officers and not to the Underwriter, and to other Underwriters and their designees, provided that such designation will only be made by the Underwriter if it determines that such issuances would not violate the interpretation of the Board of Governors of the NASD. The Underwriter has disclosed to the Company, and the Company has agreed, that the Underwriter may transfer, after twelve (12) months from the date of the Underwriter's Warrants, a portion or all of the Underwriter's Warrants to certain persons,
including, but not limited to, the Underwriter's officers, directors, shareholders, employees, or registered representatives. The Underwriter and the Company agree that such transfers will only be made if they do not violate the registration provisions of the Act and the Underwriter will deliver an opinion of counsel to that effect to the Company.
The Company agrees that if, at any time during the term of the
Underwriter's Warrants, it should file a Registration
Statement with the Commission pursuant to the Act (or file a
Notification on Form l-A) under the Act for a public offering
of equity securities for cash, either for the account of the
Company or Selling Shareholders, or in the event that Company
Counsel is unable to furnish the opinion letter under section
7(b)(i)(L), then upon the demand of the Underwriter the
Company will at its own expense, except commissions, offer to
the then holder(s) of Underwriter's Warrants the opportunity
to register the resale of the shares underlying the
Underwriter's Warrants for public offering.
In addition to the rights above provided, the Company will cooperate with the then holder(s) of the Underwriter's Warrants and shares issued upon the exercise of the Underwriter's Warrants in preparing and signing any Registration Statement or Notification, in addition to the Registration Statement and Notifications discussed above, required in order to sell or transfer the aforesaid Underwriter's Warrants and/or underlying shares and will use its best efforts to supply all information required therefore.
3. Representations and Warranties of the Company. As material inducements to the Underwriter to enter into this Agreement, the Company hereby represents and warrants to, and agrees with the Underwriter which representations, warranties and agreements shall survive the Initial and Final Closings, as follows:
(a) The Company has prepared and filed with the Commission a registration statement, and an amendment or amendments thereto, on Form SB-2 (No. 333-XXXXXX), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Shares, under the Act, which registration statement and amendment or amendments have been prepared by the Company in conformity in all material respects with the requirements of the Act, and the Rules and Regulations, a copy of which has been delivered to the Underwriter. 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 verbally or in writing after having been furnished with a copy thereof.
Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Prospectus or the Registration Statement and no proceeding for an order suspending the effectiveness of the Registration Statement or any of the Company's Shares has been instituted or is pending or threatened. Each such
Prospectus and/or any supplement thereto has conformed in all material respects with the requirements of the Act and the Rules and Regulations and on its date did not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, in light of the circumstances under which they were made ; provided, however, that no representations, warranties or agreements are made hereunder as to information contained in or omitted from the Prospectus in reliance upon, and in conformity with, the written information furnished to the Company by you as set forth in Section 2(c) above.
(c) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with full power and authority (corporate and other) to own its properties and conduct its businesses as described in the Prospectus and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which the nature of its business or the character or location of its properties requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, properties or operations of the Company and the subsidiaries as a whole.
(d) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Shares, to enter into this Agreement, to grant the Underwriter's Common Stock Purchase Warrant dated as of the Final Closing Date to be exercised and delivered by the Company to the Underwriter (the "Underwriter's Common Stock Purchase Warrant Agreement"), and to consummate the transactions provided for in such agreements, and each of such agreements has been duly and properly authorized, and on the Final Closing Date will be duly and properly executed and delivered by the Company. This Agreement constitutes and on the Final Closing Date the Underwriter's Common Stock Purchase Warrant will then constitute valid and binding agreements, enforceable in accordance with their respective terms (except as the enforceability thereof may be limited by bankruptcy or other similar laws affecting the rights of creditors generally or by general equitable principles and except as the enforcement of indemnification or contribution provisions may be limited by federal or state securities laws or principles of public policy).
(e) Except as disclosed in the Prospectus, the Company is not in violation of its respective certificate or articles of incorporation or bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness or in any material contract, indenture, mortgage, loan agreement, lease, joint venture, partnership or other agreement or instrument to which the Company is a party or by which it may be bound or is not in material violation of any law, order, rule, regulation, writ, injunction or decree of any governmental instrumentality or court, domestic or foreign; and the execution and delivery of this
Agreement, the Underwriter's Common Stock Purchase Warrant and the consummation of the transactions contemplated therein and in the Prospectus and compliance with the terms of each such agreement will not conflict with, or result in a material breach of any of the terms, conditions or provisions of, or constitute a material default under, or result in the imposition of any material lien, charge or encumbrance upon any of the property or assets of the Company pursuant to, any material bond, debenture, note or other evidence of indebtedness or any material contract, indenture, mortgage, loan agreement, lease, joint venture, partnership or other agreement or instrument to which the Company is a party nor will such action result in the material violation by the Company of any of the provisions of its respective certificate or articles of incorporation or bylaws or any law, order, rule, regulation, writ, injunction, decree of any government, governmental instrumentality or court, domestic or foreign, except where such violation will not have a material adverse effect on the financial condition of the Company.
(f) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus and the Company will have the adjusted capitalization set forth therein on the Initial and Final Closing Date; all of the shares of issued and outstanding capital stock of the Company set forth therein have been duly authorized, validly issued and are fully paid and nonassessable; the holders thereof do not have any rights of rescission and are not subject to personal liability for any obligations of the Company by reason of being stockholders under the laws of the State in which the Company is incorporated; none of such outstanding capital stock is subject to or was issued in violation of any preemptive or similar rights of any stockholder of the Company; and such capital stock (or derivative securities thereof) conforms in all material respects to all statements relating thereto contained in the Prospectus.
(g) 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 shares, except for this Agreement or as described in the Prospectus. The Shares, and the shares issuable upon exercise of the Underwriter's Common Stock Purchase Warrant 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 in all material respects to the respective descriptions thereof contained in the Prospectus; except for payment of the applicable purchase price paid upon exercise of the options or warrants, as the case may be, 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 Shares and the shares issuable upon exercise of the Underwriter's Common Stock Purchase Warrant has been duly and
validly taken; and the certificates representing the Shares and shares issuable upon exercise of the the Underwriter's Common Stock Purchase Warrant will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the shares issuable upon exercise of the Underwriter's Common Stock Purchase Warrant to be granted by the Company hereunder, the Underwriter will acquire good and marketable title to such shares free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction of any kind whatsoever other than restrictions as may be imposed under applicable securities laws.
(h) The Company has good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as are described or referred to in the Prospectus or which are not materially significant or important in relation to its business or which have been incurred in the ordinary course of business; except as described in the Prospectus all of the leases and subleases under which the Company holds properties or assets as lessee or sublessee as described in the Prospectus are in full force and effect, and the Company is not in material default in respect of any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to the Company's rights as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above or affecting or questioning the Company's right to the continued possession of the leased or subleased premises or assets under any such lease or sublease; and the Company owns or leases all such properties as are necessary to its operations as now conducted and as contemplated to be conducted, except as otherwise stated in the Prospectus.
(i) The financial statements, together with related notes, set forth in the Prospectus in all material respects fairly present the financial position and results of operations of the Company at the respective dates and for the respective periods to which they apply. Said statements and related notes have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a basis which is consistent in all material respects during the periods involved. Any "stub" period has not been audited by an independent accounting firm, but was prepared in accordance with GAAP. There has been no material adverse change or material development involving a prospective change in the condition, financial or otherwise, or in the prospects, value, operation, properties, business or results of operations of the Company whether or not arising in the ordinary course of business considered as a whole, since the date of the financial statements included in the Registration Statement and the Prospectus.
(j) Subsequent to the respective dates as of which information is given in the Prospectus as it may be amended or supplemented, and except as described in the Prospectus, the Company has not, directly or indirectly, incurred any liabilities or obligations, direct or contingent, not in the ordinary course of business or entered into any transactions not in the ordinary course of business, which are material to the business of the Company as a whole and there has not been any change in the capital stock of, or any incurrence of long term debts by, the Company or any issuance of options, warrants or rights to purchase the capital stock of the Company or declaration or payment of any dividend on the capital stock of the Company or any material adverse change in the condition (financial or other), net worth or results of operations of the Company as a whole.
(k) To the knowledge of the Company, there is no pending or threatened, action, suit or proceeding to which the Company is a party before or by any court or governmental agency or body, which might result in any material adverse change in the condition (financial or other), business or prospects of the Company as a whole or might materially and adversely affect the properties or assets of the Company as a whole nor are there any actions, suits or proceedings against the Company related to environmental matters or related to discrimination on the basis of age, sex, religion or race which might be expected to materially and adversely affect the conduct of the business, property, operations, financial condition or earnings of the Company as a whole; and no labor disturbance by the employees of the Company individually exists or is, to the knowledge of the Company, imminent which might be expected to materially and adversely affect the conduct of the business, property, operations, financial condition or earnings of the Company as a whole.
(l) Except as may be disclosed in the Prospectus, the Company has properly prepared and filed all necessary federal, state, local and foreign income and franchise tax returns, or if not filed, has obtained all necessary extensions, has paid all taxes shown as due thereon, has established adequate reserves for such taxes which are not yet due and payable, and does not have any material tax deficiency or claims outstanding, proposed or assessed against it.
(m) The Company has sufficient licenses, permits, right to use trade or service marks and other governmental authorizations currently required for the conduct of its business as now being conducted and as contemplated to be conducted and the Company is in all material respects complying therewith. Except as set forth in the Prospectus, the expiration of any such licenses, permits, or other governmental authorizations would not materially affect the Company's operations. To its knowledge, none of the activities or businesses of the Company are in material violation of, or cause the Company to materially violate any law, rule, regulations, or order of the United States, any state, county or locality, or of any agency or body of the United States or of any state, county or locality.
(n) The Company has not in the last five years (i) made any contributions to any candidate for political office in violation of law, or failed to disclose fully any such contribution, or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi public duties, other than payments required or allowed by applicable law.
(o) Except as set forth in the Prospectus the Company knows of no outstanding claims for services either in the nature of a finder's fee, brokerage fee or otherwise with respect to this financing for which the Company or the Underwriter may be responsible or which to the knowledge of the Company, may affect the Underwriter's compensation.
(p) The Company has its property adequately insured against loss or damage by fire and maintains such other insurance as is customarily maintained by companies in the same or similar business.
(q) The Underwriter's Warrants herein described are duly and validly authorized and upon delivery to the Underwriter in accordance herewith will be duly issued and legal, valid and binding obligations of the Company, except as the enforceability thereof may be limited by bankruptcy or other similar laws affecting the rights of creditors generally or by equitable principles, and except as the enforcement of indemnification provisions may be limited by federal or state securities laws. The Underwriter's securities issuable upon exercise of any of the Underwriter's Common Stock Purchase Warrant have been duly authorized, and when issued upon payment of the exercise price therefor, will be validly issued, fully paid and nonassessable.
(r) Except as set forth in the Prospectus, no default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement, purchase order, or any other 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.
(s) To the best of the Company's knowledge it has generally enjoyed a satisfactory employer-employee relationship with its employees and, to the best of its knowledge, is in substantial 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. To the best of the Company's knowledge, 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. To the best of the Company's knowledge, 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 to its knowledge involving the Company, or any predecessor entity, and none has ever
occurred. To the best of the Company's knowledge, no representation question is pending respecting the employees of the Company, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company. To the best of the Company's knowledge, no grievance or arbitration proceeding is pending or to its knowledge threatened under any expired or existing collective bargaining agreements of the Company. No labor dispute with the employees of the Company is pending, or, to its knowledge is imminent; and the Company is not aware of any pending or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors which may result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company.
(t) Except as may be set forth in the Registration Statement, 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(l) 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
Internal Revenue Code (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."
(u) None of the Company, or any of its employees, directors, stockholders, or affiliates (within the meaning of the Rules and Regulations) 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 Shares, Underwriter's Common Stock Purchase Warrant, or otherwise.
(v) None of the patents, patent applications, trademarks, service marks, trade names, copyrights, licenses, intellectual property of any kind, and rights to the foregoing presently owned or held by the Company, are in dispute or, to the best knowledge of the Company's management or Counsel are in any conflict with the right of any other person or entity. The Company (i) except as disclosed in the Prospectus, has received no notice with respect to any patent, trademark, service mark, trade name, copyright, technology, or intellectual property that it owns or has the right to use, and that are used in the conduct of its business as now conducted or proposed to be conducted, infringes upon or is adverse 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 or otherwise disclosed to the Underwriter in writing, to the best knowledge of the Company's management is not obligated or under any liability whatsoever to make any material payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, know-how, technology, intellectual property of any kind, or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. There is no suit, proceeding, inquiry, arbitration, investigation, litigation or governmental or other proceeding, domestic or foreign, pending or, to the best of the Company's knowledge, threatened (or circumstances that may give rise to the same) against the Company which challenges the rights of the Company with respect to any trademarks, trade names, service marks, service names, copyrights, patents, patent applications, licenses, intellectual property of any kind or rights to the foregoing used in the conduct of its business.
(w) Except as disclosed in the Prospectus the Company owns and has adequate right to use to the best knowledge of the Company's management all trade secrets, patent, trademark, service mark, trade name, copyright ,"know-how" (including all other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, designs, processes, works of authorship, computer programs and technical data and information (collectively herein "intellectual property") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, free and clear of and without violating any right, lien or claim of others, including without limitation, former employers of its employees. The Company is not aware of any such development of similar or identical trade secrets or technical information by others the existence of which would cause a material adverse affect to the Company's business taken as a whole. The Company has valid and binding employment agreements with all of its officers (subject to the equitable powers of any court), which agreements have remaining terms of at least two years from the effective date of the Registration Statement except where the failure to have such agreements would not materially and adversely effect the Company's business taken as a whole.
(x) Malone & Bailey, PC, independent registered public accountants, whose independent auditor report was 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.
(y) The Company has agreed to cause to be duly executed, agreements pursuant to which each of the Company's officers, directors, consultants, and holders of more than 5% of the outstanding Common
Stock calculated as of the date immediately preceding the commencement of the public offering, and any person or entity deemed to be an affiliate of the Company pursuant to SEC Rules and Regulations, has agreed not to, directly or indirectly, sell, assign, transfer, or otherwise dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) for a period commencing on the effective date until after 180 days from the Final Closing date of the offering, unless the price of the Common Stock, adjusted for any splits, trades at 175% of the public offering price for 20 consecutive days. Any shares of common stock released from the foregoing restrictions will remain restricted Shares subject however to the resale provisions of Rule 144, insider trading rules, and insider reporting rules.
Shares issued upon the exercise of any options held by the Company's officers, directors or holders of 5% or more of the Company's Common Stock, shall be locked up in accordance with the terms of the preceding paragraph.
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 shares and to place "stop transfer" orders on the Company's stock ledgers. The Company president or CEO, and the Underwriter will have their signatures on the lock-up agreements. The Company also agrees that it will not release any shares subject to this Agreement without the signatures of all parties referred to.
(z) The Company shall cooperate with the Underwriter to effect such additional and further actions necessary to have the Shares approved for listing on NASDAQ or the Bulletin Board Exchange
(aa) Except as set forth in the Prospectus or disclosed in writing to the Underwriter (which writing specifically refers to this Section), no officer or director of the Company, holder of 5% or more of Shares of the Company or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (B) purchases from or sells or furnishes to the Company any goods or services, or (ii) a 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" or disclosed in writing to the Underwriter (which writing specifically refers to this Section)
there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company, and any officer, director, principal stockholder of the Company, or any partner, affiliate or associate of any of the foregoing persons or entities.
(bb) Any certificate signed by any officer of the Company, and delivered to the Underwriter or to the Underwriter's counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby.
(cc) Each of the minute books of the Company has been made available to the Underwriter and contains a complete summary of all meetings and actions of the directors and stockholders of the Company, since the time of its incorporation and reflect all transactions referred to in such minutes accurately in all respects.
(dd) Except as described or referenced in the Prospectus or disclosed in writing to the Underwriter (which writing specifically refers to this Section), no holders of any shares of the Company or of any options, warrants or other convertible or exchangeable securities of the Company have the right to include any shares issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the Company to file a registration statement under the Act and no person or entity holds any anti-dilution rights with respect to any shares of the Company. Except as disclosed in the Prospectus, all rights so described or disclosed have been waived or have not been triggered with respect to the transactions contemplated by this Agreement and the Underwriter's Common Stock Purchase Warrant (including the securities issuable thereunder).
(ee) The Company has not entered into any employment agreements with its executive officers, except as disclosed in the Prospectus.
(ff) 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 Registered Securities pursuant to the Prospectus and the Registration Statement, the issuance of the Underwriter's Common Stock Purchase Warrant, the performance of this 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 Shares, and the Underwriter's Common Stock Purchase Warrant, except such as have been or may be obtained under the Act, otherwise or may be required under state securities or "blue sky" laws in connection with the Underwriter's purchase and distribution of the Shares and the Underwriter's Common Stock Purchase Warrant to be sold by the Company hereunder or may be required by the Rules of the National Association of Shares Dealer, Inc. ("NASD").
(gg) 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 businesses 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 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.
(ii) Within the past five (5) years, none of the Company's independent public accountants has brought to the attention of the Company's management any "material weakness" as defined in the Statement of Auditing Standard No. 60 in any of the Company's internal controls.
(jj) Except as otherwise may be indicated herein or disclosed to the Underwriter in writing, from the date hereof to a date as of the post-effective date of the Registration Statement, the Company will not: (1) issue any securities or incur any liability or obligation direct or contingent, for borrowed money, or (2) enter into any material transactions not in the ordinary course of business, or (3) declare or pay any dividend on its stock.
4. Escrow Account.
(a) Notwithstanding anything contained herein to the contrary, unless the Underwriter shall sell 500,000 Shares, none of the Shares will be distributed to the public. The Underwriter agrees to open an appropriate interest-bearing Impound Account maintained at XXXXXXX Bank, NA, New York, New York for all monies received from the sale of these Shares. Such monies shall be deposited in full without any deductions for commissions and/or expenses. In the event that less than 500,000 Shares are sold and paid for within 180 days from the date the Underwriter commences the sale of said Shares, the proposed offering herein will be withdrawn and the sums paid will be returned in full to each such purchaser, plus interest, without deduction therefrom.
(b) Appropriate arrangements will be made by the Underwriter to provide for the receipt of funds from the subscribers of the Shares and to provide for the disposition thereof in accordance with the provisions of this Agreement.
(c) Unless the Underwriter shall have sold 500,000 Shares, it shall not be entitled to receive any commission (except accountable out-of-pocket expenses as stated hereinafter).
(d) The Underwriter shall comply in all respects with the requirements
of Rule 15c2-4 of the rules and regulations made by the Commission
under the Securities Exchange Act of 1934, as amended. The
Underwriter shall deposit, by 12:00 noon the following business day,
the proceeds of the sale of the offered Shares in an Escrow bank
account, as agent for the Company, and the same shall be held in
such bank account by the bank until the Initial Closing Date, and
upon such Initial Closing Date, the said funds (less the
commissions, expenses and fees due to the Underwriter) shall be
promptly transmitted to the Company, who shall at said time provide
such documents, certificates, receipts and any and all other papers
or instruments as counsel for the Underwriter may reasonably deem
necessary or appropriate under the circumstances. The Escrow shall
continue until the Final Closing Date, at which time said funds
(less the commissions, expenses and fees due to the Underwriter)
shall be promptly transmitted to the Company, who shall at said time
provide such documents, certificates, receipts and any and all other
papers or instruments as counsel for the Underwriter may reasonably
deem necessary or appropriate under the circumstances, and the
Escrow shall terminate.
5. Sale of the Shares - Selected Dealers
(a) In offering the Shares for sale, the Underwriter shall offer it solely as agent for the Company and such offer shall be made upon the terms and subject to the conditions set forth in the Registration Statement and Prospectus. The Underwriter shall commence making such offer as agent for the Company) after all conditions of this Agreement have been satisfied.
(b) The Underwriter may offer and sell the Shares for the Company's account through registered dealers selected by it, except that only members of the NASD may be included in the selling group pursuant to a form of Selling Agreement pursuant to which it may allow such concession (out of its underwriting commission) as it may determine, within the limits set forth in the Registration Statement and prospectus, but all such sales through selected dealers shall be made by the Company acting through the Underwriter as agent, and not by the Underwriter for its own account. All sales through selected dealers shall be as agents for the accounts of their customers, and the Underwriter shall not have authority to employ such dealers as agents for the Company.
(c) On each sale by the Underwriter of any of the Shares to selected dealers, the Underwriter shall require the selected dealer purchasing any such Shares to agree to reoffer the same on the terms and conditions of offering set forth in the prospectus and to comply with all Commission requirements that the Underwriter is required to comply with and not to offer or sell the offered Shares to the Public or to any broker/dealer not a member of the NASD, including foreign broker/dealer registered pursuant to the Securities Act of 1934, at a price of less than $0.40 per Share.
(d) With respect to residents of California, the Underwriter agrees that the subscription documents used to evidence the sale of any Shares to a California resident will specifically contain the following suitability standards: "I am a California resident and I have 1) a minimum net worth of at least $75,000 and minimum gross income of not less than $50,000 or 2) a liquid net worth of $150,000 in both instances exclusive of my home, home furnishings and automobile. My investment in these securities will not exceed ten percent (10%) of my net worth. In lieu of the foregoing, please consider me a "small investor" who, including the instant offering, has not purchased more than $2,500 worth of the Company's securities in the past twelve (12) months."
6. Covenants of the Company. The Company covenants and agrees with the Underwriter as follows:
(a) It will cooperate in all respects in making the Prospectus effective and will not at any time, whether before or after the effective date, file any amendment to or supplement to the Prospectus of which Underwriter shall not previously have been advised and furnished with a copy or to which Underwriter or Underwriter's counsel shall have reasonably objected or which is not in material compliance with the Act and the Rules and Regulations or applicable state law.
(i) As soon as the Company is advised thereof, the Company will advise Underwriter, and confirm the advice in writing, of the receipt of any comments of the Commission or any state securities department, when the Registration Statement 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, of the effectiveness of any post-effective amendment to the Registration Statement or Prospectus, or the filing of any supplement to the Prospectus or any amended Prospectus, of any request made by the Commission or any state securities department for amendment of the Prospectus or for supplementing of the Prospectus or for additional information with respect thereto, of the issuance of any stop order suspending the effectiveness of the Prospectus or any order preventing or suspending the use of any Prospectus or any order suspending trading in the Common Stock of the Company, or of the suspension of the qualification of the Shares, or of the institution of any proceedings for any such purposes, and will use its best efforts to prevent the issuance of any such order and, if issued, to obtain as soon as possible the lifting or dismissal thereof.
(ii) The Company will or has caused to be delivered to the Underwriter copies of such Prospectus, and the Company has consented and hereby consents to the use of such copies for the purposes permitted by law. The Company authorizes the
Underwriter and the dealers to use the Prospectus and such copies of the Prospectus in connection with the sale of the Shares for such period as in the opinion of Underwriter's counsel and the Company's counsel the use thereof is required to comply with the applicable provisions of the Act and the Rules and Regulations. The Company will prepare and file with the states, promptly upon the Underwriter's request, any such amendments or supplements to the Prospectus, and take any other action, as, in the opinion of Underwriter's counsel, may be necessary or advisable in connection with the initial sale of the Shares and will use its best efforts to cause the same to become effective as promptly as possible.
(iii) The Company shall file the Prospectus (in form and substance satisfactory to the Underwriter) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to Rule 424(b)(3) 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.
(iv) In case of the happening, at any time within such period as a Prospectus is required under the Act to be delivered in connection with the initial sale of the Shares of any event of which the Company has knowledge and which materially affects the Company, or the securities thereof, and which should be set forth in an amendment of or a supplement to the Prospectus in order to make the statements therein not then misleading, in light of the circumstances existing at the time the Prospectus is required under the Act to be delivered, or in case it shall be necessary to amend or supplement the Prospectus to comply with the Act, the Rules and Regulations or any other law, the Company will forthwith prepare and furnish to the Underwriter copies of such amended Prospectus or of such supplement to be attached to the Prospectus, in such quantities as Underwriter may reasonably request, in order that the Prospectus, as so amended or supplemented, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. The preparation and furnishing of any such amendment or supplement to the Prospectus or supplement to be attached to the Prospectus shall be without expense to the Underwriter.
(v) The Company will to the best of its ability, comply with the Act, the Exchange Act and applicable state securities laws so as to permit the initial offer and sales of the Shares, under the Act, the Rules and Regulations, and applicable state securities laws.
(b) It will cooperate to qualify the Shares for initial sale under the securities laws of such jurisdictions as designated by the Underwriter and the Company and listed on Exhibit A and will make such applications and furnish such information as may be required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or a dealer in securities. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualification in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Shares remain outstanding in the hands of the public, the Company, at its expense, will annually furnish to its shareholders a report of its operations to include financial statements audited by independent public accountants, and will furnish to the Underwriter as soon as practicable after the end of each fiscal year, a balance sheet of the Company as at the end of such fiscal year, together with statements of operations, shareholders' equity, and changes in cash flow of the Company for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent public accountants.
(d) It will deliver to the Underwriter at or before the Initial Closing Date three signed copies of the signature pages to the Registration Statement, as well as any amendments thereto. The Company will deliver to the Underwriter, from time to time until the effective date of the Prospectus, as many copies of the Prospectus and Registration Statement (including all financial statements and exhibits filed therewith, whether or not incorporated by reference ) as well as any amendments thereto as the Underwriter may reasonably request. The Company will deliver to the Underwriter on the effective date of the Prospectus and thereafter for so long as a Prospectus is required to be delivered under the Act and the Rules and Regulations as many copies of the Prospectus, in final form, or as thereafter amended or supplemented, as the Underwriter may from time to time reasonably request.
(e) The Company will apply the net proceeds from the sale of the Shares substantially in the manner set forth under "Use of Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly or indirectly, to acquire any securities issued by the Company, without the prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first (lst) day of the fifteenth (15th) full calendar month following the effective date of the Registration Statement, the Company will make available to its security holders and the Underwriter an earnings statement (which need not be audited) covering a period of at least twelve (12) consecutive months beginning after the effective date of the Registration Statement, which shall satisfy the requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations.
7. Conditions of Underwriter's Obligations. The Underwriter's obligation to act as agent of the Company hereunder and to find purchasers for the Shares and to make payment to the Company on the Initial and Final Closing Dates is subject to the accuracy of and compliance with the representations and warranties an the part of the Company herein as of the date hereof and as of the Initial and Final Closing Dates, to the performance by the Company of its obligations and covenants hereunder, to the accuracy of certificates of the Company and officers of the Company to be delivered pursuant to this Agreement, all as at the Final Closing Date, and to the following further conditions:
(a) The Registration Statement shall have become effective as and when cleared by the Commission, and the Underwriter shall have received notice thereof, on or prior to any closing date no stop order suspending the effectiveness of the Prospectus shall have been issued and no proceedings for that or similar purpose shall have been instituted or shall be pending, or, to your knowledge or to the knowledge of the Company, shall be contemplated by the Commission; any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriter; and qualification, under the securities laws of such states as the Underwriter may designate, of the issue and sale of the Securities upon the terms and conditions herein set forth or contemplated and containing no provision unacceptable to the Underwriter shall have been secured, and no stop order shall be in effect denying or suspending effectiveness of such qualification nor shall any stop order proceedings with respect thereto be instituted or pending or threatened under such law.
(b) On the Final Closing Date and, with respect to the letter referred to in subparagraph (iii), as of the date hereof, the Underwriter shall have received:
(i) the opinion, together with such number of signed or facsimile copies of such opinion as the Underwriter may reasonably request, addressed to the Underwriter by Eaton & Van Winkle LLP counsel for the Company, (who may rely on the opinion of other counsel for certain legal matters), in form and substance reasonably satisfactory to the Underwriter and Charles A. Cleveland, P.S., counsel to the Underwriter, dated each such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the jurisdiction in which it is incorporated and has all necessary corporate power and authority to carry on its business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which conducting its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company's business or assets.
(C) The Company has the full corporate power and authority to enter into this Agreement, the Underwriter's Common Stock Purchase Warrant and to consummate the transactions provided for therein and each such Agreement has been duly and validly authorized, executed and delivered by the Company. Each of this Agreement and the Underwriter's Common Stock Purchase Warrant, assuming due authorization, execution and delivery by each other party thereto, constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency or similar laws governing the rights of creditors and to general equitable principles, and provided that no opinion need be given as to the enforceability of any indemnification or contribution provisions, and to counsel's knowledge none of the Company's execution or delivery of this Agreement, or the Underwriter's Common Stock Purchase Warrant, 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 material breach or violation of any of the terms or provisions of, or constitutes or will constitute a material default under, or result in the creation or imposition of any material lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company pursuant to the terms of (A) the articles of incorporation or by-laws of the Company, (B) to the knowledge of such counsel, any material 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 (C) to the knowledge of such counsel, any statute, judgment, decree, order, rule or regulation applicable to the Company, whether domestic or foreign.
(D) The Company has authorized and outstanding capital stock as set forth in the Prospectus under the heading "Capitalization" as of the date set forth therein, and based on counsel's review of the Company's certificate of incorporation and bylaws, minutes, consents, and upon representations of the Company's officers, all of such issued and outstanding shares of capital stock have been duly and validly authorized and issued, and to the
knowledge of such counsel are fully paid and nonassessable, and to the knowledge of such counsel no stockholder of the Company is entitled to any preemptive rights to subscribe for, or purchase shares of the capital stock and to the knowledge of such counsel none of such securities were issued in violation of the preemptive rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, 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 Common Stock Purchase Warrant, and except as described in the Prospectus. The Shares, underlying Securities, and the Underwriter's Common Stock Purchase Warrant each conform in all material respects to the respective descriptions thereof contained in the Prospectus. The outstanding shares, shares of Common Stock and the Underwriter's Common Stock Purchase Warrant and the underlying securities, upon issuance and delivery and payment therefore in the manner described herein, the Underwriter's Warrant will be, duly authorized, validly issued, fully paid and nonassessable. Except as set forth in the Prospectus, there are no preemptive or other rights to subscribe for or to purchase, or any restrictions upon the voting or transfer of, any shares of Common Stock pursuant to the Company's articles of incorporation, by-laws, other governing documents or any agreement or other instrument known to such counsel to which the Company is a party or by which it is bound.
(F) The certificates representing the Shares are in due and proper form and the Underwriter's Common Stock Purchase Warrant has been duly authorized and reserved for issuance and to the extent the shares issuable upon the proper exercise of the Underwriter's Common Stock Purchase Warrant are issued and delivered in accordance with the respective terms of the Underwriter's Common Stock Purchase Warrant, such shares will be duly and validly issued, fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other legal proceedings pending or threatened against the Company in any court or before or by any governmental body which would materially affect the business of the Company or the financial condition of the Company as a whole, except as set forth in or contemplated by the Prospectus.
Based on oral and/or written advice from the staff of the Commission, the Registration Statement has become effective and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Prospectus is in effect and no proceedings for that purpose are pending before, or threatened by, federal or by a state securities administrator.
(H) To the knowledge of such counsel, there are no legal or governmental proceedings, actions, arbitrations, investigations, inquiries or the like pending or threatened against the Company of a character required to be disclosed in the Prospectus which have not been so disclosed, questioning the validity of the capital stock of the Company or this Agreement or the Underwriter's Common Stock Purchase Warrant or which might adversely affect the condition, financial or otherwise, or the prospects of the Company or which could materially adversely affect the Company's ability to perform any of its obligations under this Agreement, or the Underwriter's Common Stock Purchase Warrant.
(I) To such counsel's knowledge, there are no material agreements, contracts or other documents known to such counsel required by the Act to be described in the Registration Statement and the Prospectus not filed as exhibits to the Registration Statement and the Prospectus, and to such counsel's knowledge (A) 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 by Form SB-2.
(J) No consent, approval, order or authorization from any regulatory board, agency or instrumentality having jurisdiction over the Company, or its properties (other than registration under the Act or qualification under state or foreign securities law or approval by the NASD) is required for the valid authorization, issuance, sale and delivery of the Shares or the Underwriter's Common Stock Purchase Warrant.
(K) The statements in the Prospectus under "Risk Factors" "Description of the Securities," and "Shares Eligible For Future Sale" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects.
In addition, such counsel shall state that such counsel has participated in conferences with officials and other representatives of the Company, the Underwriter, Underwriters' Counsel and the independent certified public accountants of the Company, at which such conferences the contents of the Registration Statement and Prospectus and related matters were discussed, and although they have not certified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel which leads them to believe that, at the time the Registration Statement became effective and at all times subsequent thereto up to and on the Final Closing Date, the Registration Statement and any amendment or supplement, when such documents became effective or were filed with the Commission (other than the financial statements including the notes thereto and supporting schedules and other financial and statistical information derived therefrom, as to which such counsel need express no comment) 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, or up to and at the Final Closing Date , the Prospectus and any amendment or supplement thereto (other than the financial statements including the notes thereto and other financial and statistical information derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(L) As of the date of the opinion, with respect to common stock of the Company issuable upon exercise of the Underwriter's Common Stock Purchase Warrant (the "Warrant Securities") that have not theretofore been subject to an effective registration statement pursuant to Sections 8 or 9 of the Underwriter's Common Stock Purchase Warrant, the opinion will provide that to the extent Warrant Securities were acquired through the Net Issuance Exercise of the Underwriter's Common Stock Purchase Warrant as provided in Section 7(G.1) thereof without the payment of any cash, the holder's date of acquisition of such Warrant Securities will be the date of acquisition of the Underwriter's Common Stock
Purchase Warrant. The issuance of any opinion relating to the transferability of any Warrant Securities will be conditioned upon the Holder providing evidence satisfactory to such counsel of the proper acquisition and exercise of the Underwriter's Common Stock Purchase Warrant, the completion and filing of all forms or other documents required to comply with federal and state securities laws and the continued applicability of the current interpretation of Rule 144(d)(3)(ii) as expressed in items 4, 61 and 64 of the Division of Corporation Finance Manual of Publicly Available Telephone Interpretations. Such opinion will be issued in a professional and timely manner. Any costs or legal fees attendant to the opinion letters, shall be borne by the Company. Such opinion shall also cover such other matters incident to the transactions contemplated hereby and the offering Prospectus as the Underwriter or counsel to the Underwriter shall reasonably request. In rendering such opinion, to the extent deemed reasonable by them, such counsel may rely upon certificates of any officer of the Company or public officials as to matters of fact of which the maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the
Principal Financial or Accounting Officer of the Company dated
the Final Closing Date, to the effect that with regard to the
Company, each of the conditions set forth in Section 7 have
been satisfied; as well as a representation that the Company
will have caused to be issued at its sole cost and expense,
such opinion of Counsel for the Company, with respect to the
resale of the Underwriter's Common Stock Purchase Warrant
and/or underlying securities, including any opinions under
Rule 144 (if applicable), as well as assurance that there were
no significant deficiencies or material weaknesses in the
Company's Internal Controls (as set forth under Section 404 of
the Sarbanes-Oxley Act of 2002). Such opinion shall be subject
to all the conditions and limitations specified in Section
7(b)(i))L) above and shall specifically represent that the
Underwriter's date of acquisition or beneficial ownership date
of the underlying securities shall be the date of acquisition
of the Common Stock Purchase Warrant. Upon the demand of the
Underwriter, the Company will register the Common Stock
Purchase Warrant and the underlying securities to be obtained
upon payment of the Exercise Price. The Company represents and
warrants, it will not hinder, delay or impede in any fashion,
the assignment and/or exercise of the Underwriter's Common
Stock Purchase Warrant, the issuance of any underlying
securities, and/or the resale of such underlying securities.
To effect such transaction, the Company shall cause to be
issued any legal opinions within seven (7) days demand by the
Underwriter.
(iii) a letter, addressed to the Underwriter and in form and substance satisfactory to the Underwriter in all respects (including the nonmaterial nature of the changes or decreases, if any, referred to in clause (D) below), from Malone & Bailey, PC, independent registered public accountants, dated, respectively, as of the effective date of the Registration
Statement and as of the Final Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to the Company and its consolidated subsidiaries, if any, within the meaning of the Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes and schedules of the Company and its consolidated subsidiaries, if any, included in the Registration Statement examined by them comply as to form in all material respects with the applicable accounting requirements of the Act and the published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from September 26, 2005 to a specified date (the "specified date") not earlier than five (5) business days prior to the date of such letter, they have read the minutes of meetings of the stockholders and board of directors (and various committees thereof) of the Company and its consolidated subsidiaries, if any, for the period from September 26, 2005 through the specified date, and made inquiries of officers of the Company and its consolidated subsidiaries, if any, responsible for financial and accounting matters and, especially as to whether there was any decrease in sales, income before extraordinary items or net income as compared with the corresponding period in the preceding year; or any change in the capital stock of the Company or any change in the long term debt or any increase in the short-term bank borrowings or any decrease in net current assets or net assets of the Company or of any of its consolidated subsidiaries, if any, and further stating that while such procedures and inquiries do not constitute an examination made in accordance with generally accepted auditing standards, nothing came to their attention which caused them to believe that during the period from September 26, 2005, through the specified date there were any decreases as compared with the corresponding period in the preceding year in sales, income before extraordinary items or net income; or any change in the capital stock of the Company or consolidated subsidiary, if any, or any change in the long term debt or any increase in the short-term bank borrowings (other than any increase in short-term bank borrowings in the ordinary course of business) of the Company or any consolidated subsidiary, if any, or any decrease in the net current assets or net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures (specifically set forth in such letter or letters) as specified by the Underwriter (after consultations with Malone & Bailey, PC, independent registered public accountants relating to such procedures), not constituting an audit, with respect to certain tables, statistics and other financial data in the Prospectus specified by the Underwriter and such financial data not included in the Prospectus but from which information in the Prospectus is derived, and which have been obtained from the general accounting records of the Company or consolidated subsidiaries, if any, or from such accounting records by analysis or computation, and having compared such financial data with the accounting records of the Company or the consolidated subsidiaries, if any, stating that they have found such financial data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this Agreement, the Prospectus and other related matters shall be satisfactory to or approved by counsel to the Underwriter and the Underwriter shall have received from Eaton & Van Winkle LLP a signed opinion dated as of each closing date, with respect to the incorporation of the Company, the validity of the Shares, the form of the Prospectus, (other than the financial statements together with related notes and other financial and statistical data contained in the Prospectus or omitted therefrom, as to which such counsel need express no opinion), the execution of this Agreement and other related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects with the same effect as if made on and as of such closing date; (ii) the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations and in all material respects conform to the requirements thereof, and neither the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary, in light of the circumstances under which they were made, in order to make the statements therein not misleading; (iii) there shall have been since the respective dates as of which information is given no material adverse change in the business, properties or condition (financial or otherwise), results of operations, capital stock, long term debt or general affairs of the Company from that set forth in the Prospectus, except changes which the Prospectus indicates might
occur after the effective date of the Prospectus, and the Company shall not have incurred any material liabilities or material obligations, direct or contingent, or entered into any material transaction, contract or agreement not in the ordinary course of business other than as referred to in the Prospectus and which would be required to be set forth in the Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or proceeding at law or in equity shall be pending or threatened against the Company which would be required to be set forth in the Prospectus, and no proceedings shall be pending or threatened against the Company or any subsidiary before or by any commission, board or administrative agency in the United States or elsewhere, wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, condition (financial or otherwise), results of operations or general affairs of the Company.
(e) On the Final Closing Date, the Company shall have executed and delivered to the Underwriter, (i) the Underwriter's Common Stock Purchase Warrant substantially in the form filed as an Exhibit to the Registration Statement in final form and substance satisfactory to the Underwriter, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company.
(f) On or before Final Closing Date, the Shares shall have been duly approved for listing on an exchange or on the OTC-Electronic Bulletin Board Exchange.
On or before the Final Closing Date, there shall have been delivered to the Underwriter all of the Lock-up Agreements required to be delivered pursuant to Section 3(y), in form and substance satisfactory to the Underwriter and Underwriter's counsel.
(h) The Underwriter shall have received, on the Closing Date, a certificate dated as of the Closing Date, signed by the President, Treasurer and Secretary of the company, certifying that: (i) no order suspending the effectiveness of the Registration Statement of the sale of the Shares is in effect and no proceedings for such purpose are pending or are, to their knowledge, threatened by the Commission; (ii) they do not know of any litigation, instituted or threatened, against the Company of a character required to be disclosed in the Registration Statement which are not disclosed therein; they do not know of any contracts which are required to be summarized in the prospectus which are not so summarized; and they do not know of any material contacts required to be summarized in the prospectus which are not so summarized; and they do not know of any material contracts required to be filed as exhibits to the Registration which are not so filed; (iii) they have each carefully examined the Registration Statement and the prospectus and, to the best of their knowledge, neither the Registration Statement or the prospectus, nor any amendment or supplement to either of the foregoing, contains any untrue statement of any material fact or
omits to state any material fact required to be set forth in an
amended or supplemented prospectus which has not been so set forth:
(iv) the Shares have been registered and qualified for sale in all
states required by the Underwriter and as listed on Exhibit A; (v)
since the respective dates as of which information is given in the
Registration Statement and the prospectus, there has not been any
material adverse change in the condition of the Company, financial
or otherwise, or in the results of its operation except as reflected
in or contemplated by the Registration Statement and the prospectus
and, except as so reflected or contemplated since such date, there
has not been any material transaction entered into by the Company;
(vi) the representations and warranties set forth in this Agreement
are true and correct and the Company has complied with all of its
agreements herein contained; (vii) the Company is not delinquent in
the filing of any federal ,state, county, and/or municipal taxes;
they know of no proposed redetermination or reassessment of taxes
adverse to the Company; and the Company has paid or provided by
adequate reserves, for all known tax liabilities; (viii) they know
of no material obligation or liability of the Company, contingent or
otherwise, not disclosed in the Registration Statement and
prospectus; (ix) this Agreement, the consummation of the transaction
herein contemplated, and the fulfillment of the terms hereof, will
not result in the breach by the Company of any terms or, or
constitute a default under its Certificate of Incorporation or
By-Laws, any indenture, mortgage, lease, deed of trust, bank loan,
line of credit, or credit agreement or instrument to which the
Company is now a party or pursuant to which the Company has acquired
any right and/or obligations by succession or otherwise; and any
existing agreement substantially affecting the Company in any way
has been filed as an exhibit to the Registration Statement; (x) the
financial statements and schedules filed with and as part of the
Registration Statement present fairly the financial position of the
Company as of the dates thereof, all in conformity with generally
accepted accounting principles of accounting applied on a consistent
basis throughout the period involved. Since the respective dates of
such financial statements, there has been no material adverse change
in the condition or general affairs of the Company financial or
otherwise, other than as referred to in the prospectus; and (xi)
subsequent to the respective dates as of which the information is
given in the Registration Statement and the prospectus, except as
may otherwise be indicated therein, the Company has not, prior to
the closing date, either (A) issued any securities or incurred any
liability or obligation, direct or indirect, contingent or otherwise
for borrowed money, or (B) entered into any material transaction
other than in the ordinary course of business. The Company has not
declared, paid, or made any dividend or distribution of any kind on
its capital stock.
(i) Upon registration of the Company under the Securities Exchange Act of 1934, the Company will comply with all relevant and applicable provisions of Sarbanes-Oxley Act of 2002 ("SOA"), as well as related SEC releases, including but not limited to: (I) pension plan "blackout periods" for the purchase and/or sale of securities; (II) Management's assessment of internal controls (AICPA, Auditing Standard 319), as required by section 404 of SOA; (III) designating
a "financial expert" for the Company's Audit Committee, as is understood under section 407 of SOA; and, (IV) adoption of a Code of Ethics for Financial Officers, as set forth under section 406 of SOA. The Company agrees to furnish Underwriter copies of all Audit Committee reports for a period not to exceed three years from the Final Closing Date of the Offering.
If any condition to the Underwriter's obligations hereunder to be fulfilled prior to or at the Final Closing Date are 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.
8. Indemnification.
(a) The Company, its Board of Directors, will indemnify and hold
harmless the Underwriter, and each person who controls the
Underwriter or is affiliated with the Underwriter within the meaning
of the Securities and Exchange Act of 1933 ("Act") and the
Securities Exchange Act of 1934 ("Act") (including officers,
directors, employees, controlling persons, affiliates, consultants,
professional advisors, accountants, attorneys, or agents, of the
Underwriter or any broker, underwriter, select dealer/selling agent
connected with this offering of Shares), from and against any and
all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject under the
Act or under any other statutes or at common law or otherwise; and
will reimburse and indemnify the Underwriter and each such
person/entity specified above for any legal or other expenses
[including the cost of any investigation and preparation] reasonably
incurred by them or any of them in connection with investigating or
defending any litigation or claim, whether or not resulting in any
liability insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement, any post-effective amendment thereto,
any Blue Sky application, the prospectus as the case may be, or any
untrue statement or alleged untrue statement of a material fact
contained in the Prospectus or preliminary prospectus (as amended or
as supplemented thereof) or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; or any negligent
misrepresentation of any officer, director, agent, consultant,
accountant, attorney or employee of the Company; or any failure to
perform any of the terms or conditions of this Agreement incident to
any of the foregoing, or arising out of any act or occurrence
related to or connected to this offering of Shares. The defense of
such action shall be conducted by counsel of recognized standing and
reasonably satisfactory to the Underwriter or such other person
agreed to be indemnified by the Company. The Underwriter, each
controlling person of the Underwriter, or an affiliate thereof,
agree after their receipt of written notice of the commencement of
any action against them as aforesaid, in respect of which indemnity
may be sought from the Company, its Directors on account of the
indemnity agreement contained in the subsection, to notify the Company promptly in writing of the commencement thereof. The Company agrees to notify the Underwriter promptly of the commencement of any litigation or proceeding against it or against any of the officers or directors of the Company of which it may be advised, in connection with the issue, offer, and/or sale of any of its securities.
(b) The Underwriter, will indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who shall have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities and Exchange Act of 1933 ("Act") and the Securities Exchange Act of 1934 ("Act"), from and against any and all losses, claims, damages, expenses or liabilities, joint or several, to which they or any of them may become subject under the Act or under any other statutes or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and such directors or controlling person identified above for any legal or other expenses [including the cost of any investigation and preparation] reasonably incurred by them or any of them in connection with investigating or defending any litigation or claims, whether or not resulting in any liability, only insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any post-effective amendment thereto, any Blue Sky application, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, all as of the date when the Registration Statement or such post-effective amendment, or the date the filing of any such Blue Sky application, as the case may be, becomes effective, or any untrue statement of alleged untrue statement of a material fact contained in the Preliminary prospectus or the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendments thereof or supplements thereto), or the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, not misleading, or any negligent misrepresentation of any officer, director, agent, consultant, accountant, attorney or employee of the Underwriter, but only if insofar as such statement or omission was made in reliance upon information furnished in writing to the Company by the Underwriter specifically for use in connection with the preparation of the Registration Statement, the preliminary prospectus or the Prospectus, or any such amendment thereafter supplement hereto or Blue Sky application. The Underwriter shall not be liable for amounts paid in settlement of any such litigation, if such settlement was affected without the Underwriter and its Counsel's consent. In case of the commencement of any action in respect of which indemnity may be sought from the Underwriter on account of its indemnity agreement contained in this subsection the Company, and each person to be indemnified by the Underwriter herein, shall have the same obligation to notify such Underwriter and the underwriter
shall have the same right to participate in (and, to the extent that it shall desire, to direct) as set forth in subsection (a) above, the defense of such action at its own expense but such defense shall be conducted by counsel of recognized standing and reasonably satisfactory to the Company or such other person agreed to be indemnified by the Underwriter, The Underwriter agrees to notify the Company promptly of the commencement of any such litigation or proceeding against it or against any such controlling person of which it may be advised in connection with the offer, and/or sale of any of securities of the Company.
9. Termination. This Agreement may be terminated:
(a) in the event the Shares are not sold as provided in Paragraphs 2 and 5, at any time prior to the Closing Date by the Underwriter by written notice to the Company if, in the sole discretion of the Underwriter, it is impracticable to offer for sale, the Shares by reason of (i) the Company having sustained a material loss, whether or not insured, by reason of fire, flood, accident, loan foreclosure, borrowings, litigation, or other calamity, which in the opinion of the Underwriter substantially affects the value of the property of the Company or materially interferes with the operation of the business of the Company, (ii) trading in securities on the New York Stock Exchange, Inc. or the American Stock Exchange, Inc. or the National Association of Securities Dealers Automated Quotation System, the Over-the-Counter Bulletin Board, or the over-the-counter market, having been suspended or limited or minimum prices having been established on such Exchange or NASDAQ or Bulletin Board; (iii) a banking moratorium having been declared by either federal or state authorities; (iv) an outbreak of major hostilities or other national or international calamity having occurred; (v) any action having taken by any government in respect of its monetary affairs which, in the opinion of the Underwriter, has a material adverse effect on the securities markets of the United States; (vi) the Underwriter believes no favorable public market exists for the sale of Shares, or (vii) misstatement, misrepresentations of the Company; (viii) failure by the Company to perform any act required by this Agreement; (ix) or the Shares are not listed on NASDAQ or the Electronic OTC Bulletin Board or the Over-the-Counter Bulletin Board Exchange.
If this Agreement shall be terminated pursuant to paragraph 7 or this
paragraph 9, or if the purchase provided for herein is not consummated
because any conditions to the Underwriter's obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company shall be
unable to perform all of its obligations under this Agreement, the Company
shall not be liable to the Underwriter for damages on account of loss of
anticipated profits arising out of the transactions covered by this
Agreement, but the Company shall remain liable to the extent provided in
paragraphs 6,7, and 8 herein. Where termination occurs pursuant to clauses
(i) through (ix) of this paragraph, the Company will pay all accountable
out-of-pocket expenses not to exceed $XXXXX incurred by the Underwriter in
contemplation of the performance by it of its obligations hereunder,
including fees and disbursements of counsel for the Underwriter, and printing and traveling expenses of the Underwriter, "due diligence investigation" costs of the Underwriter, and any and all other expenses incurred by the Underwriter in connection with its preparation of the proposed public offering of Shares herein. Any notice under this paragraph 9 may be given by telephone, telefacsimile transmission, electronic or digital format but shall be subsequently confirmed by letter.
10. Miscellaneous.
(a) The Company and the Underwriter know of no claims for services in the nature of a finder's fee or origination fee with respect to this financing resulting from the respective acts of their officers, directors, or employees, for which the Underwriter and/or Company may be responsible except as disclosed in the prospectus, and agree to indemnify and hold each other harmless from any claims for any services of such nature arising from any act of the Underwriter and the Company and their officers, directors, and employees, unless otherwise disclosed herein.
(b) The Underwriter represents and warrants that it is registered as a broker/dealer pursuant to the provisions of the Securities and Exchange Act of 1934 ,is a member in good standing of the National Association of Securities Dealers, Inc., and is duly registered as a broker/dealer in each state listed on Exhibit A.
(c) The Underwriter covenants and agrees to conduct the offering in a manner intended to be in compliance with the requirements of the Act and the Securities and Exchange Act of 1934 and the Rules and Regulations thereunder and to provide each offeree with a copy of the Prospectus during the course of the offering and prior to sale obtain acknowledgement or receipt of the Prospectus.
(I) The Underwriter covenants and agrees to conduct the offering in compliance with the requirements of that this offering will be conducted in compliance with Exchange Act Rule 10b-9.
(d) The Company agrees that immediately upon request of the Underwriter, it will give instructions to its transfer agent to issue the Shares in the names and denominations submitted to it by the Underwriter at its own expense. The Underwriter agrees, when funds in sufficient amount as required by this Agreement are in liquid form, to submit within 5 days thereafter, to the transfer Agent, a list of the names and addresses of the subscribers and the dominations of the certificates to be issued by them. The Transfer Agent shall be required by the Company to issue said certificates within 5 days after receipt of the aforesaid list from the Underwriter and the delivery of the certificates shall be made to the Underwriter within 5 days thereafter against receipt of payment as provided in this Agreement. Further, the Company agrees to pay all expenses for and
in connection with the preparation and issuance of the stock certificates. The Company agrees that immediately upon the exercise of the Underwriter's Common Stock Purchase Warrant and the request of the Holder, it will give instructions to its transfer agent to issue the Common Stock underlying the Warrant and the Company will pay all expenses for and in connection with the preparation and issuance of common stock certificates.
11. Survival of Representations, Warranties and Agreements. The respective indemnities, agreements, representations, warranties, and other statements of the Company or the Underwriter or their respective officers, and directors as set forth in or made pursuant to this Agreement and the indemnity Agreements of the Company and the Underwriter contained herein, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Company or the Underwriter or any controlling person and/or affiliate thereof, and will survive termination of this Agreement and the delivery of any payment for the Shares and the Closing Date.
12. Benefits. This Agreement has been made solely for the benefit of and shall be binding upon the Underwriter, the Company, and the extent expressed, any person controlling the Company or the Underwriter and the officers, directors of the Company, and their respective legal representative, successors and assigns, all as and to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "legal representatives, successors, and assigns" shall not include any purchaser of any of the Shares from the Underwriter merely because of such purchase.
13. Washington Law/Arbitration. Any controversy arising out of, connected to, or relating to any matters herein of the transactions between the Company or the Underwriter (including for purposes of arbitration, officers, directors, employees, controlling persons, affiliates, consultants, professional advisors, accountants, attorneys, or agents, of the Underwriter or Company, or any broker, underwriter, select dealer, selling agent of the offering of Shares herein), on behalf of the undersigned, or this Agreement, or the breach thereof, including, but not limited to any claims of violations of Federal and/or State Securities Acts, Banking Statutes, Consumer Protection Statutes, Federal and/or State anti-Racketeering (e.g. RICO) claims as well as any common law claims and any State Law claims of fraud, negligence, negligent misrepresentations, and/ar conversion shall be settled by arbitration; and in accordance with this paragraph and judgment on the arbitrator's award may be entered in any court having jurisdiction thereof in accordance with the provisions of Revised Code of Washington, Chapter 7.04. In the event of such a dispute, each party to the conflict shall select an arbitrator, both of whom shall select a third arbitrator, which shall constitute the three person arbitration board. The decision of a majority of the board of arbitrators, who shall render their decision within thirty (30) days of appointment of the final arbitrator, shall be binding upon the parties. Venue shall lie in the County of Spokane, Spokane, Washington. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington.
14. Notices. All notices or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail postage prepaid, addressed as follows:
If to the Company, its officers, directors, or shareholders to:
Richard M. Cohen, Chief Executive Officer
Newtown Lane Marketing, Incorporated
33 Newtown Lane
East Hampton, New York 11937
and to:
Vincent J. McGill, Esq.
Eaton & Van Winkle LLP
3 Park Avenue, 16th Floor
New York, NY 10016
If to the Underwriter to:
William F. Ross
300 North Argonne Road
Suite 202
Spokane, Washington 99212
and to:
Charles A. Cleveland
Suite 304/ Rock Pointe Center
North 1212 Washington
Spokane, Washington 99201-2401
15. Waiver. By it's signature below, the Company agrees to immediately provide to the Underwriter and its counsel, copies of any disclosures, communications, or correspondence, by its Counsel or auditors for the Company alleging any untrue statements of a material fact contained in the Registration Statement, any post-effective amendment thereto, any Blue Sky application, the Prospectus, or any filings with any State "Blue Sky" agency or the U.S. Securities and Exchange Commission as the case may be, or any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or preliminary prospectus (as amended or as supplemented thereof) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading; or any negligent misrepresentations, or potential material violations of accounting standards or State or Federal corporate governance provisions. If the Sarbanes-Oxley Act and attendant releases are applicable to the Company, it agrees to furnish you with copies of any information supplied by an attorney pursuant to sections 307(1) or 307(2)
of SOA, as well as authorizing the release of any audit committee information.
16. Compliance With Miscellaneous Regulations. By it's signature below, to the extent applicable to its business, the Company represents and warrants that it has established appropriate and applicable programs, practices, and guidelines in compliance with rules and regulations of the Office of Foreign Assets Control, United States Treasury Department, including prohibition against trading with certain identified terrorist organizations.
If the foregoing correctly states and sets forth in full the agreement between us, please indicate by signing this letter in the space provided below for that purpose. The within Agreement may executed simultaneously in two or more counterparts, each of which shall be deemed the original, but all of which together shall constitute one and the some instrument and shall be valid and binding between us,
Yours Truly,
NEWTOWN LANE MARKETING, INCORPORATED
AGREED AND ACCEPTED:
PUBLIC SECURITIES, INC.
EXHIBIT A
EXHIBIT B
Form of Warrant
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEWTOWN LANE MARKETING, INCORPORATED
* * * * * *
I, Richard M. Cohen, Chief Executive Officer of Newtown Lane Marketing, Incorporated, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, do hereby certify that the Certificate of Incorporation of Gales Industries Incorporated, originally filed with the Secretary of State of the State of Delaware on September 26, 2005, has been amended, and restated as amended, and such restatement has been approved in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and, as restated, the Certificate of Incorporation of Newtown Lane Marketing, Incorporated is set forth in its entirety as follows:
FIRST. The name of the corporation is Newtown Lane Marketing, Incorporated (the "Corporation").
SECOND. The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.
THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH. A. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 30,000,000 shares, consisting of 29,000,000 shares of Common Stock with a par value of $.001 per share (the "Common Stock") and 1,000,000 shares of Preferred Stock with a par value of $.001 per share (the "Preferred Stock").
B. PREFFERED STOCK
The Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Corporation's Board of Directors may determine. Each series of Preferred Stock shall be so designated as to distinguish the shares thereof from the shares of all other series and classes.
The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more series, each with such designations, preferences, voting powers (or no voting powers), relative, participating, optional or other special rights and privileges and such qualifications, limitations or restrictions thereof as shall be stated in the resolution or resolutions adopted by the Board of Directors to create such
series, and a certificate of said resolution or resolutions shall be filed in accordance with the General Corporation Law of the State of Delaware. The authority of the Board of Directors with respect to each such series shall include, without limitation of the foregoing, the right to provide that the shares of each such series may: (i) have such distinctive designation and consist of such number of shares; (ii) be subject to redemption at such time or times and at such price or prices; (iii) be entitled to the benefit of a retirement or sinking fund for the redemption of such series on such terms and in such amounts; (iv) be entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series of stock; (v) be entitled to such rights upon the voluntary or involuntary liquidation, dissolution or winding up of the affairs, or upon any distribution of the assets of the Corporation in preference to, or in such relation to, any other class or classes or any other series of stock; (vi) be convertible into, or exchangeable for, shares of any other class or classes or any other series of stock at such price or prices or at such rates of exchange and with such adjustments, if any; (vii) be entitled to the benefit of such conditions, limitations or restrictions, if any, on the creation of indebtedness, the issuance of additional shares of such series or shares of any other series of Preferred Stock, the amendment of this Certification of Incorporation or the Corporation's By-Laws, the payment of dividends or the making of other distributions on, or the purchase, redemption or other acquisition by the Corporation of, any other class or classes or series of stock, or any other corporate action; or (viii) be entitled to such other preferences, powers, qualifications, rights and privileges, all as the Board of Directors may deem advisable and as are not inconsistent with law and the provisions of this Certificate of Incorporation.
C. COMMON STOCK
1. Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the Corporation for the election of directors and on all matters submitted to a vote of stockholders of the Corporation.
3. Dividends. Subject to the preferential rights of the Preferred Stock, if any, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock.
4. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, holders of Common Stock shall be entitled, unless otherwise provided by law or this Certificate of Incorporation, to receive all of the remaining assets of the Corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.
FIFTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation.
B. Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or without the State of Delaware as the By-Laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation.
SIXTH. 1. Elimination of Personal Liability. The Corporation eliminates
the personal liability of each member of its Board of Directors to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that, to the extent provided by
applicable law, the foregoing shall not eliminate the liability of a director
(i) for any breach of such director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code or (iv) for any transaction from which such
director derived an improper personal benefit.
If the Delaware General Corporation Law is amended in the future to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended from time to time.
Any repeal or modification of this Article SIXTH shall not increase the personal liability of any director of this Corporation for any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
2. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith. Such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that except
as provided in paragraph (b) hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law so requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise (hereinafter
an "undertaking").
(b) Right of Indemnitee to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met the applicable standard of conduct set forth in the Delaware General Corporation Law, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met the applicable standard of conduct set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or to such advancement of expenses under this Section or otherwise shall be on the Corporation.
(c) Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this Certificate of Incorporation, By-Law, contract or agreement, vote of stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
(e) Indemnification of Employees or Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any agent of the Corporation to the fullest extent of the provisions of this
Section with respect to the indemnification and advancement of expenses of
directors, and officers of the Corporation.
SEVENTH. The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation.
EIGHTH. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer this 24th day of February, 2006.
NEWTOWN LANE MARKETING, INCORPORATED
By: /s/ Richard M. Cohen
--------------------------------
Richard M. Cohen,
Chief Executive Officer
|
EXHIBIT 3.2
BYLAWS
OF
NEWTOWN LANE MARKETING, INCORPORATED
(a Delaware corporation)
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office of Newtown Lane Marketing, Incorporated (the "Corporation") in the State of Delaware shall be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, Delaware 19808. The name of the Corporation's registered agent at such address shall be Corporation Service Company. The registered office and/or registered agent of the Corporation may be changed from time to time by action of the Board of Directors.
SECTION 1.02. Other Offices. The Corporation may also have an office or offices at such other place or places either within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.01. Place of Meetings. All meetings of the shareholders of the Corporation shall be held at the principal office of the Corporation or at such other place, within or without the State of Delaware, as shall be fixed by the Board of Directors and specified in the respective notices or waivers of notice of said meetings.
SECTION 2.02. Annual meetings. The annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly come before such meeting, shall be held at the time and place designated by the Board of Directors of the Corporation.
SECTION 2.03. Special Meetings. A special meeting of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the President, by order of the Board of Directors or by a shareholder or shareholders holding of record at least twenty percent (20%) of the voting power of the outstanding shares of the Corporation entitled to vote at such meeting.
SECTION 2.04. Notice of Meetings. Notice of each meeting of the shareholders shall be given to each shareholder of record entitled to vote at such meeting at least ten (10) days but not more than sixty (60) days before the day on which the meeting is to be held. Such notice shall be given by telephone, telegraph, teletype or other form of electronic communication or by delivering a written or printed notice thereof personally or by mail. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at the address of such shareholder as it appears upon the stock record books of the Corporation, or at such other address as such shareholder shall have provided to the Corporation for such purpose. No publication of any notice of a meeting of shareholders shall be required. Every such notice shall state the time and place of the meeting, and,
in case of a special meeting, shall state the purpose or purposes thereof. Notice of any meeting of shareholders shall not be required to be given to any shareholder who shall attend such meeting in person or by proxy or who shall waive notice thereof in the manner hereinafter provided. Notice of any adjourned meeting of the shareholders shall not be required to be given.
SECTION 2.05. Quorum. At each meeting of the shareholders, a majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the shares so represented at such meeting, or, in the absence of all the shareholders entitled to vote, any officer entitled to preside or to act as secretary at such meeting, may adjourn the meeting from time to time without further notice. At any such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The absence from any meeting of shareholders holding a sufficient number of shares required for action on any given matter shall not prevent action at such meeting upon any other matter or matters which properly come before the meeting, if shareholders holding a sufficient number of shares required for action on such other matter or matters shall be present. The shareholders present or represented at any duty organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.
SECTION 2.06 Voting. Each shareholder of the Corporation shall, whether the voting is by one or more classes voting separately or by two or more classes voting as one class, be entitled to one vote in person or by proxy for each share of the Corporation registered in the name of such shareholder on the books of the Corporation. The Corporation shall not vote directly or indirectly any shares held in its own name. Any vote of shares may be given by the shareholder entitled to vote such shares in person or by proxy appointed by an instrument in writing. At all meetings of the shareholders at which a quorum is present, all matters (except where other provision is made law or by these Bylaws) shall be decided by the affirmative vote of holders of a majority of the shares present in person or represented by proxy and entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The property, affairs and business of the Corporation shall be managed by the Board of Directors, and the Board shall have, and may exercise, all of the powers of the Corporation, except such as are conferred by these Bylaws upon the shareholders.
SECTION 3.02. Number, Qualifications and Term of Office. The number of directors to constitute the Board of Directors shall be such number, not less than one (1) nor more than nine (9), as shall be fixed from time to time by the shareholders at any annual meeting or at any special meeting called for the purpose; provided, however, that between such meetings of shareholders the number so fixed may at any time be increased or decreased, subject to the above-specified limits, by the affirmative vote of a majority of the Board of Directors. Directors shall be elected by the shareholders at each annual meeting of shareholders, or at any special meeting held in place thereof, except as provided in this Article. Each director shall hold office until the next annual election of directors and until his successor shall have been duly elected and qualified, or until the death, resignation or removal of such directors in the manner herein provided. No director need be a shareholder.
SECTION 3.03. Election of Directors. Subject to any provisions in the Certificate of Incorporation providing for cumulative voting, at each meeting of the shareholders for the election of directors at which a quorum is present, the persons receiving the greatest number of votes shall be the directors, and each shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, for as many nominees as the number of directors fixed as constituting the Board of Directors and to cast for each such nominee as many votes as the number of shares which such shareholder is entitled to vote, without the right to cumulate such votes.
SECTION 3.04 Quorum and Manner of Acting. A majority of the total number of directors at the time in office shall constitute a quorum for the transaction of business at any meeting and, except as otherwise provided by these Bylaws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time without further notice until a quorum be had. The directors shall act only as a Board, and the individual directors shall have no power as such.
SECTION 3.05. Place of Meetings. The Board of Directors may hold its meetings at any place within or without the State of Delaware as it may from time to time determine or shall be specified or fixed in the respective notices or waivers of notice thereof.
SECTION 3.06. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual election of directors on the same day and at the same place at which such election of directors was held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors.
SECTION 3.07. Regular Meetings. Regular meetings of the Board of Directors shall be held at such places and at such times as the Board shall from time to time by vote determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given.
SECTION 3.08. Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the President or by not less than twenty-five percent (25%) of the members of the Board of Directors. Notice of each such meeting shall be given by, or at the order of, the Secretary or the person calling the meeting to each director by telephone or by mailing the same addressed to the director's residence or usual place of business, or personally by delivery or by telegraph, cable or telephone, at least two (2) days before the day on which the meeting is to be held. Every such notice shall describe, if by telephone notice, or if in writing, state the time and place of the meeting but need not state the purpose thereof except as otherwise in these Bylaws expressly provided.
SECTION 3.09. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
SECTION 3.10. Telephone Meetings. Meetings of the Board of Directors, regular or special, may be held by means of a telephone conference circuit and connection to such circuit shall constitute presence at such meeting.
SECTION 3.11. Removal of Directors. Any director may be removed, either with or without cause, at any time, by the affirmative vote of the holders of record of a majority of the issued and outstanding shares entitled to vote for the election of directors of the Corporation given at a special meeting of the shareholders called and held for the purpose.
SECTION 3.12. Resignation. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board or to the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.13. Vacancies. Subject to any provisions of the Certificate of Incorporation providing for cumulative voting, any vacancy in the Board of Directors caused by death, resignation, removal, disqualification, an increase in the number of directors, or any other cause, may be filled by a majority vote of the remaining directors then in office, though less than a quorum, at any regular meeting or special meeting, including the meeting at which any such vacancy may arise, or by the shareholders of the Corporation at the meeting at which any such vacancy may arise or the next annual meeting or any special meeting, and each director so elected shall hold office until the next annual election of directors, and until a successor shall have been duly elected and qualified, or until the death or resignation or removal of such director in the manner herein provided.
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 4.01. Appointment. The Board of Directors may designate two or more of its members to constitute an Executive Committee. The designation of such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law.
SECTION 4.02. Authority. The Executive Committee, when the Board of Directors is not in session, shall have and may exercise all of the authority of the Board of Directors except to the extent, if any, that such authority shall be limited by the resolution appointing the Executive Committee and except also that the Executive Committee shall not have the authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting a plan of merger or consolidation, recommending to the shareholders the sale, lease or other disposition of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, increasing the number of directors constituting the Board of Directors, filling any vacancies on the Board of Directors, removing or electing any officer of the Corporation or amending the Bylaws of the Corporation.
SECTION 4.03. Tenure and Qualifications. Each member of the Executive Committee shall hold office until the next regular annual meeting of the Board of Directors following designation and until a successor is designated as a member of the Executive Committee and is elected and qualified or until the death or resignation or removal of such member in the manner herein provided.
SECTION 4.04. Meetings. Regular meetings of the Executive Committee may be held without notice at such times and places as the Executive Committee may fix from time to time by resolution. Special meetings of the Executive Committee may be called by any member thereof upon not less than two (2) days' notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to the member of the Executive Committee at such member's business address. Any member of the Executive Committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the Executive Committee need not state the business proposed to be transacted at the meeting.
SECTION 4.05. Telephone Meetings. Meetings of the Executive Committee may be held by means of a telephone conference circuit shall constitute attendance at such meeting.
SECTION 4.06. Quorum. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the Executive Committee shall be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.
SECTION 4.07. Vacancies. Any vacancy in the Executive Committee may be filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 4.08. Resignations and Removal. Any member of the Executive Committee may be removed at any time with or without cause by the Board of Directors. Any member of the Executive Committee may resign from the Executive Committee at any time by giving written notice to the President or Secretary of the Corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.09. Procedure. The Executive Committee may elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken.
ARTICLE V
WAIVER OF NOTICE: WRITTEN CONSENT
SECTION 5.01. Waiver of Notice. Notice of the time, place and purpose of any meeting of the shareholders, Board of Directors or Executive Committee may be waived in writing by any shareholder or director either before or after such meeting. Attendance in person, or in case of a meeting of the shareholders, by proxy, at a meeting of the shareholders, Board of Directors or Executive Committee shall be deemed to constitute a waiver of notice thereof.
SECTION 5.02. Written Consent of Shareholders. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting upon the written consent of less than all of the shareholders entitled to vote thereon, or their proxies, to the extent and in the manner permitted by the Delaware General Corporation Law, as amended from time to time.
SECTION 5.03. Written Consent of Directors. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or Executive Committee may be taken without a meeting if a consent in writing, setting forth the action so to be taken, shall be signed before or after such action by all of the directors, or all of the members of the Executive Committee, as the case may be. Such written consent shall be filed with the records of the Corporation.
ARTICLE VI
OFFICERS
SECTION 6.01. Number. The officers of the Corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Chief Financial Officer and Treasurer, and such other officers and assistant officers as the Board of Directors may from time to time appoint, including one or more Assistant Secretaries and one or more Assistant Treasurers. One person may hold the offices and perform the duties of any two or more of said officers.
SECTION 6.02. Election, Qualifications and Term of Office. Each officer shall be elected annually by the Board of Directors, or from time to time to fill any vacancy, and shall hold office until a successor shall have been duly elected and qualified, or until the death, resignation or removal of such officer in the manner hereinafter provided.
SECTION 6.03. Removal. Any officer may be removed by the vote of a majority of the whole Board of Directors at a special meeting called for the purpose, whenever in the judgment of the Board of Directors the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the officer so removed. Election or appointment of an officer or agent shall not of itself create contract rights.
SECTION 6.04. Resignation. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and unless otherwise specified therein the acceptance of such resignation shall not be necessary to make it effective.
SECTION 6.05. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.
SECTION 6.06. Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and shareholders. Subject to determination by the Board of Directors, the Chairman shall have general executive powers and such specific powers and duties as from time to time may be conferred or assigned by the Board of Directors.
SECTION 6.07. Vice Chairman of the Board. Whenever the Chairman of the board is unable to serve, by reason of sickness, absence, or otherwise, the Vice Chairman shall have the powers and perform the duties of the chairman of the board. The Vice Chairman shall have such other powers and perform such other duties as may be prescribed by the Chairman of the board, the board of directors or these By-laws.
SECTION 6.08. Chief Executive Officer. The Chief Executive Officer shall have the powers and perform the duties incident to that position. Subject to the powers of the Board of Directors and the Chairman of the board, the Chief Executive Officer shall be in the general and active charge of the entire business and affairs of the Corporation, and shall be its chief policymaking officer. The Chief Executive Officer shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or provided in these By-laws. The Chief Executive Officer is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Whenever the President is unable to serve, by reason of sickness, absence or otherwise, the chief executive officer shall perform all the duties and responsibilities and exercise all the powers of the president.
SECTION 6.09. The President. The President shall have general and active management of the daily operations of the Corporation subject to the direction of the Board of Directors. In addition, the President shall perform such other duties and have such other responsibilities as the Board of Directors may from time to time determine.
SECTION 6.10. The Vice Presidents. The Vice President, or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
SECTION 6.11. The Secretary. The Secretary shall record or cause to be recorded in books provided for the purpose all the proceedings of the meetings of the Corporation, including the shareholders, the Board of Directors, Executive Committee and all committees of which a secretary shall not have been appointed; shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; shall be custodian of the records (other than financial) and of the seal of the Corporation; and in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned by the Board of Directors or the President.
SECTION 6.12. The Assistant Secretaries. At the request, or in absence or disability, of the Secretary, the Assistant Secretary designated by the Secretary or the Board of Directors shall perform all the duties of the Secretary and, when so acting, shall have all the powers of the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President or the Secretary.
SECTION 6.13. The Chief Financial Officer and Treasurer. The Chief Financial Officer and Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and deposit all such funds to the credit of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these Bylaws; disburse the funds of the Corporation under the general control of
the Board of Directors, based upon proper vouchers for such disbursements; receive, and give receipts for, moneys due and payable to the corporation from any source whatsoever, render a statement of the condition of the finances of the Corporation at all regular meetings of the Board of Directors, and a full financial report at the annual meeting of the shareholders, if called upon to do so; and render such further statements to the Board of Directors and the President as they may respectively require concerning all transactions as Chief Financial Officer and Treasurer or the financial condition of the Corporation. The Chief Financial Officer and Treasurer shall also have charge of the books and records of account of the Corporation, which shall be kept at such office or offices of the Corporation as the Board of Directors shall from time to time designate; be responsible for the keeping of correct and adequate records of the assets, liabilities, business and transactions of the Corporation; at all reasonable times exhibit the books and records of account to any of the directors of the Corporation upon application at the office of the Corporation where such books and records are kept; be responsible for the preparation and filing of all reports and returns relating to or based upon the books and records of the Corporation kept under the direction of the Chief Financial Officer and Treasurer; and, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned by the Board of Directors or the President.
SECTION 6.14. The Assistant Treasurers. At the request, or in the absence or disability, of the Treasurer, the Assistant Treasurer designated by the Treasurer or the Board of Directors shall perform all the duties of the Treasurer, and when so acting, shall have all the powers of the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them by the Board of Directors, the President or the Treasurer.
SECTION 6.15. General Powers. Each officer shall, subject to these Bylaws, have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to the respective office, and such duties and powers as the Board of Directors shall from time to time designate.
SECTION 6.16. Bonding. Any officer, employee, agent or factor shall give such bond with such surety or sureties for the faithful performance of his or her duties as the Board of Directors may, from time to time, require.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each person who at any time is, or shall have been, a director or officer of the Corporation, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he or she is, or was, a director, officer, employee or agent of the Corporation, or is or has served at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any such action, suit or proceeding to the full extent permitted under the Delaware General Corporation Law, as from time to time amended. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which such director, officer, employee or agent may be entitled, under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
ARTICLE VIII
EXECUTION OF DOCUMENTS
SECTION 8.01. Contract, etc., How Executed. The Board of Directors may authorize any or officer or officers, or any agent or agents, of the Corporation to enter into any contract or to execute and deliver any contract or other instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances. Unless authorized so to do by these Bylaws or by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement, or to pledge its credit, or to render it liable pecuniarily for any purpose or to any amount.
SECTION 8.02. Checks, Drafts, etc. All checks, drafts, bills of exchange or other orders for the payment of money, obligations, notes, or other evidences of indebtedness, bills of lading, warehouse receipts and insurance certificates of the Corporation, shall be signed or endorsed by such officer or officers, employee or employees, of the Corporation as shall from time to time be determined by resolution of the Board of Directors.
ARTICLE IX
BOOKS AND RECORDS
SECTION 9.01. Place. The books and records of the Corporation, including the stock record books, shall be kept at such places within or without the State of Delaware, as may from time to time be determined by the Board of Directors.
SECTION 9.02. Addresses of Shareholders. Each shareholder shall designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served upon or mailed, and if any shareholder shall fail to designate such address, corporate notices may be served by mail directed to the shareholder's last known post office address, or by transmitting a notice thereof to such address by telegraph, cable, or telephone.
SECTION 9.03. Inspection of Books and Records. The Board of Directors shall have power from time to time to determine to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation.
ARTICLE X
SHARES AND THEIR TRANSFER
SECTION 10.01. Certificates of Shares. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by the chairman of the board, the chief executive officer or the president and the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. If such a certificate is countersigned (i) by a transfer agent or an assistant transfer agent other than the Corporation or its employee or (ii) by a registrar, other than the Corporation or its employee, the signature of any such chairman of the board, chief executive officer, president, secretary or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. Shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates and record the transaction on its books. The Board of Directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the Corporation.
SECTION 10.02. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 10.03. Fixing a Record Date for Stockholder Meetings. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 10.04. Fixing a Record Date for Other Purposes. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 10.05. Record. A record shall be kept of the name of the person, firm or corporation owning the shares of the Corporation issued, the number of shares represented by each certificate, and the date thereof, and, in the case of cancellation, the date of cancellation. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation.
SECTION 10.06. Registered Stockholders. Prior to the surrender to the Corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the Corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof.
ARTICLE XI
DIVIDENDS
Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, in accordance with applicable law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or any other purpose, and the Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE XII
SEAL
The Board of Directors may provide for a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and the state and year of incorporation.
ARTICLE XIII
FISCAL YEAR
Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall be the year or other fiscal period ending on the last day of March of each year.
ARTICLE XIV
AMENDMENTS
Except as provided otherwise herein, all Bylaws of the Corporation shall be subject to alteration or repeal, and new Bylaws may be adopted either by the vote of a majority of the outstanding shares of the Corporation entitled to vote in respect thereof, or by the vote of the Board of Directors, provided that in each case notice of the proposed alteration or repeal or of the proposed new Bylaws be included in the notice of the meeting at which such alteration, repeal or adoption is acted upon, and provided further that any such action by the Board of Directors may be changed by the shareholders, except that no such change shall affect the validity of any actions theretofore taken pursuant to the Bylaws as altered, repealed or adopted by the Board of Directors.
If authorized by the Certificate of Incorporation, the adoption or amendment of a bylaw that adds, changes or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater. A bylaw that fixes a greater quorum or voting requirement for shareholders may not be adopted, amended or repealed by the Board of Directors.
Action by the Board of Directors to adopt or amend a bylaw that changes the quorum or voting requirement for the Board of Directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
Exhibit 4.1
NLMIN #____
NEITHER THIS NOTE, THE SHARES OF COMMON STOCK NOR ANY OTHER SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE (COLLECTIVELY THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE AND ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE.
NEWTOWN LANE MARKETING, INCORPORATED
10% Convertible Promissory Note
$____________ ________ ___, 2005
FOR VALUE RECEIVED, Newtown Lane Marketing, Incorporated, a Delaware
corporation (the "Company") with its principal executive office at 33 Newtown
Lane, East Hampton, NY 11937, promises to pay to the order of _________________
(the "Payee" or the "Holder of this Note") or registered assigns on December 31
2007 (the "Maturity Date"), the principal amount of _____________ Dollars
($________) (the "Principal Amount") in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts. Interest on this Note shall accrue on the
Principal Amount outstanding from time to time at a rate of ten percent (10%)
per annum, compounded annually, and shall be payable on the Maturity Date, or
earlier upon conversion of this Note in accordance with the provisions of
Section 6 hereof (or as may otherwise be provided in this Note). Nothing in item
(ii) of this paragraph shall be construed as the consent by the holder of this
Note to any action otherwise prohibited by the terms of this Note or as a waiver
of any such prohibition.
This Note and other identical Notes in the aggregate principal amount of up to $500,000 (collectively, the "Notes") are issued to the Payee and other purchasers of Notes in connection with a private placement of Units by the Company (the "Financing"), pursuant to the Company's Confidential Offering Memorandum (the "Memorandum"), and a Subscription Agreement between the Company and the Payee (the "Subscription Agreement"), a copy of which documents are available for inspection at the Company's principal office.
Notwithstanding any provision to the contrary contained herein, this Note is subject and entitled to certain terms, conditions, covenants and agreements contained in the Subscription Agreement. Any transferee of this Note, by its acceptance hereof, assumes the obligations of the Payee in the Subscription Agreement with respect to the conditions and procedures for transfer of this Note. Reference to the Subscription Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal hereof and interest hereon as provided herein.
Each payment by the Company pursuant to this Note shall be made without set-off or counterclaim and in immediately available funds.
The Company (i) waives presentment, demand, protest or notice of any kind in connection with this Note and (ii) agrees, in the event of an Event of Default, to pay to the holder of this Note, on demand, all costs and expenses (including reasonable legal fees and expenses) incurred in connection with the enforcement and collection of this Note.
1. Prepayment. This Note and all other Notes may be prepaid in whole but not in part prior to the Maturity Date if the Company sends written notice of such prepayment to each Holder at least twenty-five (25) days prior to the prepayment date and each Noteholder during such 25-day period shall have the right to convert the Note into Conversion Shares as provided herein.
2. Shares. In consideration for the loan evidenced by this Note, the Company issued to the Holders of this Note, shares of common stock of the Company (the "Common Stock") to the product of (i) (1) the aggregate principal amount of each Note, multiplied by (2) twenty (20%) percent, and (ii) divided by thirty-five cents ($0.35).
3. Covenants of Company.
A. Affirmative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, it will perform the obligations set forth in this Section 4A:
(i) Taxes and Levies. The Company will promptly pay and discharge all taxes, assessments, and governmental charges or levies imposed upon the Company and each of its subsidiaries or upon either of their income and profits, or upon any of its property, before the same shall become delinquent, as well as all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that the Company and each of its subsidiaries shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company and each of its subsidiaries shall set aside on its books adequate reserves in accordance with generally accepted accounting principles ("GAAP") with respect to any such tax, assessment, charge, levy or claim so contested;
(ii) Maintenance of Existence. The Company will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply could not reasonably be expected to have a material adverse effect on the Company;
(iii) Maintenance of Property. The Company will at all times maintain, preserve, protect and keep such property material to the conduct of its business in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business;
(iv) Insurance. The Company will, to the extent necessary for the operation of its business, keep adequately insured by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations;
(v) Books and Records. The Company and each of its subsidiaries will at all times keep true and correct books, records and accounts reflecting all of their respective business affairs and transactions in accordance with GAAP. Such books and records shall be open at reasonable times and upon reasonable notice to the inspection of the Payee or its agents, subject to the execution by such persons of a reasonable non-disclosure agreement;
(vi) Underlying Securities. The Company shall keep reserved such number of shares of Common Stock as will permit full conversion of the Notes;
(vii) Notice of Certain Events. The Company will give prompt written notice (with a description in reasonable detail) to the Payee of:
(a) the occurrence of any Event of Default (as defined in Section 5 hereof), or any event which, with the giving of notice or the lapse of time, would constitute an Event of Default, or an event of default under any document or instrument evidencing or governing any indebtedness of the Company and the delivery of any notice effecting the acceleration of any such indebtedness; and
(b) the occurrence of any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Company to the Payee in writing which has been instituted or, to the knowledge of the Company, is threatened, against the Company or to which any of its properties, assets or revenues is subject which, if adversely determined, would reasonably be expected to have a material adverse effect on the Company; and
(c) any material adverse development which shall occur in any litigation, arbitration or governmental investigation or proceeding previously disclosed by the Company to the Payee.
B. Negative Covenants. The Company covenants and agrees that, other than as may be expressed provided herein, so long as this Note shall be outstanding, it will perform the obligations set forth in this Section 4B:
(i) Liquidation, Dissolution, Etc.. Unless the Company prepays the Note upon 25 days written notice during which the Holder may convert into Conversion Shares as provided herein, the Company will not liquidate or dissolve, consolidate with, or merge into or with, any other corporation or other entity, except that any wholly-owned subsidiary may
merge with another wholly-owned subsidiary or with the Company (so long as the Company is the surviving entity and no Event of Default shall occur as a result thereof).
(ii) Sales of Assets. Unless the Company prepays the Note upon
25 days written notice during which the Holder may convert into Conversion
Shares as provided herein, the Company will not sell, transfer, lease or
otherwise dispose of, or grant options, warrants or other rights with
respect to, all or a substantial part of its properties or assets (an
"Asset Transaction") to any person or entity, provided that this clause
(ii) shall not restrict (1) any disposition made in the ordinary course of
business and consisting of (a) capital goods that are obsolete or have no
remaining useful life or (b) finished goods inventories or (2) any other
Asset Transaction.
(iii) Redemptions. The Company will not redeem or repurchase any outstanding securities of the Company or any of its subsidiaries;
(iv) Investments. Except for standard and normal industry related investments, the Company will not purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities or make or permit to exist any investment or capital contribution or acquire any interest whatsoever in any other person or entity or permit to exist any loans or advances for such purposes except for investments in direct obligations of the United States of America or any agency thereof, obligations guaranteed by the United States of America and certificates of deposit or other obligations of any bank or trust company organized under the laws of the United States or any state thereof and having capital and surplus of at least $500,000,000.
(v) Transactions with Affiliates. The Company will not repay any indebtedness or enter into any transaction, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, the purchase or sale of any security, the borrowing or lending of any money, or the rendering of any service, with any person or entity affiliated with the Company (including any officers, directors and shareholders of the Company's and/or any of its subsidiaries' outstanding capital stock); and
(vi) Dividends. The Company will not accrue, declare or pay any cash dividends or distributions, whether accrued or otherwise, on its outstanding capital stock, provided, however, that nothing herein contained shall prevent the Company (a) from effecting a stock split or declaring or paying any dividend consisting solely of shares of any class of Common Stock to the holders of shares of such class of Common Stock, provided that (i) such stock split or stock dividend is effected equally across all classes of Common Stock and (ii) the Holder of the Note participates in such events as if the holder had converted the Note immediately prior to such event into the number of shares of Common Stock he would be entitled to receive if he had so converted (or the number of shares of Common Stock (as defined below) is convertible into), as more fully described in the anti-dilution provisions below; and (b) so long as the Company is taxed under Subchapter S of the Internal Revenue Code, from declaring and paying such cash dividends as are necessary to enable each of the Company's shareholders to pay their income taxes on the portion of the Company's income allocable to him.
5. Events of Default.
A. The term "Event of Default" shall mean any of the events set forth in this Section 5A:
(i) Non-Payment of Obligations. The Company shall default in the payment of the principal or accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise.
(ii) Non-Performance of Affirmative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 4A, which default shall continue uncured for five (5) business days.
(iii) Non-Performance of Negative Covenants. The Company or any of its subsidiaries shall default in the due observance or performance of any covenant set forth in Section 4B.
(iv) Bankruptcy, Insolvency, etc. The Company shall: (a) generally fail or be unable to pay, or admit in writing its inability to pay, its debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property, and such trustee, receiver, sequestrator or other custodian shall not be discharged within thirty (30) days; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief or shall remain for sixty (60) days undismissed; or (e) take any corporate action authorizing, or in furtherance of, any of the foregoing; and
(viii) Subscription Agreement; Etc. The Company shall violate any material representation, warranty, covenant, agreement or obligation set forth in the Subscription Agreement, and such default is continuing for ten (10) days.
B. Action if Event of Default. If any Event of Default shall occur for any reason, whether voluntary or involuntary, and be continuing, the Payee may, upon notice to the Company, (i) allow the Note to remain outstanding and continue to accrue interest at the rate provided for above or (ii) declare all or any portion of the outstanding Principal Amount of the Note together with interest accrued thereon to be due and payable and any or all other obligations hereunder to be due and payable, whereupon the full unpaid Principal Amount (or any portion thereof so demanded), such accrued interest and any and all other such obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment.
D. Remedies. In case any Event of Default shall occur and be continuing, the Payee may proceed to protect and enforce its rights by a proceeding seeking the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such holder shall determine.
6. Conversion.
A. Holder's Conversion Right. At any time and from time to time, the Holder of this Note shall be entitled to convert any portion of the Principal Amount and/or accrued but unpaid interest into fully paid and non-assessable shares of Common Stock, in accordance with this Section 6(a) and Sections 6(b) and Section 6(c). The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of the Notes by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing such fractional share, pay to the holder the fair value thereof in cash.
B. Conversion Price. Subject to anti-dilution adjustment as provided in Section 6D, the "Conversion Price" of the outstanding Principal Amount of the Notes shall be equal to thirty-five cents ($0.35). The Principal Amount and interest thereon so elected by the Holder to be converted (the "Converted Amount"), will convert into that number of shares of Common Stock determined by dividing the Converted Amount by the Conversion Price, as adjusted at the time of conversion.
C. Mechanics of Conversion. To convert the Note into shares of
Common Stock on any date (a "Conversion Date"), the holder thereof shall (i)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., New York time on such date, a copy of an executed notice of conversion in
the form attached hereto as Exhibit I (the "Conversion Notice") to the Company,
and (ii) surrender to a common carrier for delivery to the Company within three
(3) business days of such date the original Note being converted (or an
indemnification undertaking with respect to such Note in the case of their loss,
theft or destruction); provided, however, notwithstanding anything to the
contrary provided herein or elsewhere, the Holder in its sole option and in its
sole discretion shall have the absolute right to instead of submitting the
original Note to the Company as provided above upon a conversion of the Note,
not submit the Note to the Company upon a conversion and have the Company reduce
the Principal Amount being converted on the Company's books and records in the
amount as expressly provided in the Conversion Notice, which shall have the same
effect as if the Holder submitted the original Note. On or before the third
(3rd) business day following the date of receipt of a Conversion Notice and the
original Note, or an affidavit that the Holder lost its original Note (the
"Share Delivery Date"), the Company shall issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
holder or its designee, for the number of shares of Common Stock to which the
holder shall be entitled. If the Principal Amount represented by the Note(s)
submitted for conversion pursuant to this Section 6C(ii) is greater than the
Converted Amount, and the Holder has elected to submit the original Note to the
Company then the Company shall, as soon as practicable and in no event later
than three (3) business days after receipt of the Notes (the "Note Delivery
Date") and at its own expense, issue and deliver to the holder a new Note
representing the Principal Amount not converted. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of Note shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
D. Anti-Dilution Provisions. The Conversion Price in effect at any time and the number and kind of securities issuable upon conversion of the Notes shall be subject to adjustment from time to time upon the happening of certain events as follows:
(i) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time on or after the date of any issuance of any Notes (the "Original Issuance Date"), effects a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time on or after the Original Issuance Date combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (i) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(ii) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time on or after the Original Issuance Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (1) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this subsection (ii) as of the time of actual payment of such dividends or distributions.
(iii) Adjustments for Other Dividends and Distributions. In the event the Company at any time or from time to time on or after the Original Issuance Date makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the Notes shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Company which they would have received had their Notes been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this subsection (e) with respect to the rights of the holders of the Notes
(iv) Adjustment for Reclassification, Exchange and Substitution. In the event that at any time or from time to time on or after the Original Issuance Date, the Common Stock issuable upon the conversion of the Notes is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this subsection (e)), then and in any such event each holder of the Notes shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by holders of the maximum number of shares of Common Stock into which Notes could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein.
(v) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time on or after the Original Issuance Date there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this subsection (e)) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Notes shall thereafter be entitled to receive upon conversion of the Notes the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this subsection (e) with respect to the rights of the holders of the Notes after the reorganization, merger, consolidation or sale to the end that the provisions of this subsection (e) (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of the Notes) shall be applicable after that event and be as nearly equivalent as may be practicable.
(vi) No Adjustments in Certain Circumstances. No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one ($0.01) cent in such price; provided, however, that any adjustments which by reason of this subsection (vii) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this Section 6(d)(vii) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.
E. No Impairment. The Company will not directly and/or indirectly through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Notes against impairment.
F. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 6, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the holder of this Note(s) a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the holder of this Note(s), furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the this Note(s).
G. Stock Purchase Rights. If at any time or from time to time, the Company grants or issues to the record holders of the Common Stock any options, warrants or rights (collectively, "Stock Purchase Rights") entitling any holder of Common Stock to purchase Common Stock or any security convertible into or exchangeable for Common Stock or to purchase any other stock or securities of the Company, the holder of this Note(s) shall be entitled to acquire, upon the terms applicable to such Stock Purchase Rights, the aggregate Stock Purchase Rights which the holder of this Note(s) could have acquired if it had been the record holder of the maximum number of shares of Common Stock issuable upon conversion of this Note(s) on both (x) the record date for such grant or issuance of such Stock Purchase Rights, and (y) the date of the grant or issuance of such Stock Purchase Rights.
H. Limitation on Conversion. Except to allow the conversion and sale of the Conversion Shares in a merger, combination or similar transaction, or upon a liquidation or distribution of assets of the Company or similar transaction, in no event shall the Payee be entitled to convert, any Principal Amount in excess of that amount upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Payee or the holder of Conversion Shares and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note, and (2) the number of shares of Common stock issuable upon the conversion of this Note with respect to which the determination of this provision is being made, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Company (after taking into account the shares to be issued to the Payee or
the holder of Conversion Shares upon such conversion). For purposes of this provision to the immediately preceding sentence, beneficial ownership shall be determined by the Holder based upon and in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided in clause (1) of such provision.
I. Stamp Taxes, etc. The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of Common Stock, upon conversion of this Note; provided, however, that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of this Note, and the Company shall not be required to issue or deliver any such certificate unless and until the person requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the Company's satisfaction that such tax has been paid.
J. Validity of Stock. All shares of Common Stock which may be issued upon conversion of this Note will, upon issuance by the Company in accordance with the terms of this Note, be validly issued, free from all taxes and liens with respect to the issuance thereof (other than those created by the holders), free from all pre-emptive or similar rights and fully paid and non-assessable.
K. Reservation of Shares. The Company covenants and agrees that it will at all times have authorized and reserved, solely for the purpose of such possible conversion, out of its authorized but unissued shares, a sufficient number of shares of its Common Stock to provide for the exercise in full of the conversion rights contained in this Note.
L. Notice of Certain Transactions. In case at any time:
(i) The Company shall declare any dividend upon, or other distribution in respect of, its Common Stock; or
(ii) The Company shall offer for subscription to the holders of its Common Stock any additional shares of stock of any class or any other securities convertible into shares of stock or any rights to subscribe thereto; or
(iii) There shall be any capital reorganization or reclassification of the capital stock of the Company, or a sale of all or substantially all of the assets of the Company, or a consolidation or merger of the Company with another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification); or
(iv) There shall be a voluntary or involuntary dissolution; liquidation or winding-up of the Company; then, in any one or more of said cases, the Company shall cause to be mailed to the Payee at the earliest practicable time (and, in any event not less than twenty (20) days before any record date or other date set for definitive action), written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or such reorganization, reclassification, sale, consolidation, merger or dissolution, liquidation or winding-up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the kind and amount of the shares of stock and other securities and property deliverable upon the conversion of this Note. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, sale, consolidation, merger or dissolution, liquidation or winding-up, as the case may be.
Nothing herein shall be construed as the consent of the Holder of this Note to any action otherwise prohibited by the terms of this Note or as a waiver of any such prohibition.
7. Waivers.
A. No failure or delay on the part of the Payee in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Payee shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder.
B. To the extent that the Company makes a payment or payments to the Payee, and such payment or payments or any part thereof are subsequently for any reason invalidated, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
8. Miscellaneous.
A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of the successors and permitted assigns of the Company and the Payee, respectively, whether so expressed or not.
B. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement, shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereby covenant and irrevocably submit to the in personam jurisdiction
of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York City. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other party hereto of its reasonable counsel fees and disbursements.
C. Notices. All notices required or permitted under this Note shall be given in accordance with the Subscription Agreement.
D. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING THIS NOTE.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company.
NEWTOWN LANE MARKETING, INCORPORATED
Title:
EXHIBIT I
NEWTOWN LANE MARKETING, INCORPORATED
CONVERSION NOTICE
Reference is made to the 10% Senior Convertible Promissory Note (the "Note") of Newtown Lane Marketing, Incorporated. (the "Company"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert such Principal Amount (as defined in the Note) all accrued but unpaid interest indicated below into shares of common stock (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion: ______________________________________________________
Principal Amount to be converted: ________________________________________
Accrued but unpaid interest to be converted: _____________________________
Note to be Converted: NLMIN Note No.: ____________________________________
Number of Shares of Common Stock to be issued on conversion of Principal Amount and/or all accrued but unpaid interest: ___________________________
Conversion Price Used: ___________________________________________________
Please deliver the Common Stock into which the Principal Amount is being converted to the following address:
Exhibit 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED FOR RESALE UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH. THIS WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED PRIOR TO __________________________, 2006 AND THE REGISTERED HOLDER OF THIS WARRANT, BY ITS/HIS/HER ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT PRIOR TO THAT DATE.
VOID AFTER 5:00 P.M., SPOKANE, WASHINGTON TIME, ON _______________ , 2009
Warrant to subscribe for and purchase ________________ shares of Common Stock, $.001par value, of
NEWTOWN LANE MARKETING, INCORPORATED
This is to Certify That,
FOR ONE HUNDRED DOLLARS ($100) AND OTHER VALUE RECEIVED, PUBLIC SECURITIES, INC., a Washington Corporation, (the "Holder") is entitled to purchase, subject to the provisions of this Warrant, from NEWTOWN LANE MARKETING, INCORPORATED, a Delaware Corporation ("Company"), at any time on or after , 2006, and not later than 5:00 p.m., Spokane, Washington Time, on _____________________, 2009, a total of XXXXX shares of Common Stock of the Company ("Securities") exercisable at a purchase price of $0.56 for the Securities . The number of Securities to be received upon the exercise of this Warrant and the price to be paid for the Securities may be adjusted from time to time as hereinafter set forth. The purchase price of a Security in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." This Warrant is or may be one of a series of Warrants identical in form issued by the Company to purchase an aggregate of ________ Shares of Common Stock. The Securities, as adjusted from time to time, underlying the Warrants are hereinafter sometimes referred to as "Warrant Securities".
(1.) Exercise of Warrant. Subject to the provisions of Section (7) hereof, this Warrant may be exercised in whole or in part at anytime or from time to time on or after , 2006, but not later than 5:00 p.m., Spokane, Washington Time on ___________________________, 2009, or if _______________________, 2009 is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company or at the office of its
stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Securities as specified in such Form, together with all federal and state taxes applicable upon such exercise. During the term of this Warrant, the Company agrees that the Holder shall be entitled to participate in any tender offer being made for the Securities and to so notify the Holder within a reasonable time of such tender offer no later than the third business day after the day the Company becomes aware that any tender offer is being made for the Securities. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Securities purchasable hereunder not purchased. Upon receipt by the Company of this Warrant at the office of the Company or at the office of the Company's stock transfer agent, in proper form for exercise and accompanied by the total Exercise Price, the Holder shall be deemed to be the holder of record of the Securities issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Securities shall not then be actually delivered to the Holder.
(2.) Reservation of Securities. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Securities as shall be required for issuance or delivery upon exercise of this Warrant. The Company covenants and agrees that, upon exercise of this Warrant and payment of the Exercise Price therefor, all 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.
(3.) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows:
(a) If the Securities are listed on a national securities exchange or admitted to unlisted trading privileges on such exchange, the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange; or,
(b) If the Securities are not so listed or admitted to unlisted trading privileges, the current value shall be the mean of the last reported
bid and asked prices reported by the National Association of Securities Dealers Automated Quotation System (or, if not so quoted on NASDAQ or quoted by the National Quotation Bureau, Inc.) on the last business day prior to the date of the exercise of this Warrant; or (c) If the Securities are not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder.
(4.) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase (under the same terms and conditions as provided by this Warrant) in the aggregate the same number of Securities purchasable hereunder. This Warrant may not be sold, transferred, assigned, or hypothecated until after one year from the effective date of the Registration Statementhereof except that it may be (i) assigned in whole or in part to the officers of the "Underwriter(s)", and (ii) transferred to any successor to the business of the "Underwriter(s)." Any such assignment shall be made by surrender of this Warrant to the Company, or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and with funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named insuch instrument of assignment, and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Until this Warrant is duly transferred on the books of the Company, the Company may treat the registered holder of this Warrant as absolute owner hereof for all purposes without being affected by any notice to the contrary. Each successive holder of this Warrant, or any portion of the rights represented thereby, shall be bound by the terms and conditions set forth herein. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(5.) Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein.
(6.) Notices to Warrant Holders. So long as this Warrant shall be outstanding and unexercised (i) if the Company shall pay any dividend or make any distribution upon the Common Stock, or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any shares of stock of any class or any other rights, or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation which is effected in such a manner that the holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then, in any such case, the Company shall cause to be delivered to the Holder, at least ten (10) days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any, is to be fixed, as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for equivalent securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.
(7.) Adjustment of Exercise Price and Number of Shares of Common Stock Deliverable.
(A)
(i) Except as hereinafter provided, in the event the Company shall, at any time or from time to time after the date hereof, issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such issuance, subdivision or combination being herein call a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Exercise Price of the Common Stock issuable upon the exercise of the Warrant in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent to the nearest cent) determined by dividing (i) the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by the Exercise Price in effect immediately prior to such Change of Shares, and (b) the consideration, if any, received by the Company upon such issuance, subdivision or combination by (ii) the total number of shares of Common Stock outstanding immediately after such Change of Shares; 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.
For the purposes of any adjustment to be made in accordance with this Section (7) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution on any capital 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 shareholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall not be deemed to include the number of shares issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights or warrants and upon the conversion or exchange of convertible or exchangeable securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this
Section (7), the number of shares of Securities purchasable
upon the exercise of each Warrant shall be the number derived
by multiplying the number of shares of Securities purchasable
immediately prior to such adjustment by the Exercise Price in
effect prior to such adjustment and dividing the product so
obtained by the applicable adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding Securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation other than a merger with a "Subsidiary" (which shall mean any corporation or corporations, as the case may be, of which capital stock having ordinary power to elect a majority of the Board of Directors of such corporation (regardless of whether or not at the time capital 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 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 in which merger the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of subdivision or combination) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the Holder of each Warrant then outstanding shall have the right thereafter to receive on exercise of such Warrant the kind and amount of securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of securities issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and shall forthwith file at the principal office of the Company a statement signed on its behalf by its President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such provision. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section (7)(A). The above provisions of this Section (7)(B) shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or the number of Securities purchasable upon exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued shall (unless the Company shall exercise its option to issue new Warrant Certificates pursuant hereto) continue to express the Exercise Price per share and the number of shares purchasable thereunder as the Exercise Price per share and the number of shares purchasable thereunder as expressed in the Warrant Certificates when the same were originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(7), the Company will promptly prepare a certificate signed on its
behalf by the President or Vice President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Exercise Price as so adjusted,
(ii) the number of Securities purchasable upon exercise of each
Warrant, after such adjustment, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will promptly file
such certificate in the Company's minute books and cause a brief
summary thereof to be sent by ordinary first class mail to each
Holder at his last address as it shall appear on the registry books
of the Company. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to the holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of an officer or the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(i) Intent of Provisions. Notwithstanding any provision to the contrary, if any event occurs as to which, in the opinion of the Board of Directors of the Company, the other provisions of this Section 7 are not strictly applicable or if strictly applicable, would not fairly protect the rights of the Holders' Warrant in accordance with the essential intent and principles of such provisions, then such Board of Directors shall appoint a firm of independent certified public accountants (which may be the regular auditors of the Company) which shall give its opinion upon the adjustment, if any, on a basis consistent with such essential intent and principles, necessary to preserve, without dilution, the rights of the Holders. Upon receipt of such opinion by the Board of Directors of the Company, the Company shall forthwith make the adjustments described therein
(E) No adjustment of the Exercise Price shall be made as a result of or in connection with the issuance or sale of Securities if the amount of said adjustment shall be less than $0.001, 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 that shall amount, together with any adjustment so carried forward, to at least $.001. In addition, Holders shall not be entitled to cash dividends paid by the Company prior to the exercise of any Warrant or Warrants held by them.
(F) In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend consisting solely of shares of Common Stock or otherwise distribute to its stockholders any assets, property, rights, or evidences of indebtedness, the Holders of the unexercised Warrants shall thereafter be entitled, in addition to the Securities or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, or evidences of indebtedness, 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 Section (7).
(G)
(G.1) Right to Exercise on a Net Issuance Basis. In lieu of
exercising this Warrant for cash, the Holder shall have the
right to exercise this Warrant or any portion thereof (the
"Net Issuance Right") into Common Stock as provided in this
Section G.1 at any time or from time to time during the period
specified on page one of this Warrant Agreement, hereof by the
surrender of this Warrant to the Company with a duly executed
and completed Exercise Form marked to reflect net issuance
exercise. Upon exercise of the Net Issuance Right with respect
to a particular number of shares of the Securities subject to
this Warrant and noted on the Exercise Form (the "Net Issuance
Warrant Shares"), the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price or any
cash or other consideration) (X) that number of shares of
fully paid and nonassessable shares of Common Stock equal to
the quotient obtained by dividing the value of this Warrant
(or the specified portion hereof) on the Net Issuance Exercise
Date, which value shall be determined by subtracting (A) the
aggregate Exercise Price of the Net Issuance Warrant Shares
immediately prior to the exercise of the Net Issuance Right
from (B) the aggregate fair market value of the Net Issuance
Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Net Issuance Exercise Date
(as herein defined) by (Y) the fair market value one share of
Common Stock on the Net Issuance Exercise Date (as herein
defined). Expressed as a formula as shown below, such net
issuance exercise shall be computed as follows: X = B-A / Y
Where: X = the number of shares of Common Stock that may be
issued to the Holder, Y = the fair market value ("FMV") of one
share of Common Stock as of the Net Issuance Exercise Date, A
= the aggregate Exercise Price (i.e. the product determined by
multiplying the Net Issuance Warrant Shares by the Exercise
Price) and B = the aggregate FMV (i.e. the product determined
by multiplying the FMV by the Net Issuance Warrant Shares).
(G.1.2) Determination of Fair Market Value. For purposes of this
Section G.1.2, "fair market value" of a share of Common Stock
as of the Net Issuance Exercise Date shall mean:
(i) if the Net Issuance Right is exercised in connection with and contingent upon a Public Offering, and if the Company's registration Statement relating to such Public Offering has been declared effective by the SEC, then the initial "Price to Public" specified in the final Prospectus with respect to such offering.
(ii) if the Net Issuance Right is not exercised in connection with and contingent upon a Public Offering, then as follows:
(a) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the last reported sale price or if no reported sale takes place, the average of the last reported sale prices for the last three (3) trading days prior to the Net Issuance Date;
(b) If traded on the Nasdaq National Market or the Nasdaq Small Cap Market, the fair market value of the Common Stock shall be deemed to be the average of the last reported sale price of the common Stock on such Market over the last three (3) trading days prior to the Net Issuance Exercise Date;
(c) If traded over-the-counter other than on the Nasdaq National market or the Nasdaq SmallCap Market, the fair market value of the Common Stock shall be deemed to be the average of the midpoint between the closing bid and ask prices of the Common Stock over the 3-day trading period prior to the Net Issuance Exercise Date; and,
(d) If there is no public market for the Common Stock, then the fair market value shall be determined by mutual agreement of the Warrantholder and the Company, and if the Warrantholder and the Company are unable to so agree, at the Company's sole expense, by an investment banker of national reputation selected by the Company and reasonably acceptable to the Warrantholder.
(8.) Piggyback Registration. If, at any time commencing one year from the effective date of the registration statement and expiring four (4) years thereafter, the Company proposes to register any of its securities under the Securities Act of 1933, as amended (the "Act") (other than in connection with a merger or pursuant to Form S-8, S-4 or other comparable
registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Holder or other Holders of the Warrants and/or Warrant Securities notify the Company within twenty (20) days after receipt of any such notice of its or their desire to include the resale of any such securities in such proposed registration statement, the Company shall afford each of the Underwriter and such Holders of the Warrants and/or Warrant Securities the opportunity to have the resale of any such Warrant Securities registered under such registration statement. In the event any underwriter underwriting the sale of securities registered by such registration statement shall limit the number of securities includable in such registration by shareholders of the Company, the number of such securities shall be allocated pro rata among the holders of Warrants and the holders of other securities entitled to piggyback registration rights. Notwithstanding the provisions of this Section, the Company shall have the right at any time after it shall have given written notice pursuant to this Section (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.
(9.) Demand Registration.
(a) At any time commencing one year from the effective date of the registration statement and expiring four (4) years thereafter, the Holders of the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants) shall have the right (which right is in addition to the registration rights under Section (i) hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (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 Underwriter and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Securities for twelve (12) consecutive months by such Holders and any other holders of the Warrants and/or Warrant Securities who notify the Company within ten (10) 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 (i) by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Securities within ten (10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under this Section (9) at any
time commencing one year after the effective date of the
registration statement and expiring four (4) years thereafter, the
Holders of Representative's Warrants and/or Warrant 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 twelve (12) consecutive months by such Holders
of its Warrant Securities; provided, however, that the provisions of
Section (9)(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 Holders making such request.
(10.) Covenants of the Company With Respect to Registration. In connection with any registration under Section (8) or (9) 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 statement declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant 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 registration statements filed pursuant to Sections (h), (i) and (j) 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 (10)(a), the Company shall, in addition to any other equitable or other relief available to the Holder(s), extend the Exercise Period 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 Warrant Securities included in a registration statement for resale under the securities or blue sky laws of such states as are reasonably 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 Warrant Securities to be resold 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"), from and 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 the Underwriter contained in Section 7 of the Underwriting Agreement relating to the offering.
(e) The Holder(s) of the Warrant Securities to be resold 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 with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(f) The Holder(s) may exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration
statement filed pursuant to Section (9) hereof, or permit any other
registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section
(9) hereof, other than a secondary offering of equity securities of
the Company, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such
securities.
(h) 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 (x) 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 (y) 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.
(i) The Company shall as soon as practicable after the effective date of the registration statement, 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 effective date of the registration statement.
(j) 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 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 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 National Association of Securities Dealers, Inc. ("NASD") or an Exchange. 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.
(k) The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant 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.
(l) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Securities, shall mean in excess of fifty (50%) of the then outstanding Warrants and Warrant Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act.
(11.) Buy-Out of Registration Demand. In lieu of carrying out its obligations to effect a Piggyback Registration or Demand Registration of any registrable securities pursuant to the Section, the Company may carry out such obligation by offering to purchase and purchasing such Registrable Securities requested to be registered in an amount in cash equal to the difference between (a) 95% of the last sale price of the Common Stock on the day the request for registration is made and (b) the Exercise Price in effect on such day; the purchase transaction closing within three (3) business days; provided however, that the Holder or Holders may decline such request rather than accept such offer by the Company.
(12.) Conditions of Company's Obligations. The Company's obligation under
Section 10 hereof shall be conditioned as to each such public offering,
upon a timely receipt by the Company in writing of: (a) Information as to
the terms of such public offering furnished by or on behalf of the Holders
making a public distribution of their Warrant Securities.
(13.) Continuing Effect of Agreement. The Company's agreements with respect to the Warrant Securities in this Warrant will continue in effect regardless of the exercise or surrender of this Warrant.
(14) Notices. Any notices or certificates by the Company to the Holder and by the Holder to the Company shall be deemed delivered if in writing and delivered personally or sent by certified mail, to the Holder, addressed to him or sent to 300 North Argonne Road, Suite 202, Spokane, Washington 99212, or, if the Holder has designated, by notice in writing to the Company, any other address, to such other address, and, if to the Company, addressed to Richard M. Cohen, Chief Executive Officer, 33 Newtown Lane, East Hampton, New York 11937. The Company may change its address by written notice to the Holder.
(15) Limited Transferability. The Warrant may be divided or combined, upon request to the Company by the Warrant holder, into a certificate or certificates evidencing the same aggregate number of Warrants. The Warrant may not be offered, sold, transferred, pledged or hypothecated in the absence of any effective registration statement as to such Warrant filed under the Act, or an exemption from the requirement of such registration, and compliance with the applicable federal and state securities laws. The Company shall permit the Holder or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered holders of Warrants.
(16) Transfer to Comply With the Securities Act of 1933. The Company may cause the following legend, or one similar thereto, to be set forth on the Warrants and on each certificate representing Warrant Securities, or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for
distribution to the public pursuant to Sections (8) or (9) hereof; unless counsel satisfactory to the Company is of the opinion as to any such certificate that such legend, or one similar thereto, is unnecessary: "The warrants represented by this certificate are restricted securities and may not be offered for sale, sold or otherwise transferred unless an opinion of counsel satisfactory to the Company is obtained stating that such offer, sale or transfer is in compliance wrath state and federal securities law. With respect to Warrant Securities that have not theretofore been subject to a registration statement pursuant to Sections 8 or 9 hereof, upon request, the Company will arrange at its expense to have an opinion of counsel satisfactory to the Company issued, which will provide that to the extent Warrant Securities were acquired through the Net Issuance Exercise of this Warrant as provided in Section 7(G.1) without the payment of any cash, the Holder's date of acquisition of such Warrant Securities will be the date of acquisition of the Warrant. The issuance of any opinion relating to the transferability of any Warrant or Warrant Securities will be conditioned upon the Holder providing evidence satisfactory to such counsel of the proper acquisition and exercise of this Warrant, the completion and filing of all forms or other documents required to comply with federal and state securities laws and the continued applicability of the current interpretation of Rule 144(d)(3)(ii) as expressed in items 4, 61 and 64 of the Division of Corporation Finance Manual of Publicly Available Telephone Interpretations. The Company will provide upon request to any Holder a list of the registered holders of Warrants. Such costs and expenses of Counsel shall be at its sole cost and expense. The Company represents and warrants, it will not hinder, delay or impede in any fashion, the assignment and/or exercise of the this Warrant, the issuance of any underlying securities, and/or the resale of such underlying securities. To effect such transaction, the Company shall cause such legal opinions to issue in a timely and professional manner upon demand by the Underwriter.
(17) Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to conflict of law principles.
(18.) Amendment. This Warrant may not be amended except in a writing signed by each Holder and the Company.
(19.) Severability. If any provisions of this Warrant shall be held to be invalid or unenforceable, such invalidity or enforceability shall not affect any other provision of this Warrant.
(20.) Survival of Indemnification Provisions. The indemnification provisions of this Warrant shall survive until , 2016.
(21) Company to Provide Reports. Etc. While this Warrant Certificate remains outstanding, the Company shall mail to the persons in whose name this Warrant Certificate is registered copies of all reports and correspondence which the Company mails to its stockholders.
(22) Representations and Warranties of Holder. The Holder hereby represents and warrants to the Company:
(a) The Holder understands that this Warrant Certificate and the Common Shares to be issued herein, HAS NOT BEEN APPROVED OR DlSAPPROVED BY TME UNITED STATES SECURITIES AND EXCHANGE COMMISSION, THE STATE OF DELAWARE, OR ANY OTHER STATE SECURITIES AGENCIES.
(b) This Warrant Certificate and the Common Stock to be issued herein may not be transferred, encumbered, sold, hypothecated, or otherwise disposed of to any person, without the express prior written consent of the Company and the prior opinion of counsel for the Company, that such disposition will not violate Federal and/or State Securities Acts. Disposition shall include, but is not limited to acts of selling, assigning, transferring, pledging, encumbering, hypothecating, giving, and any form of conveying, whether voluntary or not.
(c) To the extent that any Federal and/or State Securities laws shall require, the Holder hereby agrees that any shares acquired pursuant to this Warrant Certificate shall be without preference as to dividends, assets, or voting rights and shall have no greater or lesser rights per share than the securities issued for cash or its equivalent.
(d) This Warrant is subject in all respects to the terms and provisions of an Underwriting Agreement between the Company and Public Securities, Inc., (the Underwriter therein and the initial Holder hereof), relating to a public offering of the Common Stock and Warrants of the Company dated , 2006.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officers and to be sealed with the seal of the Company this day of June, 2006.
CAPSOURCE FINANCIAL, INC, INC.
PURCHASE FORM
The Undersigned hereby exercises the Warrant Certificate to subscribe for and purchase shares of Common Stock, $.001 par value ("Common Shares"), of NEWTOWN LANE MARKETING, INCORPORATED, a Delaware Corporation, evidenced by the within the Warrant Certificate and herewith makes payment of the Exercise Price. Kindly issue certificates for the Common Shares in accordance with the instructions given below. The certificate for the unexercised balance, if any, of the within Warrant Certificate will be registered in the name of the undersigned.
Instructions for registration of Common Shares
HOLDER:
PUBLIC SECURITIES, INC.
By: ___________________________________
Title: President
Instructions for registration of certificate representing the unexercised balance of Warrant (if any)
FORM OF ASSIGNMENT
(to be executed by the registered holder hereof)
FOR VALUE RECEIVED, ____________________________ does hereby sell, assign and transfer unto ___________________________________________ the right to purchase shares of the Common Stock of the Company, $.001 par value ("Common Shares"), of NEWTOWN LANE MARKETING, INCORPORATED, a Delaware Corporation, evidenced by the within Warrant, and does hereby irrevocably constitute and appoint ____________________________ attomey, to transfer such right on the books of the Company with full power of substitution in the premises.
DATED: ________________, 200___
Exhibit 5.1 - Opinion re legality of the common stock being registered
EATON & VAN WINKLE LLP
3 Park Ave, 16th Floor
New York, New York 10016
June 30, 2006
Newton Lane Marketing, Incorporated
33 Newton Lane
East Hampton, New York 11937
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to Newtown Lane Marketing, Incorporated, a Delaware corporation (the "Company"), in connection with the filing of a Registration Statement on Form SB-2 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission"), with respect to the registration under the Securities Act of 1933, as amended (the "Act"), of 1,548,584 shares (the "Shares")of the Company's $.001 par value per share common stock (the "Common Stock").
In our capacity as counsel, we are familiar with the proceedings taken by the Company in connection with the authorization, issuance and sale of the Shares. In addition, in connection with the registration of the foregoing securities, we have reviewed such documents and records as we have deemed necessary to enable us to express an opinion on the matters covered hereby, including, but not limited to, certain agreements relating to the authorization, issuance, registration and sale of such securities and copies of resolutions of the Company's Board of Directors authorizing the issuance of such securities and their registration pursuant to the Registration Statement.
In rendering this opinion, we have (a) assumed (i) the genuineness of all signatures on all documents examined by us, (ii) the authenticity of all documents submitted to us as originals, and (iii) the conformity to original documents of all documents submitted to us as photostatic or conformed copies and the authenticity of the originals of such copies; and (b) relied on (i) certificates of public officials and (ii) as to matters of fact, statements and certificates of officers and representatives of the Company.
Based upon the foregoing, we are of the opinion that the Shares have been validly issued and are fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration Statement. In giving the foregoing consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission thereunder.
Nothing herein shall be deemed to relate to or constitute an opinion concerning any matters not specifically set forth above. The foregoing opinions relate only to matters of the internal law of the State of Delaware without reference to conflict of laws and to matters of federal law, and we do not purport to express any opinion on the laws of any other jurisdiction. We assume no obligation to supplement this opinion if, after the date hereof, applicable laws change, or we become aware of any facts that might change our opinions, as expressed herein.
The opinion expressed herein may be relied upon by the Company in connection with the registration of the Shares, as contemplated by, and in conformity with, the Registration Statement. With the exception of the foregoing, the opinion expressed herein may not be relied upon by any other person without our prior written consent.
We express no opinion as to compliance with the securities or "blue sky" laws of any state or country in which the Shares are proposed to be offered and sold.
Very truly yours,
Eaton & Van Winkle LLP
Exhibit 10.1
LICENSE AGREEMENT
LICENSE AGREEMENT (this "Agreement") as of November 21, 2005 (the "Effective Date") by and between DREESEN'S ENTERPRISES, INC., a New York corporation ("Licensor"), and NEWTOWN LANE MARKETING, INCORPORATED, a Delaware corporation.
A. Licensor has the exclusive rights to manufacture, market, package and promote doughnuts under the Licensed Mark (as that term is hereinafter defined) with respect to the Licensed Product (as that term is hereinafter defined).
B. Licensor entered into a Master License Agreement (the "Master License") with Donut Licensing Company, LLC ("DLC") pursuant to which DLC acquired the exclusive right to manufacture, market, package and promote doughnuts under the Licensed Mark with respect to the Licensed Product (as that term is hereinafter defined) in the states of Pennsylvania and Florida, and provided DLC enters into a certain number of sublicenses within the initial term of its agreement, the territory covered by the Master License will include the entire United States, exclusive of Suffolk County, New York.
C. Licensee desires to obtain a license to market and promote the Licensed Product using the Licensed Mark (as that term is hereinafter defined) and to grant sublicenses for the manufacture, sale, marketing and promotion of the Licensed Product using the Licensed Mark, within the Exclusive Territory (as hereinafter defined), and a non-exclusive sublicense to grant sublicenses for the manufacture, sale, marketing and promotion of the Licensed Product using the Licensed Mark, within the Non-exclusive Territory (as hereinafter defined, collectively with the Exclusive Territory, the "Territory"), and Licensor is willing to grant such rights and licenses to Licensee, all on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the mutual promises set forth below and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Licensor and Licensee agree as follows:
1. Definitions. The following definitions shall be applicable throughout this Agreement:
1.1 The term "Licensed Mark" means the trademark "DREESEN'S FAMOUS DONUTS(R)", in the type style and type face set forth on Exhibit "A" hereto, unaccompanied by any additional word, mark or symbol except as otherwise specifically approved in writing by Licensor, in its sole discretion.
1.2 The term "Licensed Product" means doughnuts manufactured, packaged, promoted and sold under the Licensed Mark made from certain ingredients and the secret original recipe created and developed by Rudolph S. DeSanti.
1.3 The term "Exclusive Territory" means all of the states and territories within the United States except for Florida, Pennsylvania and Suffolk County, New York.
1.4 The term "Non-exclusive Territory" means the states of Florida and Pennsylvania.
1.5 The term "Territory" means all of the states and territories within the United States except for Suffolk County, New York.
1.6 The term "Initial Term" means the period of approximately two years commencing on the Effective Date and ending on December 31, 2007, unless sooner terminated as provided herein. "Term" means the Initial Term and any renewal or continuation thereof.
1.7 The term "Start-up Kit" means a grouping of products consisting of the donut making machine known as the "Donut Robot," initial promotional materials and an initial supply of the Product Ingredients, as more fully described on Exhibit "B".
1.8 The term "New Customers" means all sublicensees of Licensee which purchase Start-up Kits from Licensee during the term of this Agreement, but shall not include any of the customers identified on Exhibit "C", or any sublicensees who purchase Start-up Kits directly from Licensor.
2. Granted Rights and Reservation.
2.1 License Grant. Subject to the terms and provisions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts:
(i) a non-exclusive right and license, during the Term of this Agreement, within the Territory, to market and promote the Licensed Product, to use the Licensed Mark in connection therewith, and with respect to advertising and promotion materials relating thereto
(ii) the sole and exclusive right and license in the Exclusive Territory and a non-exclusive right and license in the Non-Exclusive Territory, to grant non-exclusive, restricted sublicenses to third parties ("Sublicensees"), to manufacture, market, package, promote and make retail sales of the Licensed Product utilizing the Licensed Mark to consumers provided: (i) the sale of the Licensed Product by each Sublicensee shall be limited solely to a specified retail location, (ii) such retail location does not use the Licensed Mark to identify the retail location or form part of such Sublicensee's business or entity name, (iii) such retail location must offer other products and services for sale to consumers, (iv) the sale of the Licensed Product must constitute less than fifty (50%) percent of all products and services offered for sale at such retail location by such Sublicensee, (v) the term of each sublicense shall be for no more than 5 years and (vi) each sublicense shall provide that upon termination of this Agreement the sublicense shall become a direct agreement between the Sublicensee and Licensor except that Licensor shall not be liable for any obligation of Licensee thereunder.
2.2 Licensor's Reserved Rights. Excluded from the license granted herein are any and all rights granted by Licensor to DLC pursuant to the Master License or pursuant to the terms of certain license agreements between Licensor and the parties identified on Exhibit "C", annexed hereto, and the rights retained by Licensor and DLC to market, package and promote the Licensed Product and to use the Licensed Mark on or in connection with the Licensed Product, and advertising and promotion relating thereto, and to grant sublicenses within the Non-exclusive Territory. All rights other than those expressly granted by this Agreement are reserved by Licensor for its own use and benefit subject to the limitations expressly stated in this Agreement. The foregoing shall not be deemed to prohibit Licensee from exercising the rights granted in Section 2.1.
It is understood and agreed that the sale of the Licensed Product in Suffolk County, New York, was reserved by Licensor and not subject to the provisions of this Agreement.
3. Term and Renewal.
3.1 Initial Term. The Initial Term of this Agreement, and of the license granted in it, will commence on the Effective Date of this Agreement and will continue for the Initial Term.
3.2 Renewal Term. Licensee shall have the option to renew the Term of this Agreement for two (2) successive Renewal Terms of two (2) years each, consisting of the First Renewal Term and the Second Renewal Term. Licensee's option to renew this Agreement for each Renewal Term shall be exercisable only by notice to Licensor given not later than three (3) months prior to the conclusion of the then current Term. Such exercise shall be effective only if Licensee is in compliance with all the material terms and conditions of this Agreement at the time the option is exercised and upon the commencement of such renewal term and, provided Licensee has valid and existing sublicenses equal to or exceeding the following respective amounts:
Current Term Cumulative Number of Sublicenses ------------ -------------------------------- Initial Term 100 First Renewal Term 100 |
*Exclusive of any existing licensees of the Licensor or DLC who become sublicensees of the Licensee.
4. Licensed Product/Licensee's Obligations/Licensor's Obligations.
4.1 Proprietary Mixture. Licensee acknowledges that the ingredients of the Licensed Product, the recipe for the doughnut mixture and the process of manufacture of the Licensed Product constitute Master Licensor's valuable proprietary confidential information and trade secrets. Licensee agrees to safeguard and not disclose and agrees to cause its Sublicensees to safeguard and no disclose such proprietary confidential information.
4.2 Product Ingredients. Licensee shall manufacture and shall require all Sublicensees to manufacture the Licensed Product using the following ingredients (the "Product Ingredients"):
(i) Dreesen's Famous Donut proprietary original recipe mixture (the "Mix");
(ii) Dreesen's brand shortening ("Shortening"); and
(iii) Dreesen's brand of doughnut sugar for coating the doughnuts ("Sugar").
4.3 Start-up Kit Purchases.
4.3.1 Except as otherwise provided, all Start-up Kits to be used in connection with the manufacture and sale of the Licensed Product by Licensee and its Sublicensees shall be purchased by the Licensee from Licensor or such party as Licensor may designate. The initial price for the purchase of a Start-up Kit is set forth on Exhibit "B" annexed hereto. Prices for the Start-up Kits may be increased by Licensor, at any time, on no less than thirty (30) days prior notice to Licensee to reflect increases in the prices paid by Licensor for the components of the Start-up Kits. Prices do not include transportation and insurance costs or any federal, state or local sales, use or excise or other taxes which are to be paid by Licensee unless a Licensee provides Licensor with a valid resale certificate. The parties agree, on or about the first anniversary of the Effective Date of this Agreement, to review the situation with respect to Licensee's performance hereunder to determine whether it is appropriate to increase the amount paid to Licensor for the Start-up Kit.
4.3.2 Notwithstanding the provisions of Section 2.1(ii), Licensee agrees that Licensor may make direct sales of Start-up Kits to prospective sublicensees. In the case of such sales, such prospective sublicensees shall sign a sublicense agreement with Licensee and the obligations of the Licensor under this Agreement shall otherwise be applicable except that payment for the Start-up Kit shall be made directly to Licensor and Licensor shall pay to Licensee the sum of $1,000 for each such sublicense procured by Licensor.
4.3.3 Licensee shall provide Licensor with an ongoing three month forward looking rolling forecast with respect to Licensee's requirements of Start-up Kits. Licensee will provide such forecast based on commercially reasonable efforts but such forecast shall not obligate Licensee to pre-purchase, place orders or assume the cost for such forecasted Product Ingredients.
4.3.4 Payment for Start-up Kits shall be due and payable upon submission of a purchase order to Licensor. Unless otherwise approved by Licensor in advance, payment for Product Ingredients shall be due and payable upon delivery. All amounts past due shall incur interest at the rate of 1.5% per month or at the highest rate permitted by law, whichever
is less. Each shipment of Product Ingredient shall be considered a separate and independent transaction. All shipments and deliveries covered by a purchaser order shall at all times be subject to the credit approval of Licensor.
4.4 Product Ingredient Purchases.
4.4.1 Licensor shall directly sell to all Sublicensees such Product
Ingredients as they may request for the manufacture of Licensed Product
during and after the Term of this Agreement. Licensor shall pay to
Licensee $2.50 for each box (30 lbs.) of Mix sold to New Customers after
the Effective Date and for all reorders of each box of Mix by New
Customers. If boxes are sold in sizes other than 30 lbs. the amount paid
to Licensee will be adjusted appropriately so that Licensee is paid in
respect of each box sold the greater of $2.50 or such portion of
Licensor's gross margin on the sale of each box as $2.50 represents of the
gross margin on a 30 lb. box. The payments by Licensor to Licensee on
sales of Product Ingredients and other products provided for in this
Section shall terminate upon expiration or termination of this Agreement.
4.5 Licensed Product Materials.
4.5.1 All advertising and the use of promotional materials, cartons, containers, wrapping material, display material or other materials (collectively referred to as "Materials") and bearing the Licensed Mark shall be subject to the prior written approval of Licensor, not to be unreasonably withheld or delayed.
4.5.2 Fifty (50%) percent of the net profit derived from sales of promotional materials by Licensee shall be paid to Licensor. Licensee may sell such items to Sublicensees and third parties.
4.6 Equipment. The Licensed Product shall be produced solely utilizing a machine known as the "Donut Robot." The "Donut Robot" machine shall be purchased or leased by each Sublicensee from Licensor. Licensor makes no representations or warranties with respect to the availability, use or operation of the "Donut Robot." The use of any other equipment in connection with the manufacture of the Licensed Product shall be subject to the prior written approval of Licensor, which approval shall be within the sole discretion of Licensor. Licensor reserves the right to designate another donut making machine in place of the "Donut Robot."
4.7 Quality Standards. The Licensed Product may not be sold under any trademark or trade name other than the Licensed Mark, except that the Licensed Product's packaging may identify the Licensee or Sublicensee, as the case may be, as the source of such merchandise. Licensee shall be responsible for ensuring that the Licensed Product produced by Licensee and its Sublicensees and any actions undertaken by it and its Sublicensees satisfy all of the requirements of this Agreement. Licensee assumes all responsibility for any actions taken by Sublicensees relating to the use of the Licensed Mark and the manufacture, sale or distribution of the Licensed Product.
4.8 Commercially Reasonable Efforts. Licensee, from and after the execution of this Agreement, shall diligently proceed with and use commercially, reasonable efforts (i) to proceed with the manufacture, sale and marketing of the Licensed Product, (ii) to identify and enter into sublicense agreements with third parties for the manufacture and sale of the Licensed Product by such third party sublicensees, (iii) to create a demand for the Licensed Product and to increase and expand its business in the manufacture, sale and marketing of the Licensed Product in the Territory.
4.9 Support. Licensor will provide New Customers and Licensee such marketing, customer and technical support as is reasonably required from time to time. Such support shall include shipment of Start-up Kits and Product Ingredients, assisting Licensee in the preparation of instructional materials relating to set-up and operation of the Donut Robot machine and manufacture of doughnuts and reasonable ongoing technical and sales support.
4.10 Inquiries. Any inquiries received by Licensor or their representatives or agents regarding the sale of any of Licensed Product shall be forwarded to Licensee.
4.11 Audit Procedures.
4.11.1 Within fifteen (15) days after each calendar month, Licensee shall furnish or cause to be furnished to Licensor and Licensor shall furnish or cause to be furnished to Licensee, a written report covering such month showing, in the case of Licensee, the sales of Materials and the amount due Licensor in respect of the same in accordance with Subsection 4.5.2 (and the calculation of such amounts), and, in the case of Licensor, showing the amount of Product Ingredients other items and Start-up Kits sold by Licensor, Master Licensor, and the amount due Licensee in respect of the same in accordance with Subsections 4.3.2 and 4.4.1 (and the calculation of such amounts) and, in each case, withholding taxes, if any, required by law to be deducted in respect of such amounts. The report shall be accompanied by the payment of all monies due at that time.
4.11.2 Each party shall have the right, at its own expense, for the period during which payments are due such party pursuant hereto and for one (1) year thereafter, to have an independent accountant to whom the other party has no reasonable objection examine the relevant books and records of account of the other party during normal business hours and no more than once during each calendar year, to verify the accuracy of the reports called for by this Section and to determine whether appropriate payment has been made by hereunder. If the report of either party's (the "Examiner") independent accountant shows an underpayment of amounts due, the other party (the "Payer") shall promptly remit the amount of such underpayment.
4.12 Regulatory Matters; Compliance with Laws. Licensee shall be responsible for obtaining all necessary governmental approvals, registrations, consents, licenses and permits in connection with the rights and licenses granted to Licensee in this Agreement (collectively, "Approvals"), and complying with any all applicable statutory, administrative or regulatory requirements (collectively, "Laws") relating thereto.
5. Quality Assurance Procedures.
5.1 Product Quality Standard and Review.
5.1.1 Licensee agrees to manufacture, and to cause its Sublicensees to manufacture, the Licensed Product in accordance with the requirements of this Agreement. The Licensed Product shall consist of first quality, unadulterated food products, and will, in all material respects, conform to the standards established by Licensor.
5.1.2 Any approval for a particular Product Ingredient once given may be withdrawn if it appears that such Product Ingredient does not conform to Licensor's standards as then in effect or in any other manner does not comply with this Agreement.
5.1.3 If, at any time, Licensor shall make any changes to the Licensed Product, the particular ingredients constituting the Licensed Product, or the recipe for the Mix which shall require the withdrawal of approval of any ingredient previous1y approved by Licensor, Licensor shall notify Licensee that such approval has been withdrawn and the reasons therefor. Licensor shall give Licensee at least thirty (30) days notice of withdrawal, except if such withdrawal of approval is for health, legal or ethical reasons, in which event withdrawal of approval shall be effective upon the delivery of such notice. If such withdrawal of approval is for any reason other than health, legal or ethical reasons, Licensee and its Sublicensees can continue using existing Product Ingredients until such inventory is exhausted.
5.2 Inspections. Licensor, or its designees, shall have the right (but not the obligation) at all reasonable times during normal business hours to inspect the operations of Licensee and its Sublicensees, with the view to assuring that the manufacture of the Licensed Product meet the quality standards set forth herein and that the Licensed Product is being sold in conformity with the provisions of this Agreement.
6. Ownership and Use of Trademark.
6.1 Trademark Ownership. All use of the Licensed Mark pursuant to this Agreement by Licensee and its Sublicensees will inure to the benefit of Licensor. All rights in the Licensed Mark other than those specifically granted in this Agreement are reserved to Licensor for its own use and benefit. Licensee recognizes the great value of the Licensed Mark to Licensor, and during the Term of this Agreement or thereafter, Licensee will not attack Licensor's title in and to the Licensed Mark or DLC's rights under the Master License in any jurisdiction or attack the validity of this license.
6.2 Trademark Registrations. Licensor may, in its sole discretion and sole cost and expense, file applications for registration of the Licensed Mark for the Licensed Product, or amend existing registrations to cover such Licensed Product. Licensee will execute and deliver, and will cause its Sublicensees to execute and deliver, to Licensor, at any time whether during or after the Term of this Agreement, without charge, such documents, and will take
such other action, as Licensor may reasonably request to confirm or protect the ownership rights of Licensor, to record this license, or to enter or terminate Licensee as a registered user. Licensor shall also, at its sole cost and expense, take all necessary actions to maintain trademark registrations of the Licensed Mark in full force and effect during the Term. Licensee shall not register or attempt to register the Licensed Mark in its own name or the name of any third party in the United States or elsewhere; in the event that any such registration issues, Licensee shall immediately assign or cause the assignment of all of Licensee's or such third party's right, title and interest in and to such registration to Licensor.
6.3 Trademark Display and Marking. Licensee will display the Licensed Mark only in such form and manner as are specifically approved in writing by Licensor. Licensee will cause to appear on all Licensed Product, or on their containers, labels, tags and the like, and on all advertising, promotional and display materials, and on all stationery and transaction documents displaying the Licensed Mark, such legends, markings and notices as may be legally required in the territory of manufacture or sale or as Licensor may reasonably request.
6.4 Prohibited Trademark Uses.Licensee will not use the Licensed
Mark (i) as part of a trademark combining the Licensed Mark with another mark,
(ii) as a corporate name, trade name or any other designation to identify
Licensee or any subsidiary or affiliate, or (iii) in any manner other than as a
trademark.
6.5 Enforcement Against Infringers. In the event that Licensee becomes aware of any activities or events which it suspects may constitute an infringement by one or more third parties of the rights granted to Licensee under this Agreement with respect to the Licensed Mark, Licensee shall promptly give notice to Licensor of such infringement. Licensor shall then have the right, in its sole discretion and at its expense, to take such actions as it may deem necessary and appropriate to protect and defend the rights granted in this Agreement, including, but not limited to, the institution of appropriate legal proceedings. If requested by Licensor, Licensee will join with Licensor in such actions or proceedings at Licensor's expense. Licensor shall be entitled to retain all monetary recoveries resulting from such actions or proceedings or their settlement. In the event that Licensor fails to take any action against an infringer after notice thereof from Licensee then Licensee may do so at Licensee's expense, and the monetary recoveries resulting from such actions or proceedings shall be retained by Licensee.
6.6 Future Grants. For so long as this Agreement is in effect, Licensor shall not grant to any third party the right to grant sublicenses as provided in Section 2.1(ii) hereof.
7. Representations and Warranties.
7.1 Representations and Warranties by Licensor. Licensor hereby makes the following representations and warranties for the benefit of Licensee:
7.1.1 Ownership of Licensed Assets. Licensor is the sole, true and lawful owner of the Licensed Mark. The Master License is in full force and effect.
7.1.2 No Third Party Rights. Except for Licensee, Licensor, DLC and the sublicensees identified on Exhibit "C", no person has any rights to use any of the Licensed Mark as a trademark.
7.1.3 Licensor's Condition. Licensor is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York, and is duly qualified and is in good standing in each jurisdiction in which the nature of its business requires it to be so qualified.
7.1.4 Licensor's Authority. Licensor has the power and authority to own its property and assets, to conduct its business as it is now being conducted, and, subject to the consent of DLC as to the provisions of this Agreement that conflict with those in the Master License, to execute and deliver this Agreement and to perform the transactions contemplated hereby.
7.1.5 Effect of this Agreement. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby:
(a) have been duly authorized by all necessary corporate action on the
part of Licensor; (b) subject to the consent of Master Licensor as to the
provisions of this Agreement that exceed or conflict with those in the
Master License, do not contravene or cause Licensor to be in default under
its charter or by-laws, any contractual restriction contained in any
indenture, loan or credit agreement, lease, mortgage, security agreement,
bond, note or other agreement or instrument binding on or affecting
Licensor or its property or assets or any law, rule, regulation, order,
writ, judgment, award, injunction or decree applicable to, binding on or
affecting Licensor or its property or assets; and (c) do not result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of Licensor, except as
expressly contained herein or pursuant to the documents attached as
Exhibits hereto.
7.1.6 No Other Consents Required. No consent of or other action by, and no notice to or filing with, any governmental agency or other party is required for the execution, delivery and performance by Licensor of this Agreement.
7.1.7 Enforceability of this Agreement. This Agreement has been duly executed and delivered on behalf of Licensor and is the legal, valid and binding obligation of Licensor enforceable against Licensor in accordance with its terms.
7.2 Representations and Warranties by Licensee. Licensee hereby makes the following representations and warranties for the benefit of Licensor:
7.2.1 Licensee's Condition. Licensee is a corporation duly organized and validly existing under the laws of the State of Delaware, and is duly qualified and is in good standing in each jurisdiction in which the nature of its business requires it to be so qualified.
7.2.2 Licensee's Authority. Licensee has the power and authority to own its properties and assets, to conduct its business as it is now being conducted and to execute and deliver this Agreement to perform the transactions contemplated hereby.
7.2.3 Effect of this Agreement. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby:
(a) have been duly authorized by all necessary action on the party of
Licensee; (b) do not contravene or cause Licensee to be in default under
its articles of organization or operating agreement, any contractual
restriction contained in any indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note or other agreement or instrument
binding on or affecting Licensee or its property or assets or any law,
rule, regulation, order, writ, judgment, award, injunction or decree
applicable to, binding on or affecting Licensee or its property or assets;
and (c) do not result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets
of Licensee, except as expressly contained herein or pursuant to the
documents attached as Exhibits hereto.
7.2.4 No Other Consents Required. No consent of or other action by, and no notice to or filing with, any governmental agency or other party is required for the execution, delivery and performance by Licensee of this Agreement.
7.2.5 Enforceability of this Agreement. This Agreement has been duly executed and delivered on behalf of Licensee and is the legal, valid and binding obligation of Licensee enforceable against Licensee in accordance with its terms.
8. Confidentiality.
8.1 All information, whether written, oral or in any other form or medium, provided and/or revealed to Licensee pursuant to this Agreement and/or otherwise relating to Licensor's and Master Licensor's business and affairs (collectively "Confidential Information") will be treated as confidential by Licensee and will not be used or disclosed to any person by Licensee, its mangers, officers, agents and employees, without the prior written consent of Licensor. All Confidential Information will be maintained by Licensee in confidence. Licensee will not disclose Confidential Information, or permit Confidential Information to be disclosed, to any person, except to the employees, agents or representatives of Licensee or to its Sublicensees, who need to know the Confidential Information, who are informed of the confidential nature of the Confidential Information and who agree to be bound to maintain its confidentiality. The obligation not to disclose Confidential Information will not apply to information that (i) is or becomes generally available to the public other than as a result of disclosure by Licensee or any of its Sublicensees, (ii) was readily available to Licensee on a non-confidential basis prior to disclosure, (iii) was in the Licensee's lawful possession as evidenced by records kept in the ordinary course of business or by proof of actual possession prior to Licensor's disclosure of such information to Licensee, (iv) becomes available to Licensee on a non-confidential basis from a source other
than Licensor which source is not known by Licensee or by any legal, fiduciary or ethical constraints on disclosure, or (v) is required to be disclosed pursuant to order or decree of any judicial, administrative or other proper authority having jurisdiction over Licensee, in which case Licensee will give the Licensor notice prior to making disclosure, and if so requested to do so, will use all reasonable efforts to obtain an appropriate protective order or similar protection before making the disclosure.
9. Indemnification / Insurance.
9.1 Indemnification by Licensee. Licensee shall indemnify, defend and hold harmless Licensor and its officers, employees, representatives and agents, and its successors and assigns (collectively, the "Licensor Indemnified Parties"), from and against any and all costs, expenses, losses, damages and liabilities (including reasonable attorneys' fees and expenses) ("Damages") suffered by any of the Licensor Indemnified Parties resulting from, arising out of, relating to or incurred with respect to:
9.1.1 any breach by the Licensee of this Agreement (including in respect of any representation or warranty of Licensee as of the Effective Date); and
9.1.2 any suit, investigation, claim or demand by a third party against any Licensor Indemnified Party resulting from, arising out of, relating to or incurred with respect to the business, operations, conduct, acts or omissions of Licensee or Sublicensees, including (i) the use of the Licensed Mark, (ii) any failure by any such Person to comply with any applicable Law, (iii) acts or omissions constituting fraud, tortious conduct, unfair trade practices, negligence or willful misconduct, or resulting in damage or destruction of property, injury, death, loss or other damages of any kind and (iv) any agreement by or among Licensee and its Sublicensees or any other Person relating in any way to the Licensed Mark, including any termination thereof or breach thereof, except with respect to all of the foregoing for those Damages for which Licensor has an obligation to indemnify a Licensee Indemnified Party pursuant to the terms of Section 9.2.
9.2 Indemnification by Licensor. Licensor shall indemnify, defend and hold harmless Licensee and its officers, employees, representatives and agents thereof, and Licensee's successors and assigns (collectively, the "Licensee Indemnified Parties"), from and against any and all Damages suffered by any of the Licensee Indemnified Parties resulting from, arising out of, relating to or incurred with respect to:
9.2.1 any breach by Licensor of this Agreement (including in respect of any representation or warranty of Licensor as of the Effective Date);
9.2.2 any claim whether in tort, contract or otherwise, by DLC that the execution and delivery of this Agreement, or the grant of the rights provided for herein in any way infringes upon or interferes with the rights granted to it in the Master License.
9.2.2 any third-party claim against any Licensee Indemnified Party
that the use of the Licensed Mark pursuant to this Agreement violates or
infringes the trademark, copyright, right of publicity or privacy or other
intellectual property rights of such third-party except to the extent
resulting from, arising out of, relating to or incurred with respect to
(i) any use of the Licensed Mark by any Person in breach of this Agreement
or by any Sublicensee, (ii) any combination the Licensed Mark with any other mark or (iii) the provision of any product or service other than the Licensed Product under the Licensed Mark.
9.3 Notification. If any demand, claim or suit is asserted or instituted with respect to which a party may be entitled to indemnification under the foregoing provisions, such party will give prompt notice thereof to the party who may be liable for indemnification, including full details to the extent known. The indemnified party will be entitled at its own expense to participate in the defense of such asserted demand, claim or suit.
9.4 Insurance. Licensee shall maintain at its own expense in full force and effect at all times during which the License Product is being sold by Licensee and any of its Sublicensees, with recognized and responsible insurance carriers licensed to do business in the Territory, products liability insurance coverage with limits of liability of up to Two Million Dollars ($2,000,000.00) per accident or occurrence with respect to the manufacture, sale, marketing and promotion of the Licensed Product. Liability coverage under such insurance policy shall include but shall not be limited to claims resulting from accidents or occurrences arising out of any alleged defect in the Licensed Product. Such insurance shall be in such form and of such duration as shall insure against all accidents or occurrences occurring at all times during which the Licensed Product is being sold by Licensee, regardless of when claim may be made. Such insurance shall be for the benefit of and shall name as an additional insured Licensor, and its officers, directors and employees and shall provide at least thirty (30) days' prior written notice to Licensor of the cancellation or modification thereof. Contemporaneous with the execution and delivery of this Agreement, Licensee shall provide Licensor with a certificate of insurance from the insurance carrier setting forth the scope of coverage and limits of liability consistent with the requirements of this Section 9.4. Licensee's maintenance of the insurance coverage as provided herein shall not limit, excuse or replace any of Licensee's obligations under the provisions of Section 8.1 hereof, which shall remain absolute.
10. Termination and Remedies upon Breach.
10.1 Termination. Licensor, at its option and in its sole discretion, may immediately terminate this Agreement, upon or at any time after the occurrence of any of the following events ("Events of Default"):
10.1.1 If Licensee fails to make any payment when due, Licensor may give Licensee written notice specifying the default. If the payment obligation is undisputed and Licensee does not cure the default within thirty (30) days after the giving of Licensor's notice, then except as otherwise provided in this Agreement, Licensor may terminate this Agreement, effective immediately, by giving a written notice of termination to Licensee at any time before the default has been cured. An underpayment of an amount due pursuant to Subsection 4.5.2 shall not be grounds for termination of this Agreement if the underpayment is made up within the period provided in Section 4.10.
10.1.2 If Licensor believes that Licensee has committed a substantial breach of any material representation, warranty or covenant under this Agreement, other than a nonpayment default, then Licensor shall give Licensee written notice specifying the alleged breach in reasonable detail. Licensee will have sixty (60) days from the giving of Licensor's notice to cure the breach, or if it cannot be cured within that period, Licensee will be obligated to commence steps to cure the breach within that period and to proceed diligently to cure it thereafter. If Licensee fails or refuses to take the required steps to cure the breach, or if Licensee disputes Licensor's allegation of breach, the parties will promptly commence good faith negotiations to resolve the dispute. If these negotiations fail, the provisions of Section 10.2 below will apply.
10.1.3 If Licensee files a petition in bankruptcy, is adjudicated a bankrupt or files a petition or otherwise seeks relief under or pursuant to any bankruptcy, insolvency or reorganization statute or proceeding, or if a petition in bankruptcy is filed against it or it becomes insolvent or makes an assignment for the benefit of its creditors or a custodian, receiver or trustee is appointed for it or a substantial portion of its business or assets.
10.1.4 If there is a transfer or issuance of ownership interests of Licensee and as a result thereof any entity which competes with Licensor in the production and distribution of donuts, including but not limited to, Dunkin Donuts and Crispy Creme, owns or controls a majority of the outstanding stock of Licensee.
10.2 Arbitration. Upon the demand of either party, the parties will
submit to binding arbitration pursuant to this section any unresolved
dispute under Section 10.1.2 above, or any other dispute concerning the
construction, interpretation or effect of this Agreement or any clause
contained in it. The arbitration will take place exclusively in New York,
New York in accordance with the rules and regulations of the American
Arbitration Association then in effect, subject however, to the following
provisions: (a) the dispute will be submitted to three (3) arbitrators, of
which one (1) will be appointed by Licensor and one (1) will be appointed
by Licensee, and the third by the former two; and (b) all periods of time
provided for in the American Arbitration Awards rules of less than thirty
(30) days will be deemed extended to thirty (30) days. Any Arbitration
Award will be final and conclusive and binding upon the parties without
the right to Appellate review. Any Arbitration Award will not include the
termination of this Agreement.
10.3 Effect of Termination. Upon the expiration or earlier termination of this Agreement:
10.3.1 The right of Licensee to manufacture, market, package and promote the Licensed Product and to use the Licensed Mark on or in connection with the Licensed Product shall immediately terminate.
10.3.2 The right of Licensee to grant sublicenses shall immediately terminate; provided, however, the termination of the rights granted to Licensee pursuant to this Agreement will not terminate any Sublicenses granted by Licensee and Licensor shall be deemed to be substituted for Licensee as a sublicensor on all such Sublicenses; provided further, however, Licensor shall not be deemed to have assumed any obligation or claim by any Sublicensee against Licensee existing as of the date of termination of the licenses granted to Licensee pursuant to this Agreement.
10.3.3 Licensee shall immediately deliver to Licensor a complete and
accurate list of (i) all Sublicenses together with copies of same, and
(ii) of Licensee's inventory of Product Ingredients. Licensee shall have
the right to fulfill all orders from Sublicensees for Product Ingredients
received by Licensee as of the date of termination but only to the extent
of inventory available as of such date. Licensor shall purchase the
remaining inventory of Product Ingredients at its cost, which sum shall
first be applied to any obligation due from Licensee to Licensor, and the
balance shall be paid to Licensee within ten (10) days of receipt and
inspection of such remaining inventory.
10.4 Surviving Obligations. The expiration or termination of this Agreement will not release Licensee from any previously accrued obligation and Licensee will remain bound by the provisions of this Agreement which by their terms impose upon Licensee obligations extending beyond the date of expiration or termination.
11. Miscellaneous
11.1 Assignment. Subject to the Licensee's right to grant Sublicenses in accordance with the provisions of Section 2.1(ii) hereof, this Agreement and the rights granted hereunder may not be assigned by Licensee without the prior written consent of Licensor, in the Licensor's absolute discretion.
11.2 Binding Effect and Survival of Rights. This Agreement will benefit and bind the parties and their respective permitted successors and assigns.
11.3 Notices. All notices, demands, requests and other communications required or permitted to be given by any provision of this Agreement will be in writing and sent by first class, regular, registered or certified mail, commercial delivery service, overnight courier, telegraph, telex, facsimile transmission, air or other courier, or hand delivery, to the party to be notified addressed as follows:
If to Licensor: Dreesen's Enterprises, Inc.
33 Newton Lane
East Hampton, New York 11937
Attention: Rudolph S. DeSanti
With Required Copy to: Cowan, Liebowitz & Latman, P.C.
1133 Avenue of the Americas
New York, New York 10036
Attention: Jeremy Nussbaum, Esq.
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If to Licensee: Newton Lane Marketing Incorporated
c/o Eaton & Van Winkle
3 Park Avenue, 16th Floor
New York, New York 10016
Attention: Vincent J. McGill, Esq.
With Required Copy to: Eaton & Van Winkle, LLP
3 Park Avenue, 16th Floor
New York, NY 10016
Attention: Vincent J. McGill, Esq.
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Any such notice, demand, request or communication will be deemed to have been given and received for all purposes under this Agreement: (a) the day it is deposited in any official depository or receptacle of the United States Postal Service first class certified mail, return receipt requested, postage prepaid; (b) on the date of transmission when delivered by facsimile transmission, (provided receipt is confirmed and such notice is promptly confirmed by notice given by some other means described herein); (c) on the next business day after the same is deposited with a nationally recognized overnight delivery service that guarantees overnight delivery; and (d) on the date of actual delivery to such party by any other means; provided, however, if the day such notice, demand, request or communication will be deemed to have been given and received as aforesaid is not a business day, such notice, demand, request or communication will be deemed to have been given and received on the next business day.
Any party to this Agreement may change such party's address for the purpose of notice, demands, requests and communications required or permitted under this Agreement by providing written notice of such change of address to all of the parties by written notice as provided herein.
11.4 Equitable Relief Including Injunction. The parties acknowledge that any breach of their respective obligations under this Agreement with respect to proprietary rights or confidential information will cause immediate irreparable injury for which there are inadequate remedies at law, and therefore, notwithstanding the provisions of Section 10.2 hereof, the injured or potentially injured party will be entitled to equitable relief, specifically including an injunction, without having to post bond, prohibiting the breaching or potential breaching party from any further breach or potential breach, in addition to all other remedies provided by this Agreement or available at law.
11.5 Limitation of Remedies. Neither of the parties hereto shall be liable to the other party for any indirect, special, incidental, consequential, exemplary or punitive damages, or for lost profits, unrealized expectations or other similar terms, claimed by such other party resulting from such first party's breach of its obligations, agreements, representations or warranties hereunder, provided that nothing in this Section 11.5 shall preclude any recovery by a party entitled to indemnification pursuant to Article 9 for such Damages payable to any third party as a result of a third party claim.
11.6 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, LICENSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
WITH RESPECT TO THE LICENSED MARK AND THE OTHER MATTERS CONTEMPLATED BY THIS
AGREEMENT, INCLUDING (I) ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, (II) ANY WARRANTY WITH RESPECT TO THE VALIDITY OR
ENFORCEABILITY OF, OR OF ANY NON-INFRINGEMENT RELATING TO, THE USE OF ANY
LICENSED MARK IN CONNECTION WITH ANY AUTHORIZED ANCILLARY SERVICE AND (III) ANY
WARRANTY ARISING THROUGH COURSE OF DEALING OR USAGE OF TRADE.
11.7 Incorporation. All exhibits and schedules attached hereto, or to be attached hereto, and all other agreements and instruments referred to herein are hereby incorporated by reference into this Agreement as fully as if copied herein verbatim.
11.8 Further Assurances. The parties further agree that, upon request, they will do such further acts and deeds and will execute, acknowledge, deliver and record such other documents and instruments as may be reasonably necessary from time to time to evidence, confirm or carry out the intent and purpose of this Agreement.
11.9 Lawful Authority.If any party executing this Agreement is a corporation or limited liability company, the individual executing on behalf of the corporation or limited liability company hereby personally represents and warrants to all other parties that he/she has been fully authorized to execute and deliver this Agreement on behalf of (a) the corporation pursuant to a duly adopted resolution of its Board of Directors, or by virtue of its bylaws; or (b) the limited liability company pursuant to a duly adopted resolution of its members or by virtue of its operating agreement.
11.10 Attorney's Fees. If any legal action or other proceeding (including arbitration pursuant to this Agreement) is brought for the enforcement of this Agreement, including the enforcement of the indemnification provisions contained in Section 9, or because of any alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement and such action is successful, the prevailing parties will be entitled to recover reasonable attorney's fees, court costs and all reasonable expenses, even if not taxable or assessable as court costs (including, without limitation, all such fees, costs and expenses incident to appeal) incurred in that action or proceeding in addition to any other relief to which such party may be entitled.
11.11 Waivers and Consents.
11.11.1 Each and every waiver of any covenant, representation, warranty or other provision of this Agreement must be in writing and signed by each party whose interests are adversely affected by such waiver.
11.11.2 No waiver granted in any one instance will be construed as a continuing waiver applicable in any other instance.
11.11.3 No waiver by any party to this Agreement to or of any breach or default by any other party to this Agreement in the performance by such other party of its obligations hereunder will be deemed or construed to be a waiver of any breach or default of any other party of the same or any subsequent obligations hereunder.
11.11.4 Failure on the part of any party to this Agreement to complain of any act or failure to act of any party to this Agreement or to declare such party in default, irrespective of how long such failure continues, will not constitute a waiver by the non-defaulting parties of their rights hereunder.
11.11.5 Each and every consent by any party to this Agreement must be in writing signed by the party to be bound thereby. No consent will be deemed or construed to be a consent to any action except as described in such writing.
11.12 Section Headings, Gender and "Person". The Section headings contained in this Agreement are for reference purposes only and will not affect the interpretation of this Agreement. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular, or plural, and any other gender, masculine, feminine or neuter, as the context requires. Any reference to a "person" herein shall include any individual, firm, corporation, partnership, trust, governmental authority or body, association, unincorporated organization of any other entity.
11.13 Governing Law. This Agreement will be governed in all respects, including validity, interpretation and effect by, and will be enforceable in accordance with, the internal laws of the State of New York, without regard to conflicts of laws principles.
11.14 Severability. If any provision of this Agreement is held to be unlawful, invalid or unenforceable under present or future laws effective during the term hereof, such provision will be fully severable, and this Agreement will be construed and enforced without giving effect to such unlawful, invalid or unenforceable provision. Furthermore, if any provision of this Agreement is capable of two (2) constructions, one of which would render such provision void, and the other which would render such provision valid, then the provision will have the meaning which renders it valid.
11.15 Counterpart Execution. This Agreement may be executed in multiple counterparts, each one of which will be deemed and original, but all of which will be considered together as one and the same instrument. Further, in making proof of this Agreement, it will not be necessary to produce or account for more than one (1) such counterpart. Execution by party of a signature page hereto will constitute due execution and will create a valid, binding obligation of the party so signing, and it will not be necessary or required that the signatures of all parties appear on a single signature page hereto.
11.16 Amendments. Each and every modification and amendment of this Agreement must be in writing and except as otherwise provided herein, signed by all the parties hereto.
11.17 Entire Agreement.This Agreement contains the entire agreement between the parties regarding the subject matter hereof. Any prior agreements, discussions or representations not expressly contained herein, and no party has relied on any such prior agreements, discussions or representations as an inducement to the execution hereof.
11.18 Relationship of the Parties.
11.18.1 The parties acknowledge that neither Licensee nor any sublicensee has been asked by Licensor to pay a direct or indirect franchise fee to Licensor. The parties further acknowledge that is not the intent of the parties that Licensor enter into a franchise relationship with Licensee or any of its sublicensees, and such rights as Licensor is provided by this Agreement are for the purpose of maintaining the integrity and value of the Licensed Mark, and such rights do not, and are not intended to, permit Licensor to control the business operations of Licensee or any of its sublicensees, notwithstanding that some sublicensees may be franchisees of Licensee.
11.18.2 The parties further acknowledge and agree that this Agreement does not create a fiduciary relationship between the parties, and each party hereto shall be an independent contractor. The parties are not partners, joint venturers, or agents or in a franchisor-franchisee relationship and nothing in this Agreement is intended by the parties to create, nor shall be construed to place them in, any such relationship.
[Signature on following page]
COUNTERPART SIGNATURE PAGE TO
LICENSE AGREEMENT
LICENSOR:
DREESEN'S ENTERPRISES, INC.
By: /s/ Rudolph S. DeSanti, Sr.
--------------------------------
Name: Rudolph S. DeSanti, Sr.
Title: President
|
LICENSEE:
NEWTON LANE MARKETING,
INCORPORATED
By: /s/ Richard M. Cohen
--------------------------------
Name: Richard M. Cohen
Title: Chief Executive Officer
|
Exhibit "A"
Licensed Mark
Exhibit "B"
Start-Up Kit
Item Quantity Amount due Licensor
---- -------- -------------------
"Donut Robot" Mark II Machine 1
Mix (30 lb. box) 4
Shortening (50 lb. box) 3
Sugar (30 lb. box)(Cinnamon) 1
Sugar (30 lb. box )(Powdered) 1
Shortening Reserve Tank 1
7-Quart Mixer 1
Sheet Pan (18-1/2 x 24) 2
Window Sign 1
Donut Apron 1
Donut Hat 1
Donut T-Shirt 1 -----------
$9,000
|
Exhibit "C"
Dreesen's Famous Donuts(R) Existing Licensees
--------------------------------------------------------------------------------
Dreesen's Famous Donuts Scoop Du Jour
Corporate Office 35 Newtown Lane
33 Newtown Lane East Hampton, NY 11937
East Hampton, NY 11937
--------------------------------------------------------------------------------
Bagel Buoy ABA International
Box 1197
Sag Harbor, NY 11963
--------------------------------------------------------------------------------
Robert Berkley Carversville General Store
6208 Fleecydale Road
Carversville, PA 18913
--------------------------------------------------------------------------------
Tiny Winy Donuts Heartland Brewery
65-24 162nd Street Empire State Building
Flushing, NY 11365 350 Fifth Avenue
New York, NY 10118
--------------------------------------------------------------------------------
Baltizar The Hole Scoop
80 Spring Street 2777 Dixwell Avenue
New York, NY 10012 Hamden, CT 06518
--------------------------------------------------------------------------------
Homer's Variety Volume Services America
64 Brunell Avenue d/b/a Certerplate Food Services
Lenox, MA 01240 Jacob Javits Center
655 West 34th Street
New York, NY 10001
--------------------------------------------------------------------------------
LIC Restaurant Group The Milk Pail
4231 9th Street 757 Mecox Road
Long Island City, NY 11101 Water Mill, NY 11976
--------------------------------------------------------------------------------
Ottomanelli's Port City Java (3 locations)
1549 York Avenue 10 South Main Street
New York, NY 10028 Greenville, SC 29601
--------------------------------------------------------------------------------
Eric Reddin Ronnie's Deli
"Gonuts For Donuts" Box 160
Main Street
Montauk, NY 11954
--------------------------------------------------------------------------------
Route 22 Restaurant The Sandwich Club
55 Old Route 22 Hazelwood Drive
Armonk, NY 10504 Westhampton, NY
--------------------------------------------------------------------------------
|
--------------------------------------------------------------------------------
The Tavern on the Green Woodside Farms
76th Street & Central Park West 70 Woodside Lane
New York, NY 1002_ Laurel, NY 119__
--------------------------------------------------------------------------------
Tom Bailey's Market Sunset Beach Restaurant
132 Third Avenue Sunset Beach
Spring Lake, NJ 07762 Shelter Island, NY
--------------------------------------------------------------------------------
"75" Main Metropolitan Food Service
Main Street The City College of the City of New York
Southampton, NY 11969 St. Nicholas Avenue
New York, NY
--------------------------------------------------------------------------------
Metropolitan Food Service Centerplate Food Service
Long Island City, NY New York, NY
--------------------------------------------------------------------------------
Dearie's Gourmet Garage
Newark Valley, NY New York, NY
--------------------------------------------------------------------------------
Cortland College Damerons Market
2962 River Road W
Goochland, VA 23063
--------------------------------------------------------------------------------
Bloominglade's Dock'N Donuts
Corporate Testing - Up to 20 Princeton Junction, NJ
locations
--------------------------------------------------------------------------------
Suncoast Resort and Hotel Mariani's Garden Market
St. Petersburg, FL Greenwich, CT
--------------------------------------------------------------------------------
American Brasserie United States Military Academy
92nd Street & Madison Avenue West Point, NY plus Fort Dix, NJ and two New
New York, NY England military locations
--------------------------------------------------------------------------------
Kevin Rambold WCI - The Colony, Golf and Country Club
Manchester, VT Bonita Springs, FL and up to 17 other club
locations
--------------------------------------------------------------------------------
|
Exhibit "D"
Initial Product Ingredient Price List and Compensation
Exhibit 10.2
NEWTOWN LANE MARKETING, INCORPORATED
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 4th day of April, 2006, by Newtown Lane Marketing, Incorporated, a Delaware corporation (hereinafter called the "Company"), with J. Barry Richman (hereinafter called the "Holder"):
The Company has adopted a 2006 Stock Incentive Plan (the "Plan"). Said Plan, as it may hereafter be amended and continued, is incorporated herein by reference and made part of this Agreement.
The Board, which in the absence of a Committee is charged with the administration of the Plan pursuant to Section 4 of the Plan, has determined that it would be to the advantage and interest of the Company to grant the option provided for herein to the Holder as an inducement to remain in the service of the Company or one of its subsidiaries, and as an incentive for increased efforts during such service.
NOW, THEREFORE, pursuant to the Plan, the Company hereby grants to the Holder as of the date hereof an option (the "Option") to purchase all or any part of seven hundred fifty thousand (750,000) shares of Common Stock of the Company, par value $.001 per share, at a price per share of twenty-five cents ($.25), which price is not less than the fair market value of a share of Common Stock on the date hereof (or 110% of the fair market value of a share of Common Stock if the Holder is a 10% Holder (as defined in the Plan)), and upon the following terms and conditions:
1. The Option shall continue in force through June 30, 2011 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan. Subject to the provisions of the Plan, the Option shall become exercisable as of the date hereof as to 50,000 shares, and on a cumulative basis, as to an additional 50,000 shares on the last day of each of June, September and December 2006, and the last day of each of March, June, September and December of 2007, and as to the balance, that is, 350,000 shares as of January 1, 2008, provided, that as of each of such dates the Holder is serving as a consultant to the Company. Provided, further, however, that notwithstanding anything else contained herein, this Option shall become immediately exercisable in full upon the death or disability of Holder or if the employment of the Holder by the Company shall be terminated by the Company without cause.
2. In the event that the employment or service of the Holder shall be terminated prior to the Expiration Date (otherwise than by reason of death or disability), the Option may, subject to the provisions of the Plan, be exercised (to the extent that the Holder was entitled to do so at the termination of this employment or service) at any time prior to but not after the Expiration Date. If, however, such termination shall have been for cause or voluntarily by the Holder and without the consent of the Company or any subsidiary corporation thereof, as the case may be (which consent shall be presumed in the case of normal retirement), then prior to the third anniversary of such termination, the Holder will not, without the prior written consent of the Company, (i) sell, offer to sell, contract to sell, hypothecate, pledge, grant any option to sell or otherwise dispose of, or file (or participate in the filing of) a registration statement with the Securities and Exchange Commission (the "Commission") in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, with respect to, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether any such transaction is to be settled by delivery of Common Stock, other securities, in cash or otherwise, or (iii) publicly announce an intention to effect any transaction specified in clause (i) or (ii). The foregoing notwithstanding, the undersigned may dispose of shares of Common Stock which are disposed of as bona fide gifts, approved by the Company, to transferees who enter into lock-up agreements with the Company on the same terms and conditions as set forth herein.
Nothing in this Agreement shall confer upon the Holder any right to continue in the employ or service of the Company or any subsidiary of the Company or affect the right of the Company or any subsidiary to terminate his employment or service at any time.
3. (a) The Holder may exercise the Option with respect to all or any part of the shares then purchasable hereunder by giving the Company written notice in the form annexed, as provided in paragraph 7 hereof, of such exercise. Such notice shall specify the number of shares as to which the Option is being exercised and shall be accompanied by payment in full in cash of an amount equal to the exercise price of such shares multiplied by the number of shares as to which the Option is being exercised; provided that, if permitted by the Board, the purchase price may be paid, in whole or in part, by surrender or delivery to the Company of securities of the Company having a fair market value on the date of the exercise equal to the portion of the purchase price being so paid. In such event fair market value should be determined pursuant to the Plan.
(b) Prior to or concurrently with delivery by the Company to the Holder of a certificate(s) representing such shares, the Holder shall, upon notification of the amount due, pay promptly any amount necessary to satisfy applicable federal, state or local tax requirements. In the event such amount is not paid promptly, the Company shall have the right to apply from the purchase price paid any taxes required by law to be withheld by the Company with respect to such payment and the number of shares to be issued by the Company will be reduced accordingly.
4. Notwithstanding any other provision of the Plan, in the event of a change in the outstanding Common Stock of the Company by reason of a stock dividend, split-up, split-down, reverse split, recapitalization, merger, consolidation, combination or exchange of shares, spin-off, reorganization, liquidation or the like, then the aggregate number of shares and price per share subject to the Option shall be appropriately adjusted by the Board, whose determination shall be conclusive.
5. This Option shall, during the Holder's lifetime, be exercisable only by the Holder, and neither this Option nor any right hereunder shall be transferable by the Holder, by operation of law or otherwise, except by will or by the laws of descent and distribution. In the event of any attempt by the Holder to transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of any right hereunder, except as provided for herein, or in the event of the levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate this Option by notice to the Holder and it shall thereupon become null and void.
6. Neither the Holder nor in the event of the Holder's death, any person entitled to exercise the rights of the Holder hereunder, shall have any of the rights of a stockholder with respect to the shares subject to the Option until share certificates have been issued and registered in the name of the Holder or the Holder's estate, as the case may be.
7. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of its Secretary, at 33 Newtown Lane, East Hampton, New York 11937 and any notice to the Holder shall be addressed to the Holder at the address now on file with the Company, or to such other address as either may last have designated to the other by notice as provided herein. Any notice so addressed shall be deemed to be given on the second business day after mailing, by registered or certified mail, at a post office or branch post office within the United States.
8. In the event that any question or controversy shall arise with respect to the nature, scope or extent of any one or more rights conferred by this Option, the determination by the Board, or if one had been appointed, the Committee (as constituted at the time of such determination) of the rights of the Holder shall be conclusive, final and binding upon the Holder and upon any other person who shall assert any right pursuant to this Option.
Newtown Lane Marketing, Incorporated
By: ____________________________________
Name:
Title:
ACCEPTED AND AGREED
FORM OF NOTICE OF EXERCISE
TO: Newtown Lane Marketing, Incorporated
The undersigned hereby exercises options to purchase __________ shares of Common Stock of Newtown Lane Marketing, Incorporated (the "Company") as provided in the Stock Option Agreement dated as of __________, ___ at $__________ per share, a total of $__________ and makes payment therefor as follows:
(1) To the extent of $__________ of the purchase price, the undersigned hereby surrenders to the Company certificates for shares of its Common Stock which, valued at $__________ per share, the fair market value thereof, equals such portion of the purchase price.
(2) To the extent of the balance of the purchase price, the undersigned has enclosed a check payable to the order of the Company for $__________.
A stock certificate or certificate for the shares should be delivered in person or mailed to the undersigned at the address shown below.
The undersigned hereby represents and warrants that it is the undersigned's present intention to acquire and hold the aforesaid shares of Common Stock of the Company for his or her own account for investment, and not with a view to the distribution of any thereof, and agrees that he or she will make no sale, thereof, except in compliance with the applicable provisions of the Securities Act of 1933, as amended.
Dated: __________________________
Exhibit 10.3
NEWTOWN LANE MARKETING, INCORPORATED
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 4th day of April, 2006, by Newtown Lane Marketing, Incorporated., a Delaware corporation (hereinafter called the "Company"), with John Baring (hereinafter called the "Holder"):
The Company has adopted a 2006 Stock Incentive Plan (the "Plan"). Said Plan, as it may hereafter be amended and continued, is incorporated herein by reference and made part of this Agreement.
The Board, which in the absence of a Committee is charged with the administration of the Plan, has determined that it would be to the advantage and interest of the Company to grant the option provided for herein to the Holder as an inducement to remain in the service of the Company.
NOW, THEREFORE, pursuant to the Plan, the Company hereby grants to the Holder as of the date hereof an option (the "Option") to purchase all or any part of two hundred fifty thousand (250,000) shares of Common Stock of the Company, par value $.001 per share, at a price per share of twenty-five cents ($.25), which price is not less than the fair market value of a share of Common Stock on the date hereof and upon the following terms and conditions:
1. The Option shall continue in force through June 30, 2011 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan. Subject to the provisions of the Plan, the Option is immediately exercisable as to the entire 250,000 shares subject hereto.
2. In the event that the employment or service of the Holder shall be terminated prior to the Expiration Date (otherwise than by reason of death or disability), the Option may, subject to the provisions of the Plan, be exercised (to the extent that the Holder was entitled to do so at the termination of this employment or service) at any time after such termination, but not after the Expiration Date. Nothing in this Agreement shall confer upon the Holder any right to continue in the employ or service of the Company or any subsidiary of the Company or affect the right of the Company or any subsidiary to terminate his employment or service at any time.
3. (a) The Holder may exercise the Option with respect to all or any part of the shares then purchasable hereunder by giving the Company written notice in the form annexed, as provided in paragraph 7 hereof, of such exercise. Such notice shall specify the number of shares as to which the Option is being exercised and shall be accompanied by payment in full in cash of an amount equal to the exercise price of such shares multiplied by the number of shares as to which the Option is being exercised; provided that, the purchase price may be paid, in whole or in part, by surrender or delivery to the Company of securities of the Company having a fair market value on the date of the exercise equal to the portion of the purchase price being so paid, including for that purposes Options granted by this Agreement. In such event fair market value should be determined pursuant to the Plan.
(b) Prior to or concurrently with delivery by the Company to the Holder of a certificate(s) representing such shares, the Holder shall, upon notification of the amount due, pay promptly any amount necessary to satisfy applicable
federal, state or local tax requirements. In the event such amount is not paid promptly, the Company shall have the right to apply from the purchase price paid any taxes required by law to be withheld by the Company with respect to such payment and the number of shares to be issued by the Company will be reduced accordingly.
4. Notwithstanding any other provision of the Plan, in the event of a change in the outstanding Common Stock of the Company by reason of a stock dividend, split-up, split-down, reverse split, recapitalization, merger, consolidation, combination or exchange of shares, spin-off, reorganization, liquidation or the like, then the aggregate number of shares and price per share subject to the Option shall be appropriately adjusted by the Board, whose reasonable determination shall be conclusive.
5. This Option shall, during the Holder's lifetime, be exercisable only by the Holder, and neither this Option nor any right hereunder shall be transferable by the Holder, by operation of law or otherwise, except by will or by the laws of descent and distribution. In the event of any attempt by the Holder to transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of any right hereunder, except as provided for herein, or in the event of the levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate this Option by notice to the Holder and it shall thereupon become null and void.
6. Neither the Holder nor in the event of the Holder's death, any person entitled to exercise the rights of the Holder hereunder, shall have any of the rights of a stockholder with respect to the shares subject to the Option until share certificates have been issued and registered in the name of the Holder or the Holder's estate, as the case may be.
7. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of its Secretary, at 33 Newtown Lane, East Hampton, New York 11937, and any notice to the Holder shall be addressed to the Holder at the address now on file with the Company, or to such other address as either may last have designated to the other by notice as provided herein. Any notice so addressed shall be deemed to be given on the second business day after mailing, by registered or certified mail, at a post office or branch post office within the United States.
8. The Holder by his acceptance hereof, covenants and agrees that the Options are being acquired as an investment and not with a view to the distribution thereof. Each certificate representing Common Shares and any of the other securities issuable upon exercise of an Option (collectively, the "Option Shares") shall bear the following legend unless (i) the Options or Option Shares are distributed to the public or sold to the underwriters for distribution to the public pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company has received an opinion of counsel, in form and substance reasonably satisfactory to counsel for the Company, that such legend is unnecessary for any such certificate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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.
If, at any time commencing after the date hereof and expiring five (5)
years thereafter, the Company proposes to register any of its securities under
the Act (other than in connection with an initial public offering of shares of
the Company or in connection with a merger or pursuant to Form S-4 or successor
form thereto) it will give written notice by registered mail, at least thirty
(30) days prior to the filing of each such registration statement, to the Holder
of its intention to do so. If any of the Holder notify the Company within twenty
(20) days after mailing of any such notice of its or their desire to include any
such securities in such proposed registration statement, the Company shall
afford such Holder the opportunity to have any such Option Shares registered
under such registration statement. In the event that such registration relates
to an underwritten public offering and the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include in
such registration (a) first, the securities the Company proposes to sell, (b)
second, the securities held by the entities that made the demand for
registration, and (c) third, the Option Shares or other securities requested to
be included in such registration which in the opinion of such underwriter can be
sold, pro rata among the Holders and other owners on the basis of the number of
Option Shares or other securities requested to be registered by such Holders and
other owners.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (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.
In connection with any registration under Section 6.2, the Company covenants and agrees as follows:
(a) 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 registration statements filed pursuant to
Section 6.2 including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses.
(b) The Company will take all necessary action which may be required in qualifying or registering the Option Shares 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.
(c) The Company shall indemnify the Holder(s) of the Option Shares 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.
(d) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise the Options prior to the initial filing of any registration statement or the effectiveness thereof.
(e) 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 underwriters, 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 relates to 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.
(f) The Company shall as soon as practicable after the effective date of any registration statement filed pursuant to this Section 6, 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 effective date of the registration statement.
(g) The Company's obligations under this Section shall terminate on the fifth anniversary of the date hereof or, in respect of any Holder, when the Option Shares and other Common Shares held by such Holder represent less than 1% of the shares of such class then issued and outstanding.
9. In the event that any question or controversy shall arise with respect to the nature, scope or extent of any one or more rights conferred by this Option, the determination by the Board, or if one had been appointed, the Committee (as constituted at the time of such determination) of the rights of the Holder shall be conclusive, final and binding upon the Holder and upon any other person who shall assert any right pursuant to this Option.
Newtown Lane Marketing, Incorporated
By: _________________________________
Name:
Title:
ACCEPTED AND AGREED
FORM OF NOTICE OF EXERCISE
TO: Newtown Lane Marketing, Incorporated
The undersigned hereby exercises options to purchase __________ shares of Common Stock of Newtown Lane Marketing, Incorporated (the "Company") as provided in the Stock Option Agreement dated as of __________, ___ at $__________ per share, a total of $__________ and makes payment therefor as follows:
(1) To the extent of $__________ of the purchase price, the undersigned hereby surrenders to the Company certificates for shares of its Common Stock which, valued at $__________ per share, the fair market value thereof, equals such portion of the purchase price, or surrenders _______ of the options governed by the Option Agreement dated ________ which, valued at $ _____ per Option, the fair market value of the Common Stock less the exercise price of the Option, equals such portion of the purchase price.
(2) To the extent of the balance of the purchase price, the undersigned has enclosed a check payable to the order of the Company for $__________.
A stock certificate or certificate for the shares should be delivered in person or mailed to the undersigned at the address shown below.
The undersigned hereby represents and warrants that it is the undersigned's present intention to acquire and hold the aforesaid shares of Common Stock of the Company for his or her own account for investment, and not with a view to the distribution of any thereof, and agrees that he or she will make no sale, thereof, except in compliance with the applicable provisions of the Securities Act of 1933, as amended.
Dated: __________________________
Exhibit 10.4
NEWTOWN LANE MARKETING, INCORPORATED
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 4th day of April, 2006, by Newtown Lane Marketing, Incorporated., a Delaware corporation (hereinafter called the "Company"), with Vincent McGill (hereinafter called the "Holder"):
The Company has adopted a 2006 Stock Incentive Plan (the "Plan"). Said Plan, as it may hereafter be amended and continued, is incorporated herein by reference and made part of this Agreement.
The Board, which in the absence of a Committee is charged with the administration of the Plan, has determined that it would be to the advantage and interest of the Company to grant the option provided for herein to the Holder as an inducement to remain in the service of the Company.
NOW, THEREFORE, pursuant to the Plan, the Company hereby grants to the Holder as of the date hereof an option (the "Option") to purchase all or any part of one hundred twenty-five thousand (125,000) shares of Common Stock of the Company, par value $.001 per share, at a price per share of twenty-five cents ($.25), which price is not less than the fair market value of a share of Common Stock on the date hereof and upon the following terms and conditions:
1. The Option shall continue in force through June 30, 2011 (the "Expiration Date"), unless sooner terminated as provided herein and in the Plan. Subject to the provisions of the Plan, the Option is immediately exercisable as to the entire 125,000 shares subject hereto.
2. In the event that the employment or service of the Holder shall be terminated prior to the Expiration Date (otherwise than by reason of death or disability), the Option may, subject to the provisions of the Plan, be exercised (to the extent that the Holder was entitled to do so at the termination of this employment or service) at any time after such termination, but not after the Expiration Date. Nothing in this Agreement shall confer upon the Holder any right to continue in the employ or service of the Company or any subsidiary of the Company or affect the right of the Company or any subsidiary to terminate his employment or service at any time.
3. (a) The Holder may exercise the Option with respect to all or any part of the shares then purchasable hereunder by giving the Company written notice in the form annexed, as provided in paragraph 7 hereof, of such exercise. Such notice shall specify the number of shares as to which the Option is being exercised and shall be accompanied by payment in full in cash of an amount equal to the exercise price of such shares multiplied by the number of shares as to which the Option is being exercised; provided that, the purchase price may be paid, in whole or in part, by surrender or delivery to the Company of securities of the Company having a fair market value on the date of the exercise equal to the portion of the purchase price being so paid, including for that purposes Options granted by this Agreement. In such event fair market value should be determined pursuant to the Plan.
(b) Prior to or concurrently with delivery by the Company to the Holder of a certificate(s) representing such shares, the Holder shall, upon notification of the amount due, pay promptly any amount necessary to satisfy applicable
federal, state or local tax requirements. In the event such amount is not paid promptly, the Company shall have the right to apply from the purchase price paid any taxes required by law to be withheld by the Company with respect to such payment and the number of shares to be issued by the Company will be reduced accordingly.
4. Notwithstanding any other provision of the Plan, in the event of a change in the outstanding Common Stock of the Company by reason of a stock dividend, split-up, split-down, reverse split, recapitalization, merger, consolidation, combination or exchange of shares, spin-off, reorganization, liquidation or the like, then the aggregate number of shares and price per share subject to the Option shall be appropriately adjusted by the Board, whose reasonable determination shall be conclusive.
5. This Option shall, during the Holder's lifetime, be exercisable only by the Holder, and neither this Option nor any right hereunder shall be transferable by the Holder, by operation of law or otherwise, except by will or by the laws of descent and distribution. In the event of any attempt by the Holder to transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of any right hereunder, except as provided for herein, or in the event of the levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate this Option by notice to the Holder and it shall thereupon become null and void.
6. Neither the Holder nor in the event of the Holder's death, any person entitled to exercise the rights of the Holder hereunder, shall have any of the rights of a stockholder with respect to the shares subject to the Option until share certificates have been issued and registered in the name of the Holder or the Holder's estate, as the case may be.
7. Any notice to the Company provided for in this Agreement shall be addressed to the Company in care of its Secretary, at 33 Newtown Lane, East Hampton, New York 11937, and any notice to the Holder shall be addressed to the Holder at the address now on file with the Company, or to such other address as either may last have designated to the other by notice as provided herein. Any notice so addressed shall be deemed to be given on the second business day after mailing, by registered or certified mail, at a post office or branch post office within the United States.
8. The Holder by his acceptance hereof, covenants and agrees that the Options are being acquired as an investment and not with a view to the distribution thereof. Each certificate representing Common Shares and any of the other securities issuable upon exercise of an Option (collectively, the "Option Shares") shall bear the following legend unless (i) the Options or Option Shares are distributed to the public or sold to the underwriters for distribution to the public pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company has received an opinion of counsel, in form and substance reasonably satisfactory to counsel for the Company, that such legend is unnecessary for any such certificate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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.
If, at any time commencing after the date hereof and expiring five (5)
years thereafter, the Company proposes to register any of its securities under
the Act (other than in connection with an initial public offering of shares of
the Company or in connection with a merger or pursuant to Form S-4 or successor
form thereto) it will give written notice by registered mail, at least thirty
(30) days prior to the filing of each such registration statement, to the Holder
of its intention to do so. If any of the Holder notify the Company within twenty
(20) days after mailing of any such notice of its or their desire to include any
such securities in such proposed registration statement, the Company shall
afford such Holders the opportunity to have any such Option Shares registered
under such registration statement. In the event that such registration relates
to an underwritten public offering and the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include in
such registration (a) first, the securities the Company proposes to sell, (b)
second, the securities held by the entities that made the demand for
registration, and (c) third, the Option Shares or other securities requested to
be included in such registration which in the opinion of such underwriter can be
sold, pro rata among the Holders and other owners on the basis of the number of
Option Shares or other securities requested to be registered by such Holders and
other owners.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (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.
In connection with any registration under Section 6.2, the Company covenants and agrees as follows:
(a) 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 registration statements filed pursuant to
Section 6.2 including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses.
(b) The Company will take all necessary action which may be required in qualifying or registering the Option Shares 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.
(c) The Company shall indemnify the Holder(s) of the Option Shares 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.
(d) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise the Options prior to the initial filing of any registration statement or the effectiveness thereof.
(e) 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 underwriters, 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 relates to 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.
(f) The Company shall as soon as practicable after the effective date of any registration statement filed pursuant to this Section 6, 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 effective date of the registration statement.
(g) The Company's obligations under this Section shall terminate on the fifth anniversary of the date hereof or, in respect of any Holder, when the Option Shares and other Common Shares held by such Holder represent less than 1% of the shares of such class then issued and outstanding.
9. In the event that any question or controversy shall arise with respect to the nature, scope or extent of any one or more rights conferred by this Option, the determination by the Board, or if one had been appointed, the Committee (as constituted at the time of such determination) of the rights of the Holder shall be conclusive, final and binding upon the Holder and upon any other person who shall assert any right pursuant to this Option.
Newtown Lane Marketing, Incorporated
By: __________________________________
Name:
Title:
ACCEPTED AND AGREED
FORM OF NOTICE OF EXERCISE
TO: Newtown Lane Marketing, Incorporated
The undersigned hereby exercises options to purchase __________ shares of Common Stock of Newtown Lane Marketing, Incorporated (the "Company") as provided in the Stock Option Agreement dated as of __________, ___ at $__________ per share, a total of $__________ and makes payment therefor as follows:
(1) To the extent of $__________ of the purchase price, the undersigned hereby surrenders to the Company certificates for shares of its Common Stock which, valued at $__________ per share, the fair market value thereof, equals such portion of the purchase price, or surrenders _______ of the options governed by the Option Agreement dated ________ which, valued at $ _____ per Option, the fair market value of the Common Stock less the exercise price of the Option, equals such portion of the purchase price.
(2) To the extent of the balance of the purchase price, the undersigned has enclosed a check payable to the order of the Company for $__________.
A stock certificate or certificate for the shares should be delivered in person or mailed to the undersigned at the address shown below.
The undersigned hereby represents and warrants that it is the undersigned's present intention to acquire and hold the aforesaid shares of Common Stock of the Company for his or her own account for investment, and not with a view to the distribution of any thereof, and agrees that he or she will make no sale, thereof, except in compliance with the applicable provisions of the Securities Act of 1933, as amended.
Dated: __________________________
Exhibit 10.5
NEWTOWN LANE MARKETING, INCORPORATED
2006 STOCK INCENTIVE PLAN
1. Purposes of the Plan.
The purposes of this Stock Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business.
2. Definitions.
As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any Committee appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c) "Applicable Laws" means the legal requirements relating to the administration of stock incentive plans, if any, under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or other right or benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Cause" means, with respect to the termination by the Company or a Related Entity of the Grantee's Continuous Service, that such termination is for "Cause" as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee's:
(i) refusal or failure to act in accordance with any specific, lawful direction or order of the Company or a Related Entity;
(ii) unfitness or unavailability for service or unsatisfactory performance (other than as a result of Disability);
(iii) performance of any act or failure to perform any act, in bad faith and to the detriment of the Company or a Related Entity; (1) 15
(iv) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or
(v) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means any committee appointed by the Board to administer the Plan.
(j) "Common Stock" means the common stock of the Company.
(k) "Company" means Newtown Lane Marketing, Incorporated, a Delaware corporation.
(l) "Consultant" means any person (other than an Employee or a Director, solely with respect to rendering services in such person's capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.
(m) "Continuous Service" means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Service shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or Related Entity, (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). For purposes of Incentive Stock Options, no such approved leave of absence may exceed ninety (90) days, unless re-employment upon expiration of such leave is guaranteed by statute or contract.
(n) "Corporate Transaction" means any of the following transactions:
(i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than eighty percent (80%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; or
(iv) an acquisition by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than eighty percent (80%) of the total combined voting power of the Company's outstanding securities, but excluding any such transaction that the Administrator determines shall not be a Corporate Transaction.
(o) "Director" means a member of the Board or the board of directors of any Related Entity.
(p) "Disability" means that a Grantee is permanently unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.
(q) "Dividend Equivalent Right" means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.
(r) "Employee" means any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a director's fee by the Company or a Related Entity shall not be sufficient to constitute "employment" by the Company.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(t) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common Stock of the type described in subparagraph (i), above, the Fair Market Value shall be determined by the Administrator in good faith.
(u) "Grantee" means an Employee, Director or Consultant who receives an Award pursuant to an Award Agreement under the Plan.
(v) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(w) "Non-Qualified Stock Option" means an Option not intended to qualify as an Incentive Stock Option.
(x) "Officer" means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(y) "Option" means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.
(z) "Parent" means a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Code.
(aa) "Performance Shares" means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator.
(bb) "Performance Units" means an Award which may be earned in whole or in part upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.
(cc) "Plan" means this 2006 Stock Incentive Plan.
(dd) "Registration Date" means the first to occur of:
(i) the closing of the first sale to the general public of (A) the Common Stock or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock, pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended; and
(ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate Transaction if the same class of securities of the successor corporation (or its Parent) issuable in such Corporate Transaction shall have been sold to the general public pursuant to a
registration statement filed with and declared effective by, on or prior to the date of consummation of such Corporate Transaction, the Securities and Exchange Commission under the Securities Act of 1933, as amended.
(ee) "Related Entity" means any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly.
(ff) "Restricted Stock" means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor thereto.
(hh) "SAR" means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.
(ii) "Share" means a share of the Common Stock.
(jj) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.
(kk) "Related Entity Disposition" means the sale, distribution or other disposition by the Company of all or substantially all of the Company's interests in any Related Entity effected by a sale, merger or consolidation or other transaction involving that Related Entity or the sale of all or substantially all of the assets of that Related Entity.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 2,000,000 Shares. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which is forfeited or canceled, expires or is settled in cash, shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. If any unissued Shares are retained by the Company upon exercise of an Award in order to satisfy the exercise price for such Award or any withholding taxes due with respect to such Award, such retained Shares subject to such Award shall become available for future issuance under the Plan (unless the Plan has terminated). Shares that actually have been
issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers. With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.
(ii) Administration With Respect to Consultants and Other Employees. With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time. Except for the power to amend the Plan as provided in Section 13 and except for determinations regarding Employees who are subject to Section 16 of the Exchange Act or certain key Employees who are, or may become, as determined by the Board or the Committee, subject to Section 162(m) of the Code compensation deductibility limit, and except as may otherwise be required under applicable stock exchange rules, the Board or the Committee may delegate any or all of its duties, powers and authority under the Plan pursuant to such conditions or limitations as the Board of the Committee may establish to any Officer or Officers of the Company
(iii) Administration Errors. In the event an Award is granted in a manner inconsistent with the provisions of this subsection, such Award shall be presumptively valid as of its grant date to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are granted hereunder;
(iii) to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted hereunder;
(vi) to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee's rights under an outstanding Award shall not be made without the Grantee's written consent;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Grantees favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be conclusive and binding on all persons.
5. Eligibility for Awards. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Shares. Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total stockholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.
(f) Award Exchange Programs. The Administrator may establish one or more programs under the Plan to permit selected Grantees to exchange an Award under the Plan for one or more other types of Awards under the Plan on such terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Incentive Stock Option shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.
(j) Transferability of Awards. Except as otherwise provided in this Section, all Awards under the Plan shall be nontransferable and shall not be assignable, alienable, saleable or otherwise transferable by the Grantee other than by will or the laws of descent and distribution except pursuant to a domestic relations order entered by a court of competent jurisdiction. Notwithstanding the preceding sentence, the Board or the Committee may provide that any Award of Non-Qualified Stock Options may be transferable by the recipient to family members or family trusts established by the Grantee. The Board or the Committee may also provide that, in the event that a Grantee terminates employment with the Company to assume a position with a governmental, charitable, educational or similar non-profit institution, a third party, including but not limited to a "blind" trust, may be authorized by the Board or the Committee to act on behalf of and for the benefit of the respective Grantee with respect to any outstanding Awards. Except as otherwise provided in this Section, during the life of the Grantee, Awards under the Plan shall be exercisable only by him or her except as otherwise determined by the Board or the Committee. In addition, if so permitted by the Board or the Committee, a Grantee may designate a beneficiary or beneficiaries to exercise the rights of the Grantee and receive any distributions under the Plan upon the death of the Grantee.
(k) Time of Granting Awards. The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Award is so granted within a reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload Options.
(a) Exercise or Purchase Price. The exercise or purchase price, if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option: (A) granted to an Employee or Director who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or (B) granted to any Employee other than an Employee described in the preceding clause, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant unless otherwise determined by the Administrator.
(iii) In the case of other Awards, such price as is determined by the Administrator.
(iv) Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines is appropriate;
(iv) if the exercise or purchase occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised (but only to the extent that such exercise of the Award would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator);
(v) with respect to options, if the exercise occurs on or after the Registration Date, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award, the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax withholding of an Option is satisfied by the Company or the Grantee's employer withholding Shares otherwise deliverable to the Grantee, the Administrator may issue the Grantee an additional Option, with terms identical to the Award Agreement under which the Option was exercised, but at an exercise price as determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised upon the later of receipt by the Company of written notice of such exercise in accordance with the terms of the Award by the person entitled to exercise the Award and
(iii) full payment for the Shares with respect to which the Award is
exercised, including, to the extent selected, use of the broker-dealer
sale and remittance procedure to pay the purchase price as provided in
Section 7(b)(v). Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to Shares subject to an Award, notwithstanding the exercise of an
Option or other Award. The Company shall issue (or cause to be issued)
such stock certificate promptly upon exercise of the Award. No adjustment
will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Award Agreement or Section 10, below.
(b) Exercise of Award Following Termination of Continuous Service.
(i) An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee's Continuous Service only to the extent provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee's Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee's Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the Administrator may, in its discretion, proportionately adjust the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, as well as any other terms that the Administrator determines require adjustment for (a) any increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of the Shares, (b) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (c) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock to which Section 424(a) of the Code applies; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator and its determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.
11. Corporate Transactions and Related Entity Dispositions. Except as may be provided in an Award Agreement:
(a) The Administrator shall have the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or Related Entity Disposition or at the time of an actual Corporate Transaction or Related Entity Disposition and exercisable at the time of the grant of an Award under the Plan or any time while an Award remains outstanding, to provide for the full automatic vesting and exercisability of one or more outstanding unvested Awards under the Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a Corporate Transaction or Related Entity Disposition, on such terms and conditions as the Administrator may specify. The Administrator also shall have the authority to condition any such Award vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Service of the Grantee within a specified period following the effective date of the Corporate Transaction or Related Entity Disposition. Effective upon the consummation of a Corporate Transaction or Related Entity Disposition, all outstanding Awards under the Plan, shall remain fully exercisable until the expiration or sooner termination of the Award.
(b) The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction or Related Entity
Disposition shall remain exercisable as an Incentive Stock Option under the Code
only to the extent the $ 100,000 dollar limitation of Section 422(d) of the Code
is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated excess portion of such Option shall be exercisable as a
Non-Qualified Stock Option.
12. Effective Date and Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. Subject to Section 13 below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.
(b) No Award may be granted during any suspension of the Plan or after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall not affect Awards already granted, and such Awards shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan shall not confer upon any Grantee any right with respect to the Grantee's Continuous Service, nor shall it interfere in any way with his or her right or the Company's right to terminate the Grantee's Continuous Service at any time, with or without cause.
16. Unfunded Plan. Unless otherwise determined by the Board or the Committee, the Plan shall be unfunded and shall not create (or construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Grantee or other person. To the extent any person holds any rights by virtue of a Award granted under the Plan, such right (unless otherwise determined by the Board or the Committee) shall be no greater than the right of an unsecured general creditor of the Company.
17. No Effect on Retirement and Other Benefit Plans. Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement Income Security Act of 1974, as amended.
18. Stockholder Approval. The grant of Incentive Stock Options under the Plan
shall be subject to approval by the stockholders of the Company within twelve
(12) months before or after the date the Plan is adopted excluding Incentive
Stock Options issued in substitution for outstanding Incentive Stock Options
pursuant to Section 424(a) of the Code. Such stockholder approval shall be
obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Newtown Lane Marketing, Incorporated
We consent to the inclusion in the foregoing Registration Statement on Form SB-2 of our report, dated May 22, 2006, relating to the financial statements of Newtown Lane Marketing, Incorporated as of March 31, 2006 and for the period from September 26, 2005 (inception) through March 31, 2006. We also consent to the reference to our firm under the caption "Experts".
/s/ Malone & Bailey, PC ----------------------- Malone & Bailey, PC Houston, Texas June 30, 2006 |